-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ioa9e2Ug/1yIV8A7uvf8XPM+ApHak/CivWJ+HYxMofsU6YxlByDQqUd+0WFwaONV OKt7d8yYhSieYg1BrU7POA== /in/edgar/work/20000804/0000929624-00-001064/0000929624-00-001064.txt : 20000921 0000929624-00-001064.hdr.sgml : 20000921 ACCESSION NUMBER: 0000929624-00-001064 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20000804 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAGNACASH INC CENTRAL INDEX KEY: 0001120369 STANDARD INDUSTRIAL CLASSIFICATION: [ ] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-43108 FILM NUMBER: 686678 BUSINESS ADDRESS: STREET 1: 1330 BROADWAY STREET #1535 CITY: OAKLAND STATE: CA ZIP: 94612 BUSINESS PHONE: 5103023071 MAIL ADDRESS: STREET 1: 1330 BROADWAY STREET #1535 CITY: OAKLAND STATE: CA ZIP: 94612 S-1 1 0001.txt FORM S-1 As filed with the Securities and Exchange Commission on August 4, 2000 Registration No. 333-______ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ______________________ MAGNACASH, INC. (Exact name of registrant as specified in its charter) ______________________ Delaware 7374 94-3370414 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number) Incorporation or Organization) Classification Code Number)
1330 Broadway, Suite 1535 Oakland, California 94612 (510) 808-3700 (Address and telephone number of principal executive offices and principal place of business) ______________________ Barry C. McCarthy President & Chief Operating Officer MagnaCash, Inc. 1330 Broadway, Suite 1535 Oakland, California 94612 (510) 808-3700 (Name, address, and telephone number of agent for service) ______________________ Copies to: John W. Campbell, Esq. Mark W. Pearson, Esq. Dante G. Corricello, Esq. Morrison & Foerster LLP 425 Market Street San Francisco, California 94105-2482 ______________________ Approximate date of commencement of proposed sale of the securities 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 being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, 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 delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box.[_] ______________________ CALCULATION OF REGISTRATION FEE
================================================================================================================================ Proposed Maximum Proposed Maximum Title of Each Class Amount to be Offering Price Aggregate Offering Amount of of Securities to be Registered Registered (1) Per Share(2) Price(2) Registration Fee - -------------------------------------------------------------------------------------------------------------------------------- Common Stock, $0.001 par value 11,500,000 shares $.03 $408,585 $264 ================================================================================================================================
(1) Based on an estimate of the maximum number of shares of Common Stock to be issued in connection with the distribution described herein. (2) Estimated solely for the purpose of determining the registration fee in accordance with Rule 457(f) (2) under the Securities Act based on the adjusted book value of the Common Stock after giving effect to the distribution described herein. No consideration will be paid by the recipients of the Common Stock. 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 or until the Registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. SUBJECT TO COMPLETION, DATED ______ _, 2000 11,500,000 Shares of MagnaCash Common Stock are being distributed to the Stockholders of Cybergold, Inc. _____ Cybergold, Inc. will distribute to the holders of record of Cybergold Common Stock as of the close of business on August 3, 2000, approximately 11,500,000 shares of common stock of MagnaCash, Inc. Each such holder of Cybergold Common Stock will receive one share of MagnaCash common stock for every two shares of Cybergold Common Stock held. This distribution will be a taxable distribution to the recipients, all or a portion of which may be taxable as a dividend. Prior to the distribution, there has been no public market for our common stock. MagnaCash has not applied to have the MagnaCash common stock included for quotation on the Nasdaq Stock Market's National Market or listed on any exchange. Prior to the earliest of (i) the date that is the first anniversary of the date that Cybergold ceases to be the sole holder of outstanding shares of common stock, (ii) the date the Securities and Exchange Commission or successor organization declares effective a registration statement on Form S-1 or Form S-3 or successor form regarding an offering of shares of common stock the issuance of which would have the effect of increasing the number of shares of common stock outstanding by eighty percent (80%) or more, or (iii) such date as determined by the board of directors of MagnaCash in its sole discretion, common stock may not be, directly or indirectly, sold, transferred, assigned, pledged, exchanged, hypothecated, gifted or otherwise disposed of except: (A) by Cybergold or its successor, in connection with the initial distribution by Cybergold of common stock to the holders of Cybergold's common stock, as of the record date of August 3, 2000, (B) from any holder of common stock that is a natural person to (i) such stockholder's spouse or children, (ii) to any trust solely for the benefit of such stockholder or the children or spouse of such stockholder or (iii) to any party pursuant to applicable laws of descent and distribution and (C) from any holder of common that is a corporation, limited liability company, limited partnership or general partnership to any affiliate (as defined under Rule 405 of the Securities Act of 1933, as amended). Neither Cybergold nor MagnaCash will receive any proceeds from this offering. INVESTING IN MAGNACASH'S COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7. 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. Delivery of the shares of common stock will be made on or about September 29, 2000. The date of this prospectus is ______ _, 2000. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. MAGNACASH AND CYBERGOLD HAVE NOT AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT. MAGNACASH AND CYBERGOLD ARE NOT MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS PROSPECTUS IS ACCURATE AS OF THE DATE ON THE FRONT COVER OF THIS PROSPECTUS ONLY. 2 MAGNACASH'S BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THAT DATE. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. CYBERGOLD AND MAGNACASH MAY NOT SELL OR DISTRIBUTE 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 IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 3 TABLE OF CONTENTS
PAGE ---- Summary................................................................................... 5 Risk Factors.............................................................................. 7 Forward Looking Statements................................................................ 15 Reasons for the Distribution.............................................................. 17 Tax Treatment............................................................................. 17 Business Of Magnacash..................................................................... 17 Selected Financial Data................................................................... 22 Management's Discussion and Analysis...................................................... 23 Management................................................................................ 29 Security Ownership Of Magnacash........................................................... 33 Arrangements Between Cybergold and MagnaCash.............................................. 34 Certain Relationships and Related Transactions............................................ 38 Material Federal Income Tax Considerations................................................ 39 Description of MagnaCash's Capital Stock.................................................. 40 Dividend Policy........................................................................... 41 Indemnification of Directors and Officers................................................. 41 Transfer Agent and Registrar.............................................................. 42 Legal Matters............................................................................. 42 Experts................................................................................... 42 Where You Can Find More Information....................................................... 42 Index to Financial Statements............................................................. F-1 Part II Information Not Required In Prospectus........................................... II-1 Exhibit Index............................................................................. II-5
4 SUMMARY This summary highlights selected information contained elsewhere in this prospectus and may not contain all the information important to you. To better understand the distribution and MagnaCash, you should read the entire prospectus carefully, including the risk factors and financial statements, including the notes to the financial statements which are included elsewhere in this prospectus. MagnaCash is a provider of on-line payment infrastructure to on-line businesses. We offer an on-line funds transfer system that enables our clients to create individual accounts for their customer base. These on-line accounts store value and can be credited by accepting transfers from credit cards. Additionally, these accounts can accept cash awards earned by users from promotional and other activities. Users can apply funds from these accounts to a certain major credit card, transmit them to bank accounts, or use them to make purchases directly from merchants who participate in the Magna cash payment system. Transfers between accounts within the system occur immediately. For example, merchants receive immediate credit when accepting payment from a user. Transfers of funds out of the system are credited immediately within the system, but are subject to standard bank and credit card protocols for audit outside the system. We currently manage 9,000,000 accounts on behalf of one client, Cybergold, Inc., our former corporate parent where our payment infrastructure business was developed. Over 50 merchants and organizations currently participate in the MagnaCash system. Electronic commerce using the Internet has grown substantially over the past several years. Consumers and businesses have adopted a variety of methods to pay for goods and services obtained through the Internet. The two most common on-line methods of payment--credit cards and direct bank payments made through the Automated Clearing House (ACH) system present problems for users and merchants. Importantly, some users are reluctant to provide credit card information over the Internet. The cost of accepting payment from credit cards and ACH can be high. Merchants accepting credit cards over the Internet must pay transaction fees to banks and credit card clearing organizations that are higher than fees payable when a credit card is physically presented at the point of purchase. The cost of accepting credit cards for on-line purchases can be particularly high for small dollar sales. The marketplace for these Internet-based small dollar sales is expected to increase as digital goods, such as recorded music, become more available. Some users are also reluctant to use the ACH system for Internet transactions because it requires users to enter their bank account numbers, bank identification information and other personal information. In addition, merchants may not receive credit for funds transfers using the ACH system for as many as three days. We offer a system that provides users with a secure, easy to use payment method and merchants with immediate credit for fund transfers and lower transaction fees. The system consists of software hosted by us on our servers on which accounts are maintained for both users and merchants. Purchase transactions are effected through entries in databases maintained by us and electronic communication with the commerce systems of merchants. MagnaCash is not a bank, and the accounts created using the MagnaCash system are not bank accounts and are not FDIC-insured. User and merchant funds are maintained by us on a commingled basis in an FDIC insured depository institution and can be remitted to bank accounts or a major credit card. We generate revenues by (i) assessing client fees for hosting accounts; (ii) delivering customized design and installation services for these hosted accounts; and (iii) processing transactions between merchants and users. Presently, Cybergold is our only client, for which we manage 9,000,000 accounts pursuant to a services agreement. We intend to pursue other clients and merchants for our services. 5 For a description of the potential risks MagnaCash faces, please see "Risk Factors" on page 7. MagnaCash, Inc. was incorporated in Delaware. Its offices are located at 1330 Broadway, Suite 1535, Oakland, CA 94612 and its telephone number is (510) 808-3700. Relationship between Cybergold and MagnaCash 80.1% of the MagnaCash common stock is being distributed to the Cybergold, Inc. stockholders as described in this registration statement subsequent to the merger of Cybergold with the Mygo Acquisition Corporation. Cybergold will own 19.9% of our common stock after the distribution. Cybergold will make a $5 million contribution to MagnaCash. Our board of directors will consist of three to nine directors. At the outset, two of our three directors will be former directors of Cybergold. Reasons for the Distribution The amended merger agreement among MyPoints, a wholly owned subsidiary of MyPoints and Cybergold, contemplates distribution of MagnaCash to Cybergold's stockholders subsequent to the merger. After thorough consideration, the board of directors of Cybergold determined that a distribution of the shares of MagnaCash common stock was in the best interests of the stockholders of Cybergold. In the merger, Cybergold merged with a wholly-owned subsidiary of MyPoints called the Mygo Acquisition Corporation. Cybergold survived that merger as a wholly owned subsidiary of MyPoints. Distribution Each Cybergold stockholder will receive one share of MagnaCash common stock for every two shares of Cybergold common stock held by such stockholder. MyPoints.com, Inc., will be the beneficial owner of 2,786,000 shares of MagnaCash common stock retained by Cybergold, or 19.9% of the outstanding shares as of immediately after the distribution. No fractional shares will be distributed. The number of shares distributed to each stockholder will be rounded down to the nearest whole number where a stockholder would otherwise receive a fractional share. Prior to the earliest of (i) the date that is the first anniversary of the date that Cybergold ceases to be the sole holder of outstanding shares of common stock, (ii) the date the Securities and Exchange Commission or successor organization declares effective a registration statement on Form S-1 or Form S-3 or successor form regarding an offering of shares of common stock the issuance of which would have the effect increasing the number of shares of common stock outstanding by eighty percent (80%) or more, or (iii) such date as determined by the board of directors of MagnaCash in its sole discretion, common stock may not be, directly or indirectly, sold, transferred, assigned, pledged, exchanged, hypothecated, gifted or otherwise disposed of except: (A) by Cybergold or its successor, in connection with the initial distribution by Cybergold of common stock to the holders of Cybergold's common stock, as of the record date of August 3, 2000, (B) from any holder of common stock that is a natural person to (i) such stockholder's spouse or children, (ii) to any trust solely for the benefit of such stockholder or the children or spouse of such stockholder or (iii) to any party pursuant to applicable laws of descent and distribution and (C) from any holder of common that is a corporation, limited liability company, limited partnership or general partnership to any affiliate (as defined under Rule 405 of the Securities Act of 1933, as amended). Cybergold will realize a taxable gain on the distribution of the MagnaCash business to the extent the fair market value of the distributed MagnaCash stock exceeds Cybergold's basis in such stock. The distribution of the MagnaCash business will be a taxable distribution to Cybergold stockholders, all or a portion of which may be taxable as a dividend. 6 RISK FACTORS You should carefully consider the risks described below when evaluating your ownership of MagnaCash common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties we are presently not aware of, or that we currently consider immaterial may also impair our business operations. If a major credit card company or the banking industry offers similar services, the market for our services may be reduced or eliminated. If a major credit card company changes strategy and offers Internet transactional services at a lower price, and with similar ease of use to those offered by us, we will lose our primary points of appeal to merchants and consumers. As a result the market for our business may be significantly reduced or eventually eliminated. Competition in our industry is intense. If we are unable to compete effectively, the demand for, and/or the prices of, our services may decline. The market for our services is intensely competitive and characterized by declining average selling prices and rapid technological change. Many consider the on-line payment space to be embryonic with significant development still pending. Our principal competitors and potential competitors, such as credit card companies, may have more resources with which to compete and implement technological change. Our principal competitors could change or grow because the market for our services is emerging and undefined. We may not be able to effectively respond to competition because of the disparity in resources between ourselves and many of our competitors. Though Cybergold has always faced competition, we may be less able to react quickly to competitive threats without the added benefits we enjoyed through our combination with Cybergold. These benefits included joint research and development, Cybergold's sales force and financial stability. We compete with companies including but not limited to: . Ipin; . PayPal/X.com; . Qpass; . Trivnet; . Beenz; . Flooz; . Cybermoola; . Cobalt Card; . WebCertificates; . RocketCash; and . Internetcash. 7 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 a major credit card's accounts could be discontinued or it could face increased competition. MagnaCash has a contractual relationship with the First National Bank of Omaha, an acquiring bank for major credit cards, that enables the transfer of funds from individual Cybergold member accounts to credit card accounts, as well as from credit card accounts to Cybergold accounts. This transaction processing capability initially required re-engineering of the First National Bank of Omaha's major credit card transaction processing system. The system and capability would be difficult to replicate with another financial service provider if the 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 the agreement with the bank, MagnaCash cannot enter into similar relationships with other credit card providers. However, the First National Bank of Omaha can at its own discretion freely offer similar services to existing and potential competitors. If we were to lose this relationship with the First National Bank of Omaha, or if the bank were to extend similar services to our competitors, it could disrupt our operations and have a material adverse effect on our business, results of operations and financial condition. MagnaCash may incur losses as a result of operating independently from Cybergold. We have operated as a support division of Cybergold until recently. We will incur losses operating as an independent company. Operating independently, we cannot be sure that our operating results will not be adversely affected by the loss of one or more attributes of operating as part of Cybergold. Operating as part of Cybergold has allowed us, among other things: . to develop as a business despite low initial revenues in 1999 for our business; . to have Cybergold as a captive client base that now may eventually cease using our services; and . to have a developed company administrative infrastructure. We currently use Cybergold's information systems, for which Cybergold will transfer or grant licenses to us to support our business as a stand-alone entity. We currently use Cybergold's systems to support our operations, including systems to manage order processing, human resources, shipping, accounting, telecommunications and computer networking. Any failure or significant downtime in Cybergold's or our information systems could prevent us from taking customer orders and billing customers and could harm our business. Many of the systems we currently use are proprietary to Cybergold and are very complex. These systems have been modified, and are in the process of being further modified, to enable us to separately track items related to its business. These modifications, however, may result in unexpected system failures or the loss or corruption of data, which may disrupt our operating and have a material adverse effect on our business, results of operations and financial condition. 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 limited operating history upon which to evaluate our business. We have only been operating since 1999, and during that time have operated as past of Cybergold, with the key leadership of the organization joining us within the last six months. The revenue and income potential of our business and the markets for on-line payments through alternative mechanisms is unproven. We will encounter risks and difficulties commonly encountered by early stage companies in new and rapidly evolving markets. To date we have derived substantially all of our product revenue from transaction fees assessed merchants accepting direct payment from a Cybergold account. Cybergold is our only current client through whom we have established accounts for a limited number of merchants, other organizations and consumers. 8 We may never achieve profitability. We have accumulated net losses of approximately $1,867,000 from our inception through June 30, 2000, and we expect such losses to continue for the foreseeable future. We cannot predict if we will ever achieve profitability and, if we do, we may not be able to sustain or increase our profitability. Our ability to achieve and maintain profitability will depend on, among other things, the market acceptance of our services. The commercial success of any of our services will depend on: . our ability to sell our services to clients, merchants, and consumers; and . our ability to induce merchants to install our software. The market for alternate Internet payment mechanisms is relatively 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 alternate Internet payment services will develop to a sufficient level to support continued operations or planned expansion, and also cannot assure you that users, clients or merchants will utilize our system for payment 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 payments on the Internet may depend on the eventual adoption of a standard payment system. There can be no assurance that our payment system will be the system adopted by users, clients or merchants. If a widespread demand for on-line payments does not develop or if another method for on-line payments is adopted as a standard, it may have a materially adverse effect on our business, results of operations and financial condition. We must continue to grow our revenue and diversify our revenue streams. The long-term success of our business strategy will depend to a significant extent on our ability to successfully grow our revenue and diversify our revenue stream. Any expansion of service offerings or operations could damage our reputation. Expansion into new business areas will also require significant additional expenses and programming and other resources. It will also strain our management, financial and operational resources. From time to time, we may entertain new business opportunities and ventures in a broad range of areas both within and outside the United States. Typically, these opportunities require extended negotiations, the outcome of which cannot be predicted. If we were to enter into such a venture, we could be required to invest a substantial amount of capital, which could have a material adverse effect on our financial condition and ability to implement our existing business strategy. Such an investment could also result in large and prolonged operating losses for us. Further, these negotiations or ventures could place additional, substantial burdens on our management personnel and our financial and operational systems. Such a venture may not ever achieve profitability, and a failure by us to recover the substantial investment required to launch and operate such a venture would have a material adverse effect on our business, financial condition and operating results. We may be unable to obtain additional capital needed to operate and expand our business. We believe that our available cash resources combined with funds from operations and Cybergold's $5 million contribution will be sufficient to meet our working capital and capital expenditure requirements for approximately one year. We may be required to raise additional funds in order to expand operations, finance acquisitions or to finance other activities we determine to be beneficial to our business. If adequate funds are not available or are not available on acceptable terms, we may be unable to develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures, which could have material adverse effect on our business, financial condition or operating results. 9 If we raise additional funds through the issuance of equity securities, the percentage ownership of the stockholders of record will be reduced, and stockholders may experience additional dilution. It is also possible that new equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. Moreover, we cannot assure you that additional financing will be available as we need it. We depend on continued growth in e-commerce and Internet infrastructure development. Use of the Internet by businesses and consumers as a medium for electronic commerce is at an early stage of development and is subject to a level of uncertainty. We depend on the growing use and acceptance of the Internet as an effective medium of commerce by merchants and customers. The use of and, interest in, the Internet are relatively recent developments. We cannot be certain that acceptance and use of the Internet will continue to develop as a medium for commerce or that a sufficiently broad base of merchants and purchasers will adopt, and continue to use, the Internet as a medium of commerce. The emergence of the Internet as a commercial marketplace may occur more slowly than anticipated for a number of reasons, including potentially inadequate development of the necessary network infrastructure or delayed development of enabling technologies and performance improvements. If the number of Internet users or their use of Internet resources continues to grow it may overwhelm the existing Internet infrastructure. Delays in the development or adoption of new standards and protocols required to handle increased levels of Internet activity could also have a detrimental effect. These factors could result in slower response times or adversely affect usage of the Internet, resulting in lower numbers of transactions through the Internet and lower demand for our services. Our success also depends on our ability to expand our systems to accommodate increases in the volume of traffic, especially during peak periods of demand. We may not be able to anticipate increases in the use services and successfully expand the capacity of our network infrastructure. This could result in system disruptions, slower response times and other difficulties in providing services to merchants, consumers and clients. The Internet is characterized by rapid technological changes, and we must adapt quickly to these changes to compete effectively. The market for Internet products and services is characterized by rapid technological developments, evolving industry standards and customer demands, and frequent new product introductions and enhancements. For example, to the extent that real-time on-line payment mechanisms become more widely utilized and offered, we may be required to make significant changes to the design and content of our services to respond to merchant and customer needs and competitive pressures. Failure to effectively adapt to these or any other technological developments could have an adverse effect on our business, results of operations and financial conditions. MagnaCash is exposed to e-commerce security risks. A requirement of the continued growth of e-commerce is the secure transmission of confidential information over public networks. A party who is able to circumvent our security measures could misappropriate proprietary information, steal cash, damage records or interrupt our operations. Any such compromise or elimination of our security could reduce demand for our services and lower merchant and consumer confidence, harming our ability to grow and subject us to liability. We may be required to expend significant capital and other resources to protect against these security breaches or to address problems caused by these breaches. Concerns over the security of the Internet and other on-line transactions and the privacy of users may also inhibit the growth of the Internet and other on-line services generally, and the Internet in particular, especially as a means of conducting commercial transactions. Since some of its activities involve the storage and transmission of proprietary information, such as account numbers, security breaches could damage our reputation and expose it to a risk of loss or litigation and possible liability. Our security measures may not prevent security breaches, and failure to prevent these security breaches may disrupt our operations and have a material adverse effect on our business, results of operations and financial condition. 10 We may engage in future acquisitions that result in increased debt, assumption of liabilities and other managerial challenges that may result in a negative effect on operations. As part of our overall strategy to enhance or accelerate our product development efforts, we may acquire or invest in complementary companies, products or technologies or enter into joint ventures or strategic alliances with other companies. Risks commonly encountered in such transactions include: . the difficulty of assimilating the operations and personnel of the combined companies; . the potential disruption of our ongoing business; . the inability to retain key technical and managerial personnel; . the inability of management to maximize our financial and strategic position through the successful integration of the acquired business, decreases in reported earnings as a result of charges for in-process research and development and amortization of acquired intangible assets, dilution of existing equity holders, difficulty in maintaining controls, procedures and policies, and the impairment of relationships with employees and customers as a result of any integration of new personnel. We may not be successful in overcoming these risks or any other problems encountered in connection with such business combinations, investments or joint ventures. These transactions may have a material adverse effect on our business, results of operations and financial condition. We believe that we are not subject to federal or state laws or regulations as a bank or branch of a bank and operate in conformity with any applicable electronic payment and money transfers laws or regulations, but should we be found subject to or in violation of any such laws or regulations we could be subject to liability or forced to change our business practices. We believe that we are not subject to federal or state laws or regulations as a bank or branch of a bank, and that we operate in conformity with any applicable electronic payment laws or regulations, but should we be found subject to and/or in violation of any such laws or regulations we could be subject to liability or forced to change our business practices. Such liability or changes could have a material adverse effect on our business, results of operations and financial condition. We believe that we are not subject to or in violation of federal laws or regulations, including the Electronic Funds Transfer Act and Federal Reserve Board Regulation E, or state laws and regulations regarding money transfers. However, should we be found to be subject to and in violation of such laws or regulations, we could be subject to liability or forced to change our business practices. Such liability or changes could have a material adverse effect on our business, results of operations and financial condition. We are subject to U.S. government regulation of the Internet, the impact of which is difficult to predict. There are currently few laws or regulations directly applicable to the Internet. The application of existing laws and regulations to us relating to issues such as banking, currency exchange, defamation, pricing, taxation, quality of services, and intellectual property ownership and infringement can be unclear. Moreover, we use encryption technology that may be or may become subject to government regulation. In addition, we may also become subject to new laws and regulations directly applicable to the Internet or our activities. Any existing or new legislation applicable to us could expose us to substantial liability, including significant expenses necessary to comply with these laws and regulations, and dampen the growth in use of the Internet on which we depend. In 1998, the United States government enacted a three-year moratorium, which has since been proposed to be extended through 2005, 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 11 transactions may make the Internet less attractive for consumers and businesses which could have a material adverse effect on our business, results of operations and financial condition. We will be dependent on Cybergold and MyPoints, which is acquiring Cybergold, for virtually all of our business and technology for the immediate future. MyPoints may exert an undue amount of influence on MagnaCash and the MagnaCash business given its 19.9% stake in the company. We will initially be dependent on Cybergold and its acquirer, MyPoints, for virtually our entire customer base. Moreover, MyPoints will own 19.9% of MagnaCash through Cybergold and thus could exert undue influence over us until we can expand our customer base and increase our economic independence. Our directors and executive officers may have conflicts of interest because of their ownership of Cybergold common stock. Many of our directors and executive officers have a substantial amount of their personal financial portfolios in Cybergold common stock and options to purchase Cybergold common stock. Ownership of Cybergold common stock, and MyPoints common stock after the acquisition of Cybergold by MyPoints, by our directors and officers after our separation from Cybergold could create, or appear to create, potential conflicts of interest when directors and officers are faced with decisions that could have different implications for Cybergold and us. Specifically, these directors and officers might take action in their own self interest that might not be the best possible action from our perspective. For information regarding directors' and officers' ownership of Cybergold common stock, see "Security Ownership of MagnaCash." We are subject to the effective control of two stockholders and to anti-takeover provisions. Between them, A. Nathaniel Goldhaber and MyPoints after the acquisition of Cybergold will hold 37.1% of MagnaCash common stock, an amount sufficient to exercise effective control. In addition, because of anti-takeover provisions, a third party may be reluctant to attempt to gain control of MagnaCash, even if a change in control might be beneficial to our stockholders. This could adversely affect the market price of our common stock. These anti-takeover provisions include: - division of the board of directors into three separate classes; - elimination of cumulative voting in the election of directors; - prohibitions on our stockholders from acting by written consent and calling special meetings; - procedures for advance notification of stockholder nominations and proposals; and - the ability of the board of directors to alter our bylaws without stockholder approval. MagnaCash's historical financial information may not be representative of its results as a separate company. Our historical financial information, as part of Cybergold, is shown in the financial statements beginning on page F-1 and does not necessarily reflect what our financial position, results of operations and cash flows would have been had we been a separate, stand-alone entity during the periods presented. In addition, the historical information is not necessarily indicative of what our results of operations, financial position and cash flows will be in the future. We have not made adjustments to reflect many significant changes that will occur in our cost structure, funding and operations as a result of our separation from Cybergold, including changes in our employee base, changes in our legal structure, increased costs associated with reduced economies of scale, increased marketing expenses related to establishing a new brand identity and increased costs associated with being a public, stand-alone company. For additional information, see "Proforma Financial Statements," "Selected Financial Statements," as well as the notes thereto and "Management's Discussion and Analysis." 12 Public trading in our stock will be restricted for a period of time. This restriction will almost certainly reduce the value of MagnaCash common stock. Stockholders must use another source of funds to pay any taxes resulting from this share distribution. Prior to the earliest of (i) the date that is the first anniversary of the date that Cybergold ceases to be the sole holder of outstanding shares of common stock, (ii) the date the Securities and Exchange Commission or successor organization declares effective a registration statement on Form S-1 or Form S-3 or successor form regarding an offering of shares of common stock the issuance of which would have the effect increasing the number of shares of common stock outstanding by eighty percent (80%) or more, or (iii) such date as determined by the board of directors of MagnaCash in its sole discretion, common stock may not be, directly or indirectly, sold, transferred, assigned, pledged, exchanged, hypothecated, gifted or otherwise disposed of except: (A) by Cybergold or its successor, in connection with the initial distribution by Cybergold of common stock to the holders of Cybergold's common stock, as of the record date of August 3, 2000, (B) from any holder of common stock that is a natural person to (i) such stockholder's spouse or children, (ii) to any trust solely for the benefit of such stockholder or the children or spouse of such stockholder or (iii) to any party pursuant to applicable laws of descent and distribution and (C) from any holder of common that is a corporation, limited liability company, limited partnership or general partnership to any affiliate (as defined under Rule 405 of the Securities Act of 1933, as amended). This restriction will lower the value of each stockholder's shares and will force each stockholder to use another source of funds to pay any taxes assessed to such stockholder on the distribution. Seasonal trends may cause our quarterly operating results to fluctuate. In the future after the stock is publicly traded, this fluctuation may adversely affect the market price of its common stock. A significant portion of our sales revenue comes from the consumer and merchant markets, both of which are characterized by seasonal sales. Both markets tend to experience higher sales in the third and fourth calendar quarters due to holiday purchases and relatively weaker sales in the first and second calendar quarters. Seasonal trends may cause our operating results to fluctuate which may have an adverse effect on our stock price when our stock is publicly traded. In some cases clients pay one-time set-up fees in connection with acquiring our services. The timing of the recognition of fees varies, which contributes to quarterly fluctuations in revenues. In addition, many of our distribution channels integrate our services with other electronic commerce solutions. The timing for these channels to complete the integration and deploy their solutions into their distribution channel is unpredictable. There has never been a trading market for MagnaCash common stock which may cause the stock price to be volatile. This volatility might keep you from reselling your shares at or above any valuation at distribution once trading commences. Prior to the distribution, there has been no public market for MagnaCash common stock. In addition, we have made no formal presentations to potential investors in anticipation of the distribution. Prior to the earliest of (i) the date that is the first anniversary of the date that Cybergold ceases to be the sole holder of outstanding shares of common stock, (ii) the date the Securities and Exchange Commission or successor organization declares effective a registration statement on Form S-1 or Form S-3 or successor form regarding an offering of shares of common stock the issuance of which would have the effect increasing the number of shares of common stock outstanding by eighty percent (80%) or more, or (iii) such date as determined by the board of directors of MagnaCash in its sole discretion, common stock may not be, directly or indirectly, sold, transferred, assigned, pledged, exchanged, hypothecated, gifted or otherwise disposed of except: (A) by Cybergold or its successor, in connection with the initial distribution by Cybergold of common stock to the holders of Cybergold's common stock, as of the record date of August 4, 2000, (B) from any holder of common stock that is a natural person to (i) such stockholder's spouse or children, (ii) to any trust solely for the benefit of such stockholder or the children or spouse of such stockholder or (iii) to any party pursuant to applicable laws of descent and distribution and (C) from any holder of common that is a corporation, limited liability company, limited partnership or general partnership to any affiliate (as defined under Rule 405 of the Securities Act of 1933, as amended). We believe the initial trading volume after the expiration of the trading restriction in MagnaCash common stock will be moderate as investors assess our progress as a public, stand-alone company. 13 MagnaCash common stock may be followed by few, if any, market analysts and there may be no institutions acting as market makers for the common stock. Furthermore, broad market and industry fluctuations may adversely affect the trading price of the common stock, regardless of our actual operating performance. Any of these factors could adversely affect the liquidity and trading price of the MagnaCash common stock when it is freely tradable. We may experience software defects and development delays, damaging customer relations and decreasing our potential profitability. Services based on sophisticated software and computing systems often encounter development delays, and the underlying software may contain undetected errors or failures when introduced or when the volume of services provided increases. We may experience delays in the development of our software products or the software and computing systems underlying our services. In addition, despite testing by us, and potential clients, it is possible that our software may nevertheless contain errors, and this could have a material adverse effect on our business, results of operations and financial condition. We rely on affiliate and third party technology that we need for our services. We do not own our technology. We have an exclusive, global, royalty free license from Cybergold to use our technology for operating a payment business. We rely on technology which we license from Cybergold and third parties. Some commercial software is integrated with internally developed and proprietary software and used in our software to perform key functions. We cannot assure you that technology licenses will continue to be available to us on commercially reasonable terms or at all. If we lose or cannot maintain any of these technology licenses, it could impede our provision of services and delay the introduction of new services. Any delay resulting from the acquisition or use of commercial software may have a material adverse effect on our business, results of operations and financial condition. We may experience difficulty attracting and retaining quality employees, who if retained may not work well together, potentially limiting our ability to operate our business effectively. Our ability to grow will depend, in large part, on our ability to attract and retain highly qualified technical and managerial personnel. The combination of our business with the Cybergold business has resulted in faster growth and greater scale. After the distribution, without these benefits of a combined business, we may not experience the same success attracting quality employees. Competition for qualified personnel is intense, especially in the Bay Area where we are located. There is a risk that some key employees will depart as a result of the distribution. Lack of success in attracting qualified new employees could lead to lower than expected operating results, delays in the introduction of new services and a negative effect on our ability to acquire and support clients. The management team has been in place only for a few months, and may not be able to work as an effective team. Additionally, our performance is substantially dependent on the performance of its executive officers and key employees. We do not have "key person" life insurance policies on any of its employees. The loss of the services of any key employees or directors, particularly A. Nathaniel Goldhaber, Gary Fitts or Barry McCarthy, could have a material adverse effect on our business, results of operations and financial condition. If we are unable to adequately protect our intellectual property, third parties could use our intellectual property without our consent. Our operating results depend, in part, on our ability to protect our technology. Our products are primarily based on technology that was developed internally which we protect through a combination of confidentiality agreements and licensing arrangements. Unauthorized parties may attempt to obtain and use our proprietary information which might negatively affect the value of our stock. Policing unauthorized use of our proprietary information is difficult, and we do not know whether the steps we have taken will prevent misappropriation, 14 particularly in foreign countries where the laws may not protect our proprietary rights as fully as the laws of the United States. Our operating results would suffer if we were forced to defend against a protracted infringement claim or if a third party were awarded significant damages. There is a substantial risk of litigation regarding intellectual property rights in the on-line cash account and transaction industry. A successful claim of patent or other technology infringement against us and our failure or inability to license the infringed or similar technology could harm our business. Any claims, with or without merit, could: . be time-consuming and costly to defend; . divert management's attention and resources; . cause delays in delivering services; . require the payment of monetary damages which may be tripled if the infringement is found to be willful; . result in an injunction which would prohibit us from offering a particular service; and . require us to enter into royalty or licensing agreements which may not be available on acceptable terms. FORWARD LOOKING STATEMENTS This prospectus contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about MagnaCash and its industry. When used in this prospectus, the words expects, anticipates, estimates, intends and similar expressions are intended to identify forward- looking statements. These statements include, but are not limited to, statements under the captions "Risk Factors," "Management's Discussion and Analysis," "Business of Magnacash" and elsewhere in this prospectus. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. The cautionary statements made in this prospectus should be read as being applicable to all related forward-looking statements wherever they appear in this prospectus. WHY THIS PROSPECTUS WAS SENT TO YOU This prospectus is being delivered to you because you were an owner of Cybergold common stock on August 3, 2000. This entitles you to receive a distribution of one share of the common stock of our new company, MagnaCash, Inc., a Delaware corporation, for every two shares of Cybergold common stock owned by you on August 3, 2000. Although no action is required on your part to cause this to happen and you do not have to pay cash or other consideration to receive these shares, the distribution of these shares to you will have certain tax and other consequences, so please read the information in this document carefully. You do not need to surrender shares of Cybergold or MyPoints common stock to receive MagnaCash common stock in the distribution. The number of shares of Cybergold or MyPoints common stock you own will not change as a result of the distribution. This prospectus describes our business, the relationship between Cybergold and us, and provides other information to assist you in evaluating the benefits and risks of holding or disposing of your shares of MagnaCash common stock once share transfer restrictions expire. 80.1% of MagnaCash's common stock is being distributed to the Cybergold stockholders as described in this prospectus. Cybergold will have a 19.9% ownership interest in us after the distribution. Our board of directors will consist of up to nine directors. At the outset the board will consist of three directors and two of the MagnaCash directors will be former directors of Cybergold. 15 The merger agreement pursuant to which MyPoints will acquire Cybergold contemplates the distribution of MagnaCash in connection with the merger. After thorough consideration, the board of directors of Cybergold determined that a distribution of shares of MagnaCash was in the best interest of the stockholders of Cybergold. THE DISTRIBUTION Each Cybergold stockholder will receive one share of MagnaCash common stock for every two shares of Cybergold common stock held. Cybergold will retain 2,857,053 shares of MagnaCash common stock. As of July 31, 2000 Cybergold had approximately 21,150,174 shares of common stock outstanding. Distribution and Transfer Information. U.S. Stock Transfer Corporation will act as the distribution and transfer agent for the distribution. The distribution agent will mail stock certificates beginning on or about the distribution date. Record Date, Distribution Date. The record date for the distribution will be the close of business on August 3, 2000. No Fractional Shares. No fractional shares of MagnaCash common stock will be distributed. Trading Market. MagnaCash common stock will not be publicly traded for a period of time following the distribution, as described herein. The board of directors of Cybergold has declared a distribution to its stockholders, of one share of MagnaCash common stock for every two shares of Cybergold common stock held on August 3, 2000, the record date for the distribution. As a result of the distribution, 80.1% of the then outstanding MagnaCash common stock will be distributed to Cybergold's stockholders. The remaining 19.9% will be held by Cybergold. See "Description of MagnaCash's Capital Stock." Before September 30, 2000, Cybergold will complete preliminary internal restructuring transactions related to the MagnaCash business. On or before September 30, 2000, the transfer agent will mail the shares to the Cybergold stockholders of record as of the record date. No fractional shares will be issued as part of the distribution. Each person will receive one share of MagnaCash common stock for every two shares of Cybergold the person holds, rounded down to the nearest whole number. Cybergold stockholders will not be required to pay any cash or other consideration for the MagnaCash common stock received in the distribution. The distribution of the MagnaCash common stock to Cybergold stockholders will, however, have certain tax and other consequences, as discussed in this document. The general terms and conditions of the distribution and the arrangements between MagnaCash and Cybergold will be set forth in the License, Assignment and Assumption Agreement, the Tax Sharing Agreement, the Real Estate Matters Disclosure Agreement and the Transitional Services and Joint Operating Agreement. For more information regarding these agreements, please see "Arrangements between Cybergold and MagnaCash." Cybergold will pay the costs and expenses incurred in connection with the distribution, other than any corporate level taxes, which shall be paid by MagnaCash. INVESTOR CONTACT MagnaCash and Cybergold stockholders with questions about the distribution should contact Wayne Wooddell at Cybergold's principal executive offices at 1330 Broadway, 15th Floor, Suite 1535, Oakland, California 94612; telephone (510) 808-3700. This contact information will remain the same after the distribution. 16 REASONS FOR THE DISTRIBUTION The merger agreement pursuant to which MyPoints will acquire Cybergold contemplates the sale or distribution of the MagnaCash business in connection with the merger. After thorough consideration, the board of directors of Cybergold determined that a distribution of the MagnaCash business was in the best interest of the stockholders of Cybergold. Cybergold believes that the distribution of MagnaCash will significantly benefit Cybergold stockholders by: . separating the risks associated with developing an on-line cash transaction system from Cybergold's traditional focus on Internet rewards services; and . allowing Cybergold's near-term financial results to continue to reflect principally its traditional Internet consumer rewards business, as integrated with merger parent MyPoints' on-line direct marketing and loyalty programs business. After reviewing Cybergold's goals and objectives and considering other possible methods of enhancing the growth of MagnaCash and Cybergold, Cybergold's management and board of directors concluded that enhancing this business through the formation of MagnaCash and the distribution of MagnaCash would be in the best interest of Cybergold stockholders. Cybergold's board of directors approved the formation of MagnaCash and the distribution after consultation with Cybergold's management. TAX TREATMENT For tax and legal purposes, Cybergold will report the distribution of MagnaCash stock as a taxable event to Cybergold. In connection with the distribution of the stock of MagnaCash, Cybergold will recognize taxable gain generally equal to the difference between its tax basis in the shares of MagnaCash stock distributed and the fair market value of such shares at the time of the distribution. BUSINESS OF MAGNACASH MagnaCash is a newly formed company that contains the account management and transaction enablement system developed by Cybergold, Inc., our corporate parent. Currently the system is in use to manage and permit the spending of cash awards earned by Cybergold members through their participation in Cybergold's on-line consumer incentives business. MagnaCash has been capitalized by Cybergold, and will initially continue to provide Cybergold account management and transaction enablement. Shares of MagnaCash's stock are being distributed to stockholders of record of Cybergold on August 3, 2000. The distribution of these shares to Cybergold stockholders is being made on or about September 29, 2000, pursuant to the merger agreement under which Cybergold will be acquired by MyPoints. MagnaCash is a provider of on-line payment infrastructure to on-line businesses. We offer an on-line funds transfer system that enables our clients to create individual accounts for their users. These on-line accounts store value, and can be credited by accepting transfers from credit cards. Additionally, these accounts can accept cash awards earned by users from promotional and other activities. Users can apply funds from these accounts to credit cards, transmit them to bank accounts, or use them to make purchases directly from merchants who participate in the MagnaCash payment system. Transfers between accounts within the system occur immediately. For example, merchants receive immediate credit when accepting 17 payment from a consumer. Transfers of funds out of the system are credited immediately within the system, but are subject to standard bank and credit card protocols for audit outside the system. We currently manage 9,000,000 accounts on behalf of one client, Cybergold, Inc., our former corporate parent where the payment infrastructure business conducted by us was developed. Over 50 merchants and organizations currently participate in the MagnaCash system. Industry Background The Internet has emerged as a substantial vehicle for conducting commerce. According to e-Marketeer, worldwide business to consumer e-commerce revenue is projected to be nearly $200 billion by year 2003. Worldwide business to business e-commerce revenue is projected to exceed $1.2 trillion by year 2003, according to e-Marketeer. These revenue projections represent the total value of goods and services sold across the Internet. This monetary value can be transferred physically, by exchanges of cash, checks, money orders or the presentation of a credit card or numerical information from it, or electronically, by such means as wire transfers and payment mechanisms that use the electronic communications networks, including the Internet, to transmit and effect a transfer of value. MagnaCash believes that an increasing percentage of payments underlying e- commerce are being made on-line and that this percentage will continue to grow. Today, most on-line payment transactions are processed through two existing electronic payment systems--the automated clearing house (ACH) and credit cards. The ACH is a system operated by the nation's depository institutions through which monetary transactions are transmitted electronically between financial institutions. The ACH is a batch-processing, store-and-forward system. Transactions received from a merchant during the day by a financial institution are stored and processed later in a batch mode. Rather than sending each transaction separately in real time, ACH transactions are accumulated and sorted by destination for transmission during a pre-determined time. Users can access the ACH system on-line by presenting merchants who choose to offer an ACH payment option with sufficient checking account information to permit a merchant to instruct its bank to debit the account of the user at the user's bank. Because ACH information is processed only episodically and often must pass through two financial institutions and the ACH system operator (the institution where the deposit was made, the institution where the account is maintained and the Federal Reserve Bank or other ACH operator), it can take up to 72 hours for an ACH transaction to "clear," or result in the confirmation of available funds to the merchant. ACH transactions typically require users to enter 20 or more digits from the face of a physical check representing the user's account number and bank identification numbers, as well as other personal information. Credit cards are the dominant payment tool on the Internet today. Through the major credit card networks, users can complete payment transactions with virtually every on-line merchant. However, there are disadvantages for both users and merchants in using credit cards in many situations: . Some Internet users do not possess credit cards. . Some Internet users are reluctant to use credit cards on-line because of security concerns. . Credit card usage can be cumbersome, requiring the typed entry of a 16 digit card number, four digit expiration date and personal information such as street address, city, state, zip code and telephone number. . Transaction costs associated with the acceptance of credit cards for on-line payments are high. Merchants typically pay a fee to process purchases using credit cards, ranging from as little as 1% to as much as 4% of the purchase price. These fees compensate the bank accepting a credit card deposit, the bank which issues the card and collects payment from the user, and in many cases the organization that provides clearing services between the various institutions. Because a credit card is not physically presented to the merchant when used on-line, the risk of fraudulent use is higher and, correspondingly, so are transaction fees, which typically range from 2.5% to over 50% for on-line transactions. Total transaction fees for "low value" 18 purchases of less than $5.00 by credit card over the Internet have the highest relative cost, and can, in some cases exceed 50% of the aggregate purchase price. We believe that opportunities for Internet users to make small dollar purchases on the Internet will grow substantially as business models develop for the sale of digital content, such as individual songs and movies, to individual users. We believe that Internet portals and other Internet sites will find increasingly compelling reasons to sponsor accounts for users in order to capture revenue and transaction flow from this development. The MagnaCash Solution We offer an on-line payment infrastructure that allows its customer clients to establish on-line "accounts" for Internet users. Users create balances in these accounts by transferring funds from their bank account or a certain major credit card, or perhaps by participating in activities sponsored or permitted by our clients. Users can spend account balances over the Internet with any merchant who participates in our payment system. Users can also transfer account balances to a certain major credit card. The MagnaCash system offers: . Instantaneous payment and cost effectiveness for merchants. Our system operates by establishing a notational account for each user and each merchant who participates in the system. Funds or cash awards deposited or received by users with accounts are deposited n commingled FDIC insured accounts maintained at banks and are credited to the user within our system. We are not a bank, and the notational accounts are not bank accounts and are not FDIC-insured. When a user spends funds with a member merchant, we debit the user's account and credit the merchant's account instantaneously, charging the merchant a small processing fee. Merchants receive credit for funds without the delays of the ACH process. Because the system is simple, does not require the transfer of custody of funds, and is self-contained, the transaction fees associated with our service are substantially lower than those associated with accepting credit cards for both large and small value transactions. Over 50 merchants accept direct payments from our system. . New revenue opportunities for clients. The creation of on-line accounts affords clients opportunities to increase revenues from their users, and simultaneously save costs. Virtually any organization can issue MagnaCash accounts and reap the associated rewards. Clients implementing accounts with us: (i) share in transaction revenues generated by its customers from merchants participating in our payment system; (ii) increase the chance of capturing rebates or rewards issued to users by making it easier to spend such rebates and awards at the clients' own sites; (iii) realize an opportunity to reduce costs by issuing rebates and awards on-line rather than through more expensive methods like paper checks; and (iv) potentially increase customer retention by providing customers with the ability to make cash purchases on-line. . Easy accessibility and easily customized features. We provide access to our account management and payment system using an application service provider, or ASP, model. We host the software necessary to operate the basic payment system infrastructure on our servers and interconnect with merchants and the ACH and credit card systems through the Internet. Clients desiring to establish an account system for users may do so through MagnaCash without any need to understand, install or operate the complex systems necessary providing this service. We offer our service on a private label basis, and can customize its look and feel for individual clients. Our initial client is Cybergold, for which we will manage approximately 9,000,000 user accounts. 19 . Simplicity for users. Our system uses the email addresses of users as account names. Each user establishes a unique personal identification number, or PIN, for the account. The PIN provides authentication when the user logs into the system. Once logged on, a user may make view account balances, make purchases or request remission of balances to a credit card or to a bank account through the ACH with a few mouse clicks, and add funds to their account using the ACH or credit card transfers on a real time basis. We anticipate adding functions in the near future that will permit credits and debits to accounts to be made by mail as well. Strategy Our objective is to become a leading provider of on-line payment services through executing the following strategies: . Increase substantially the number of merchants accepting payment through our system. The value of our payment system to clients and users increases substantially as the number of merchants accepting payment through it grows. We intend to establish an internal sales force and create strategic alliances with others to increase the number of merchants participating in our payment system. . Increase the number of clients to which we provide on-line, private- label account management services. We intend to invest in marketing and sales efforts to form strategic alliances with other companies which understand the value of enabling on-line purchases with cash accounts. Services and Technology On-line account management Our clients are typically Internet businesses. We enable our clients to offer their users an on-line cash account. Magnacash manages the accounts and provides all the customer service. We host the accounts and account information on our servers, and provide security for the accounts using a combination of internally developed and commercially available software. We intend to provide account management services in exchange for a monthly fee. We also anticipate charging customers for consulting and design fees in connection with the implementation of a payment system for them. To date, our client for account management services is Cybergold, which pays a monthly management fee for our management of its accounts. Our clients may be subject to applicable federal and state money transfer laws and regulations regarding privacy and money transfers. While we believe MagnaCash itself is not subject to such laws and regulations, it may alter its account management services in response to regulations and laws affecting its clients. Payment system services Over 50 merchants and organizations are currently part of our on-line payment system and accept payments made directly from user accounts in that system. The payment process is enabled through "The Mint," client software installed on the servers of participating merchants. The Mint facilitates the real-time transmission of merchant data necessary to process the payment portion of a commerce transaction between a user of MagnaCash's system and the merchant. The Mint is compatible with most major commerce systems installed at merchants, and can be installed in most configurations in less than one day and in most cases less than six hours. We provide technical assistance in connection with such installations to merchants who request it, presently without charge. Technology 20 We have developed a scaleable technology infrastructure that manages on- line cash accounts, and executes on-line incentive and payment transactions between these accounts. We license this technology from Cybergold, and its principal authors have moved from Cybergold to MagnaCash, where they will continue its development. There are two proprietary components to this technology infrastructure: - The MagnaCash Mint is a distributed link to our electronic commerce payment service. The Mint runs on our servers and on the servers of our clients and merchants. One unique feature of the Mint is that it can generate both incentive reward transactions and on-line payments for consumer purchases (allowing merchants to offer rebates and incentives along with payments, something not possible with credit cards). To make world-wide distribution possible, the Mint employs a cryptographic system called HMAC-MD5 that offers full 128-bit security without export controls. - The MagnaCash Payment Servers are our real-time transaction processing engine. This engine is optimized for high-volume financial transactions, and we can process higher volumes of transactions by simply adding additional hardware to our system. The Payment Servers communicate with consumer browsers using SSL, the industry-standard Internet security protocol, to safeguard all private user information. Our Payment Servers include proprietary modules for handling: . interactive transactions; . background transactions for off-line incentive programs; . consumer account management and on-line statements; . Transfers from a major credit card 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. Using our technology infrastructure, Internet merchants may offer MagnaCash as one choice of payment method. Typical MagnaCash transactions begin when the user encounters an opportunity to spend at an associated or affiliated internet site. The merchant's internet servers use the Mint to generate payment transaction details. These transactions are sent on-line to the MagnaCash payment servers, which move funds from the user's accounts to the merchant's account. In addition to our proprietary technology discussed above, the MagnaCash system incorporates third-party software including Sybase SQL Servers, Sun Solaris platforms, and Apache Internet servers. Consumers access our system with standard Internet browsers such as Netscape Navigator and Microsoft Internet Explorer. We do not require consumers to download any software to process payments or rewards. Competition The on-line payment industry is embryonic, intensely competitive and characterized by declining average selling prices. Competition in our markets is primarily affected by the ability to provide reliable service with a low transaction cost and to secure merchant and client partnerships to provide user bases and spending outlets. We compete primarily with credit cards and other Internet payment mechanisms such as gift certificate currencies (companies such as Flooz), stored value cards or mechanisms (companies such as WebCertificates) and money-like rewards units earned by visiting sites (companies such as Beenz). We expect increased competition from existing competitors and from a number of companies that may enter the on-line payment market, as well as future competition from companies that may offer new or emerging technologies, such as wireless. In addition, many of our current and potential competitors have significantly greater financial, technical and marketing resources than we have. Our failure to successfully compete in our markets would have a material adverse effect on our business, financial condition and results of operations. 21 Intellectual Property and Licenses As of the effective date of this registration statement, we have issued no United States or foreign patents and have no U.S. or foreign patent applications pending. Moreover, while we, where appropriate, will apply for patents relating to the design of our products, our products are based in part on standards and MagnaCash does not hold patents or other intellectual property rights for such standards. We intend to seek patents on this technology where appropriate. We have applied for trademark protection for "MAGNACASH." Notwithstanding its patent, trademark, and copyright position, we believe that, in view of the rapid pace of technological change in the on-line payments industry, the technical experience and creative skills of its engineers and other personnel are the most important factors in determining our future technological success. Intellectual Property and Licenses From Cybergold to MagnaCash As of the separation date, Cybergold will grant MagnaCash an exclusive, perpetual, royalty-free, fully paid, irrevocable worldwide license to use all the Cybergold owned software necessary for the MagnaCash system to operate in the payments marketplace, and a sublicense under the same terms for the necessary intellectual property Cybergold does not own. Cybergold will assign to MagnaCash the trademarks for "mint" and "The Mint." Employees As of August 1 we will have approximately 25 employees. Our employees are not represented by any collective bargaining agreement, and we have never experienced a work stoppage. We believe our employee relations are good. Our future success is heavily dependent upon our ability to hire and retain qualified technical, marketing and management personnel. We are currently seeking certain additional engineering, marketing and management personnel. Our success in the future will depend in part on the successful assimilation of such new personnel. Competition for qualified personnel in our industry and geographical location is intense, and there can be no assurance that we will be successful in attracting, retaining and motivating a sufficient number of qualified personnel to conduct its business in the future. Properties Our headquarters occupy approximately 7,258 square feet of leased office space at 1330 Broadway, Oakland, California. This space is sub-leased from Cybergold, based on an initial lease that extends through July 30, 2005, with an option to lease the space for an additional three-year term, and includes a right of first refusal on additional sub-lease space, which may become available from Cybergold in the building. We believe our office space is adequate to meet our needs for the next 12 months, and we expect our growth for the next 24 months to be accommodated by our existing space plus our right of first refusal on additional office space made available from Cybergold. Legal Proceedings From time-to-time MagnaCash may become party to certain litigation or legal claims. MagnaCash is not currently party to any litigation or legal claims. SELECTED FINANCIAL DATA Selected Financial Data The selected financial data set forth below with respect to our statements of operations for the year ended December 31, 1999 and with respect to our balance sheet as of December 31, 1999, are derived from our financial statements, which have been audited by Arthur Andersen LLP, independent public accountants, and which are 22 included elsewhere herein. The selected financial data set forth below with respect to our statements of operations for the six month periods ended June 30, 1999 and 2000, has not been audited. The selected financial data set forth below is qualified in its entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the notes to those statements included elsewhere herein.
Year Ended Six Months Ended June 30, December 31, 1999 2000 1999 (Unaudited) (Unaudited) Net revenues.......................................... $ 4,347 $ 1,254 $ 7,725 Cost of revenues...................................... 36,109 17,345 26,452 ----------- --------- --------- Gross margin.......................................... (31,762) (16,091) (18,727) Sales and marketing expenses.......................... 295,880 98,833 412,790 General and administrative expenses................... 122,500 36,185 115,233 Research and development expenses..................... 281,173 107,497 266,601 Amortization of deferred compensation................. 304,177 284,298 18,402 ----------- --------- --------- Operating loss........................................ (1,035,492) (542,904) (831,753) ----------- --------- --------- Loss before income taxes.............................. (1,035,492) (542,904) (831,753) ----------- --------- --------- Net loss.............................................. $(1,035,492) $(542,904) $(831,753) =========== ========= =========
December 31, ------------ 1999 ------- Balance Sheet Data Cash and cash equivalents.................................... $ 0 Working capital.............................................. (52,503) Total assets................................................. 380,682 Total stockholders' equity................................... 328,179
MANAGEMENT'S DISCUSSION AND ANALYSIS You should read the following discussion of the financial condition and results of operations of MagnaCash together with the financial statements and the notes to such statements included elsewhere in this report. This discussion contains forward-looking statements based on our current expectations, assumptions, estimates and projections about MagnaCash and our industry. These forward-looking statements involve risks and uncertainties. MagnaCash's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, as more fully described in the "Risk Factors" section and elsewhere in this report. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. Overview MagnaCash is a newly formed company that contains the account management and transaction enablement system developed by Cybergold, Inc., its corporate parent. Currently the system is in use to manage and permit the spending of cash awards earned by Cybergold members through their participation in Cybergold's on-line consumer incentives business. 23 MagnaCash's operations were a division of Cybergold and not a separate legal entity. The technology utilized by MagnaCash was developed by Cybergold for use in its business. On or about January 1, 1999, the management of Cybergold decided to develop MagnaCash into a separate business venture in addition to being a servicing vehicle for Cybergold. As a result, the financial information presented in this Registration Statement is for the period beginning January 1, 1999. MagnaCash has been capitalized by, and will initially continue to provide account management and transaction enablement services to, Cybergold. Our revenues consist primarily of fees paid to us for each payment transaction between merchants and users through our transaction system. Users normally earn rewards by responding to on-line advertisements with a specific action such as filling out a survey or registering for services. Users spend their cash rewards or use cash transferred to their account from a certain major credit card to purchase services or products through our merchants' site or other sites using our system. These transaction fees are not recognized until the transaction has been completed. Our transaction revenues are driven by a number of factors, including: . the number of clients using our payment system; . the size and growth of our clients' membership base that we manage; . the number of transactions performed by each member; and . the average revenue per transaction. MagnaCash has generated transaction revenues of $4,347 for the year ended December 31, 1999 and $1,254 and $7,725 for the six month periods ending June 30, 1999 and 2000, respectively. The cost of revenues represent transaction fees paid to various banking organizations for transferring balances to or from credit cards or bank accounts. Gross margin on transaction revenues may fluctuate based on the nature of the transactions processed in any given period. We incurred a net loss of approximately $1,035,000 in the year ended December 31, 1999. We plan to continue to build infrastructure and expand client recruitment efforts which may contribute to losses 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 MagnaCash employees and consultants to purchase Cybergold common stock during 1998 and 1999, we recorded deferred compensation of $503,272 representing the difference between the exercise price of options granted and the deemed fair market value of Cybergold's 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, 1999 was $304,177. Year Ended December 31, 1999 Revenues Total Revenues, which consisted completely of transaction revenues, were $4,347 for the year ended December 31, 1999. The Company had no revenue or operations during the year ended 1998 as the inception of the Company was January 1999. All transaction revenues earned for the year ended December 31, 1999 related to 24 Cybergold members spending cash awards earned through their participation in Cybergold's on-line consumer incentives business Cost of Revenues Overall cost of revenues were $36,109 for the year ended December 31, 1999. The cost of revenues represent transaction fees paid to various banking organizations for transferring balances to or from credit cards or bank accounts. MagnaCash generated a negative gross margin of $31,762 or 731% for the year ended December 31, 1999. We expect overall gross margin to continue to fluctuate as a result of the overall variation in the mix transaction revenue and new products MagnaCash plans to introduce. Sales and Marketing Expenses Sales and marketing expenses were $295,880 for the year ended December 31, 1999. Sales and marketing costs relate primarily to salaries for the sales and marketing employees of MagnaCash. In addition, MagnaCash has allocated a portion of Cybergold overhead costs to the operations of MagnaCash using various allocation methodologies including headcount and payroll dollars. MagnaCash allocated $76,385 or 47% of the Cybergold overhead costs allocated to MagnaCash to sales and marketing expenses. We expect that sales and marketing expenses will continue to increase as we expand our operations and sales efforts to attract additional clients. General and Administrative Expenses General and administrative expenses were $122,500 for the year ended December 31, 1999. General and administrative expenses consist primarily of depreciation expense. In addition, MagnaCash has allocated a portion of Cybergold overhead costs to the operations of MagnaCash using various allocation methodologies including headcount and payroll dollars. MagnaCash allocated $31,878 or 20% of the Cybergold overhead costs allocated to MagnaCash to general and administrative expenses. 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. Research and Development Expenses Research and development expenses were $281,173 for the year ended December 31, 1999. Research and development expenses consist primarily of salaries for the research and development employees of MagnaCash as well as third party computer hosting costs. In addition, MagnaCash has allocated a portion of Cybergold overhead costs to the operations of MagnaCash using various allocation methodologies including headcount and payroll dollars. MagnaCash allocated $52,937 or 33% of the Cybergold overhead costs allocated to MagnaCash to research and development expenses. We expect product development costs to continue to increase as we continue to build features and functionality into our system. Amortization of Deferred Compensation Expense In connection with the granting of options to purchase Cybergold common stock to certain MagnaCash employees and consultants during the year ended December 31, 1998 and 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 in the year ended December 31, 1999 was $304,177. Income Taxes We recorded a net loss of $1,035,492 for the year ended December 31, 1999. 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. 25 Six Months Ended June 30, 1999 and 2000 Revenues Total Revenues were $1,254 and $7,725 for the six months ended June 30, 1999 and 2000, respectively, representing an increase of 6,471 or 516%. All transaction revenues earned for the year ended December 31, 1999 related to Cybergold members spending cash awards earned through their participation in Cybergold's online consumer incentives business. Revenues increased proportionally with the increase in the number of Cybergold members using our service. Cost of Revenues Overall cost of revenues were $17,345 and $26,452 for the six month periods ended June 30, 1999 and 2000, respectively, representing an increase of $9,107 or 53%. This increase relates directly to the increase in total revenues and the increase in the number of Cybergold members spending cash awards earned through their participation in Cybergold's online consumer incentives business. Cost of revenues represent fees paid to various banking organizations as our client's members transfer earned balances to a bank account or a certain major credit card or spent in a payment transaction. MagnaCash generated negative gross margins of $16,091 or 1,283%, and $18,727 or 242% for the six month periods ended June 30, 1999 and 2000, respectively. We expect overall gross margin to continue to fluctuate as a result of the overall variation in the mix transaction revenue and new products MagnaCash plans to introduce. Sales and Marketing Expenses Sales and marketing expenses were $98,833 and $412,790 for the six month periods ended June 30, 1999 and 2000, respectively, representing an increase of $313,957 or 318%. Sales and marketing costs relate primarily to salaries for the sales and marketing employees of MagnaCash. The increase in sales and marketing expenses relates directly to the increased number of MagnaCash employees in this department. In addition, MagnaCash has allocated a portion of Cybergold overhead costs to the operations of MagnaCash using various allocation methodologies including headcount and payroll dollars. MagnaCash allocated $28,112 or 47%, and $32,697 or 50% of the Cybergold overhead costs allocated to MagnaCash to sales and marketing expenses for the six month periods ended June 30, 1999 and 2000, respectively. We expect that sales and marketing expenses will continue to increase as we expand our operations and sales efforts to attract additional clients. General and Administrative Expenses General and administrative expenses were $36,185 and $115,233 for the six month periods ended June 30, 1999 and 2000, respectively, representing an increase of $79,048 or 218%. General and administrative expenses consist primarily of depreciation expense. In addition, MagnaCash has allocated a portion of Cybergold overhead costs to the operations of MagnaCash using various allocation methodologies including headcount and payroll dollars. MagnaCash allocated $11,482 or 20%, and $16,349 or 25% of the Cybergold overhead costs allocated to MagnaCash to general and administrative expenses for the six month periods ended June 30, 1999 and 2000, respectively. 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. Research and Development Expenses Research and development expenses were $107,497 and $266,601 for the six month periods ended June 30, 1999 and 2000, respectively, representing an increase of $159,104 or 148%. Research and development expenses consist primarily of salaries for the research and development employees of MagnaCash as well as third party computer hosting costs. The increase in research and development expenses relates directly to the increased number of MagnaCash employees in this department. In addition, MagnaCash has allocated a portion of Cybergold overhead costs to the operations of MagnaCash using various allocation methodologies including headcount and payroll dollars. MagnaCash allocated $20,067 or 33%, and $16,349 or 25% of the Cybergold overhead costs allocated to MagnaCash to research and development expenses for the six month periods ended June 30, 1999 and 26 2000, respectively. We expect product development costs to continue to increase as we continue to build features and functionality into our system. Amortization of Deferred Compensation Expense In connection with the granting of options to purchase Cybergold common stock to certain MagnaCash employees and consultants during the year ended December 31, 1998 and 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 amounted to $284,298 and $18,402 for the six month periods ended June 30, 1999 and 2000, respectively, representing a decrease of $265,896 or 94%. The decrease in deferred compensation expense relates to the vesting, during the six months ended June 30, 1999, of a significant portion of the options granted during 1998 and 1999. Income Taxes We recorded net losses of $542,904 and $831,753 for the six month periods ended June 30, 1999 and 2000, respectively. 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. Liquidity and Capital Resources Since inception, we have been dependent upon and financed our operations exclusively from funding provided by Cybergold. Net cash used in operating activities was $209,207 and $705,125 for the six month periods ended June 30, 1999 and 2000, respectively, and consisted of our net loss, adjusted for amortization of deferred compensation, depreciation expense and changes in accrued liabilities. Net cash used in investing activities was $63,413 and $188,632 for the six month periods ended June 30, 1999 and 2000, respectively, and consisted primarily of the purchase of property and equipment. Net cash provided by financing activities was $272,620 and $893,757 for the six month periods ended June 30, 1999 and 2000, respectively, and consisted entirely of capital contributions from Cybergold We currently anticipate that our available cash resources will be sufficient to meet our anticipated working capital and capital expenditure requirements through August 2001. 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 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, 1999. The adoption of the SOP did not have a material impact on our financial statements. In March 1998, the American Institute of Certified Public Accountants issued SOP No. 98-1, "Software for Internal Use." The adoption of SOP No. 98-1 has not had a material impact on our financial statements. 27 In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." We do not expect the adoption of SFAS No. 133 to have a material impact on our financial position or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. We will adopt SAB 101 as required in the first quarter of 2000 and are evaluating the effect that such adoption may have on our results of operations and financial position. Liquidity and Capital Resources Since inception, we have been dependent upon and financed our operations exclusively from funding provided by Cybergold. Net cash used in operating activities was $588,223 for the year ended December 31, 1999 and consisted of our net loss, adjusted for amortization of deferred compensation, depreciation expense and changes in accrued liabilities. Net cash used in investing activities was $471,271 for the year ended December 31, 1999 and consisted primarily of the purchase of property and equipment. Net cash provided by financing activities was $1,059,494 for the year ended December 31, 1999 and consisted entirely of capital contributions from Cybergold Year 2000 Issues During 1999, the Company conducted an overall assessment of the software underlying our Internet-based programs as well as our Internet site and related technology infrastructure and determined it to be Year 2000 compliant. The Company 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. As of 12:01 AM January 1, 2000, we executed a full security check and validation of our site, as well as our partner merchants. There were no Year 2000 issues found within our site or the sites of our partner merchants. In cases where there was a potential Year 2000 problem, we removed the merchant from our site until the potential problem was corrected. This affected less than 1 percent of our merchants. Since January 1, 2000, we have not encountered any material issues relating to the Year 2000. The costs associated with correcting reported issues have not been and are not expected to be material. However, some Year 2000 issues may not be discovered until well after January 1, 2000. The Company intends to continue to prioritize reports of such issues and correct significant related problems. Qualitative and Quantitative Disclosures About Market Risk Disclosure Regarding Forward-Looking Statements Certain statements contained in or incorporated by reference into this prospectus, including, but not limited to, those regarding our financial position, business strategy, acquisition strategy and other plans and objectives for future operations and any other statements that are not historical facts constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, there can be no assurance that the actual results or developments that we anticipate will be realized or, even if substantially realized, that they will have expected effects on our business or operations. These forward-looking statements are based on management's expectations 28 and beliefs concerning future events impacting our business and operations and are subject to uncertainties and factors (including, but not limited to, those specified under the heading "Risk Factors" below) that are difficult to predict and, in many instances, are beyond our control. As a result, our actual results may differ materially from those expressed or implied by any such forward- looking statements. MANAGEMENT The following table lists the names, ages and positions of all directors and executive officers of MagnaCash as of the distribution date. There are no family relationships between any director or executive officer and any other director or executive officer of MagnaCash. Executive officers serve at the discretion of the board of directors.
Name Age Position - ------------------------------- ------- ---------------------------------------------------- A. Nathaniel Goldhaber 52 Chairman Barry McCarthy 36 President and Chief Operating Officer; Director Gary Fitts 54 Chief Technology Officer; Director Eli Rosner 43 VP, Engineering Services Neta Klein 54 VP, Operations
Chairman--A. Nathaniel Goldhaber - -------------------------------- Nat Goldhaber is Founder and Chief Executive Officer of Cybergold, Inc. He is a well-known innovator in commercial aspects of the Internet. Previously he served as head of Centram Systems West, which developed TOPS, the first IBM/MacIntosh local area network, and as Chief Executive Officer of Kaleida, the multimedia joint venture between IBM and Apple. Mr. Goldhaber was also President of Cole Gilburne Goldhaber & Ariyoshi Management, Inc., a venture capital firm focused on high-technology development. He founded Cybergold in 1996 and continues to serve on the boards of several high-tech companies. He is a frequent columnist, guest speaker, and a Director of the University of California, Berkeley, College of Letters and Sciences. President & COO; Director--Barry McCarthy - ----------------------------------------- Barry C. McCarthy joined Cybergold in March 2000 to lead the commercialization of the payment business. Mr. McCarthy brings to MagnaCash more than 14 years of Banking and Consumer Products experience. He joined Cybergold from Wells Fargo & Company, San Francisco, where he started in 1998 and was most recently vice president and general manager of ATM Banking group. During his time at Wells Fargo, Mr. McCarthy created the first scaleable internet-connected ATMs and the first ATM screen and receipt advertising program - Media Express ATM Network, and lead the first broad deployment of talking ATMs for the blind. Before Wells Fargo, Mr. McCarthy was at Procter & Gamble Company, Cincinnati, Ohio, for more than 11 years, beginning in 1986, where he held positions of increasing responsibility in Sales and Marketing Management. This included responsibilities for several of Procter and Gamble's key products. CTO; Director--Gary Fitts - ------------------------- Gary Fitts oversees the technical design of the MagnaCash system, and was the original architect of the Cybergold systems which remain in operation powering MagnaCash. Mr. Fitts has worked with Cybergold & MagnaCash founder Nat Goldhaber since 1984, when the two developed the TOPS Local Area Network at Centram Systems West. Mr. Fitts remained in charge of the TOPS product line following Sun Microsystems Inc.'s acquisition of Centram in 1987. While at Sun Microsystems, Gary was named a Sun Distinguished Engineer. In 1996, he rejoined Nat Goldhaber to help launch Cybergold. VP, Engineering--Eli Rosner - --------------------------- 29 Eli Rosner has almost 20 years of experience developing software and building engineering teams, from inception and analysis through development to deployment and customer support. Prior to joining MagnaCash, Mr. Rosner was CTO at The Pathways Group where he designed Smart Card based applications and managed a high volume transaction database system spread over multiple locations. As Vice President Engineering at BuyerForce, Mr. Rosner participated in the strategy, design and development of a business to business collaborative environment that brings buyers and sellers together. He implemented cutting edge standards based technologies like Enterprise Java Beans. As Vice President for Software Development at SL Corporation, Mr. Rosner helped the company in pre-sales and post sales support and helped the company secure multi-million dollar contracts. VP Operations--Neta Klein - ------------------------- Neta Klein brings to MagnaCash more than 20 years of operations experience in the Legal, Insurance, and Healthcare industries. Prior to joining MagnaCash Ms. Klein was VP of Operations/Business Development and Regional Manager for the Doctors' Company a nation wide professional liability carrier. During her tenure with TDC, Ms. Klein spearheaded the company's strategic expansion through merger and acquisition and most recently established and directed the first stand-alone regional operation serving 8 mid-western states. Before joining TDC in 1996, Ms. Klein was the Director of Risk Management and Insurance Services for UniHealth, a self insured hospital management company, were she constructed and directed an all inclusive claims and risk management operation for 12 hospitals in southern California. Ms. Klein spent over 13 years in Farmers/Truck Insurance Exchange were she held positions of increasing responsibility in the Insurance/Legal operations management, and where she designed and implemented litigation management programs, agency- claims operations procedures and tracking systems for fraud indicators and cost containment. Compensation of Directors We will reimburse directors for reasonable out-of-pocket expenses incurred in attending meetings of the board of directors. Following the distribution our non-employee directors will receive automatic annual grants of stock options pursuant to our 000 Omnibus Equity Incentive Plan. Board Committees The full board of directors will act as the audit committee and the compensation committee. Election of Directors The board of directors is divided into three classes, each of whose members will serve for a staggered three-year term. Mr. Fitts will serve in the class whose term expires in 2001; Mr. Goldhaber will serve in the class of directors whose term expires in 2002; and Mr. McCarthy will serve in the class of directors whose term expires in 2003. Upon the expiration of the term of a class of directors, directors in that class will be eligible to be elected for a new three-year term at the annual meeting of stockholders in the year in which that term expires. Compensation Committee Interlocks and Insider Participation No interlocking relationship exist between any member of our board of directors or compensation committee and the board of directors or compensation committee of any other company, nor has any interlocking relationship existed in the past. Executive Compensation Prior to the distribution Cybergold has paid the compensation provided to our offices and employees. In addition, to date MagnaCash has not awarded options under the MagnaCash 2000 Omnibus Equity Incentive Plan. 30 2000 Omnibus Equity Incentive Plan - ---------------------------------- Share Reserve. Our board of directors will adopt our 2000 Omnibus Equity Incentive Plan on or about the date of the distribution. Our stockholders will also approve this plan. We have reserved 5,000,000 shares of our common stock for issuance under the 2000 Omnibus Equity Incentive Plan. On January 1 of each year, starting with the year 2001, 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 2000 Omnibus Equity Incentive Plan are forfeited, then those options or shares will again become available for awards under the 2000 Omnibus Equity Incentive Plan. We have not yet granted any options under the 2000 Omnibus Equity Incentive Plan. Administration. A committee of our board of directors administers the 2000 Omnibus Equity Incentive Plan. The committee has the complete discretion to make all decisions relating to the interpretation and operation of our 2000 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 committee may also reprice outstanding options and modify outstanding awards in other ways. Eligibility. The following groups of individuals are eligible to participate in the 2000 Omnibus Equity Incentive Plan: - Employees, - Members of our board of directors who are not employees, and - Consultants. Types of Award. The 2000 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 2000 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 31 - A loan from a broker designated by us, secured by the option shares. Options vest at the time or times determined by a committee. In most cases, our options will vest over a 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 2000 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 1,000,000 shares in the first year of employment. Restricted Shares. Restricted shares may be awarded under the 2000 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. Automatic Option Grants to Directors 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 2001, 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 may accelerate as determined by the committee if the optionee retires after age 65, dies or is disabled. Stock Appreciation Rights. We may award stock appreciation rights under the 2000 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 2000 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. 32 Deferral of Awards. We may permit or require 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 MagnaCash occurs, an option or other award under the 2000 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 will not cause accelerated vesting even if outstanding awards are not assumed if such acceleration would prevent a pooling of interest accounting treatment. A change in control includes: - A merger of MagnaCash 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, - 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 MagnaCash (such as a holding company owned by our stockholders). Amendments or Termination. Our board may amend or terminate the 2000 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 2000 Omnibus Equity Incentive Plan will continue in effect indefinitely, unless the board decides to terminate the plan earlier. SECURITY OWNERSHIP OF MAGNACASH Immediately prior to the distribution of MagnaCash common stock, all of the outstanding MagnaCash shares will be held by Cybergold. The following table sets forth the projected beneficial ownership of MagnaCash shares immediately following the distribution by (i) each person known by the company to own beneficially more than five percent (5%) of the outstanding Common Stock of the company; (ii) each of the company's Directors; (iii) each of the our executive officers of the Company and (iv) all Directors and executive officers as a group.
- --------------------------------------------------------------------------------------------------------------------- MAGNACASH SHARES PROJECTED TO BE BENEFICIALLY OWNED - --------------------------------------------------------------------------------------------------------------------- NAME NUMBER (1) PERCENT OF CLASS - --------------------------------------------------------------------------------------------------------------------- Cybergold, Inc. 2,857,053 19.9% 1330 Broadway, 13th Floor Oakland, CA - --------------------------------------------------------------------------------------------------------------------- A. Nathaniel Goldhaber 2,412,886 16.7% 261 Stonewall Road Berkeley, CA 949705 - ---------------------------------------------------------------------------------------------------------------------
33 - ------------------------------------------------------------------------------------------------------- Entities affiliated with Alta California 1,356,175 9.4% Partners, L.P. (2) One Embarcadero Center #4050 San Francisco, CA 94111 - -------------------------------------------------------------------------------------------------- VantagePoint Venture Partners, 1996 (3) 1,115,008 7.7% 1001 Bayhill Drive #100 San Bruno, CA 94066 - -------------------------------------------------------------------------------------------------- Garrett P. Gruener (2) 1,356,175 9.4% - -------------------------------------------------------------------------------------------------- Alan Salzman (3) 1,115,008 7.7% - -------------------------------------------------------------------------------------------------- Gary Fitts 100,375 0.6% 1121 High Court Berkeley, CA 94708 - -------------------------------------------------------------------------------------------------- Barry McCarthy -- 0.0% 1315 Hearst Drive Pleasanton, CA 94538 - -------------------------------------------------------------------------------------------------- Eli Rosner -- 0.0% 46 Lucas Park Drive San Rafael, CA 94903 - -------------------------------------------------------------------------------------------------- Neta Klein -- 0.0% 1743 Geary Road Walnut Creek, CA 94596 - -------------------------------------------------------------------------------------------------- All directors and executive officers as a group 2,513,261 17.5% (5 persons) - --------------------------------------------------------------------------------------------------
Less than 1% (1) Except as otherwise noted, reflects, in each case, the number of shares of MagnaCash common stock to be beneficially owned as of October 1, 2000. (2) Includes 2,586,153 shares beneficially owned by Alta California Partners, L.P., and 59,083 shares beneficially owned by Alta Embarcadero Partners LLC. Of these shares, a total of 67,115 are issuable upon exercise of warrants. Garrett P. Gruener, a Cybergold, Inc. Director, 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. (3) Alan Salzman, a Cybergold, Inc. Director, is a managing partner of VantagePoint Venture Partners, 1996. The address of VantagePoint Venture Partners, 1996 is 1001 Bayhill Drive, Suite 100, San Bruno, CA 94066. Mr. Salzman disclaims beneficial ownership of the shares held by VantagePoint Venture Partners, 1996, except to the extent of his pecuniary interest therein. ARRANGEMENTS BETWEEN CYBERGOLD AND MAGNACASH We have provided below a summary description of the master separation and distribution agreement, agreement, and the key related agreements Cybergold and MagnaCash intend to enter into. You should read the full text of these agreements, which have been or will be filed with the Securities and Exchange Commission as exhibits to the registration statement of which this prospectus is a part. Master Separation and Distribution Agreement - -------------------------------------------- The master separation and distribution agreement contains the key provisions relating to the separation and the distribution. The separation is scheduled to occur on or before September 30, 2000. Prior to the distribution, Cybergold and MagnaCash plan to enter into the license, assignment and assumption agreement which provides for the transfer to MagnaCash of assets and liabilities from Cybergold and the license and assignment to MagnaCash of certain intellectual property from Cybergold, effective on the separation date. The ancillary agreements include: 34 . a license, assignment and assumption agreement; . a transitional services and joint operation agreement; . services agreement; and . a tax sharing agreement. To the extent that the terms of any of these ancillary agreements conflict with the separation agreement, the terms of these agreements govern. These agreements are described more fully below. Cash to be transferred to MagnaCash. Cybergold will provide to MagnaCash with a $5,000,000 contribution. However, prior to the separation date a reserve, if necessary, shall be established in MyPoints favor to cover any and all taxes which may be associated with the distribution and separation as well as associated costs and this may be accomplished by adjusting the $5,000,000 cash contribution. The Distribution. On or about September 29, 2000, Cybergold intends to distribute the common stock of MagnaCash by transferring the shares to the distribution and transfer agent except for those shares of common stock Cybergold shall retain. Cybergold may in its sole discretion determine the distribution date. Cybergold intends to consummate the distribution only if the following conditions are met (any of which may be waived by Cybergold): . all required government approvals must be in effect; and . no legal restraints must exist preventing the distribution. License, Assignment and Assumption Agreement - -------------------------------------------- Cybergold and MagnaCash were previously a single company and intend to enter into a License, Assignment and Assumption Agreement, or License Agreement, for the purpose of allocating rights in intellectual and other property to MagnaCash as appropriate to establish MagnaCash as a separate company, and assigning property. Cybergold will continue the business of awarding incentives for Internet activity, and MagnaCash will handle the consumer accounts and provide methods of redeeming the incentives. Pursuant to the License Agreement the parties intend to agree to the following terms: Cybergold will assign to MagnaCash all rights it now or may in the future have in certain intellectual property relating to the new business of MagnaCash. Cybergold further will assign to MagnaCash all merchant agreements, where the merchants agreed to exchange goods or services for value, provided the merchants agree to assignment in writing where necessary. Cybergold will also assign to MagnaCash all of its rights in certain furniture and equipment and certain third-party agreements with First National Bank of Omaha and Wells Fargo Bank. Cybergold will grant to MagnaCash an exclusive, perpetual, fully-paid, irrevocable, worldwide, royalty-free license to use certain proprietary intellectual property in the payment marketplace. To the extent that Cybergold has the right to sub-license non-owned proprietary intellectual property, Cybergold will grant to MagnaCash a perpetual, irrevocable, worldwide, royalty- free license to use such non-owned proprietary intellectual property. Any derivative works that either party develops from the licensed intellectual property discussed herein will be owned by the party which developed the work. MagnaCash will agree not to use the relevant intellectual property to offer goods or services relating to the business of awarding consumers incentives for Internet or other on-line or off-line activity for ten (10) years commencing from August 4, 2000. Except as a service to its membership, Cybergold will not use the relevant intellectual property to offer goods or services relating to the business of managing accounts which hold cash value or other value issued by others. 35 Cybergold may seek other business partners to deliver payment services as an alternative to MagnaCash. However, Cybergold will first offer MagnaCash the opportunity to offer the new services. Services Agreement - ------------------ Cybergold and MagnaCash intend to enter into a Services Agreement to provide for MagnaCash to perform for Cybergold certain account management, fund transfer, and cash value incentive redemption processing and other services. Pursuant to the Services Agreement the parties intend to agree to the following terms: MagnaCash will operate that portion of Cybergold's consumer loyalty reward system relating to the management, transfer and spending or other redemption of incentive payments earned by Cybergold members. The parties will cooperate to streamline any processes relating to this service agreement so as to create minimal inconvenience to Cybergold's members. MagnaCash may make additional services available to Cybergold for a negotiable fee, and if accepted, such additional services will become services under this agreement. MagnaCash will provide on-line facilities for users and merchants to manage their accounts. MagnaCash will also facilitate transfers of cash value among merchants, users, and related credit card and bank accounts. Cybergold will pay to MagnaCash a fixed monthly service fee and fees based on account activity. MagnaCash will pay to Cybergold a percentage of various transaction fees. Cybergold will first consult with MagnaCash before obtaining additional services relating to redemption or payment of incentives. If MagnaCash offers the additional services on terms no less advantageous to Cybergold than are available from other parties, Cybergold will obtain the additional services from MagnaCash. This agreement will be in effect for three years. It will thereafter be renewed automatically for successive one year renewal terms unless either party gives the other written notice of nonrenewal at least 120 days prior to the end of the initial or any renewal terms. During the first six months of joint operation, both parties agree to renegotiate the economic terms of this agreement prior to the conclusion of the first six months if necessary and appropriate. Transitional Services and Joint Operation - ------------------------------------------ MagnaCash will enter into a transitional services agreement with Cybergold covering the provision of various transitional services, including phone systems, accounting, computer facilities, technical support, human resources and others by Cybergold to MagnaCash and, if necessary in certain circumstances, vice versa. Certain infrastructure hardware and software (including, but not limited to, networks, servers, desktop computers and enterprise applications, unless prohibited by a third party) shall be separately owned and part of a system jointly operated by the parties. The services to be provided will generally be provided for a fee equal to the estimated costs of providing the services as calculated by various methods, plus a 25% upcharge to cover overhead and administrative costs. The transition services agreement will have an initial term of six months from the date of separation. The parties anticipate joint operation of certain equipment for a period of six months commencing August 4, 2000. During this time, major system changes will require mutual consent from the parties, costs for major changes in hardware will be shared, and assistance from the other party's staff will be available on a paid consulting basis. 36 Tax Sharing Agreement - --------------------- Prior to the distribution, MagnaCash will enter into a tax sharing agreement with MyPoints providing for, among other things, the allocation of tax liabilities arising prior to, as a result of, and subsequent to the distribution. MagnaCash will be required to pay its share of income taxes shown as due on any consolidated, combined or unitary tax returns filed by MyPoints or Cybergold for tax periods ending on or before or including the distribution date. MyPoints will indemnify MagnaCash against liability for all taxes in respect of consolidated, combined or unitary tax returns for periods as to which MyPoints or Cybergold files group returns which include MagnaCash. MagnaCash will be responsible for filing any separate tax returns for any taxable period, including for tax periods of MagnaCash beginning on or after the date of the distribution, at which time MagnaCash will no longer be a member of MyPoint's group for federal, state or local tax purposes, as the case may be. MagnaCash will be responsible for any tax liabilities, and entitled to any refunds or credits of taxes, with respect to separately filed tax returns. MagnaCash will indemnify MyPoints against any tax liability with respect to separately filed tax returns. MagnaCash will also indemnify MyPoints against all federal, state, local and foreign taxes related to the distribution of the MagnaCash stock. The tax sharing agreement will allocate responsibility with respect to tax matters including audits, and will provide for the exchange of information and the retention of records which may affect the income tax liability of either party. 37 Cybergold has agreed to indemnify us and our affiliates, agents, successors and assigns from all liabilities arising from: - Cybergold' business other than the businesses transferred to us pursuant to the separation; and - any breach by Cybergold of the separation agreement or any ancillary agreement. The indemnifying party will make all indemnification payments net of insurance proceeds that the indemnified party receives. The agreement also contains provisions governing notice and indemnification procedures. Insurance. In general, Cybergold has agreed to secure and pay for insurance covering all liabilities and losses arising from - management office Cybergold accounts - failure of the jointly owned severance hardware. The parties shall otherwise provide their own insurance. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with Cybergold MagnaCash has entered, or will enter into various arrangements with Cybergold which set forth both companies' duties and responsibilities in the separation and distribution. MagnaCash and Cybergold will continue to provide services to each partner for at least six months from the date of distribution and Cybergold will initially be MagnaCash's sole client. Please see "Arrangements Between Cybergold and MagnaCash" beginning on page 32 for further details. Cybergold will continue to hold a 19.9% interest in MagnaCash after the distribution. Cross-Ownership; Directors and Officers A. Nathaniel Goldhaber will continue to own 22.2% of Cybergold until the merger when he will exchange that stock for stock in MyPoints and will own 16.7% of MagnaCash. Together with Cybergold, Goldhaber will own 36.6% of MagnaCash, a combined percentage giving them significant control over MagnaCash. Additionally, Mr. Goldhaber is a current Cybergold director and is a MagnaCash director. Mr. Goldhaber will also be a vice-chairman director of MyPoints. Restrictions on Transfer Prior to the earliest of (i) the date that is the first anniversary of the date that Cybergold ceases to be the sole holder of outstanding shares of common stock, (ii) the date the Securities and Exchange Commission or successor organization declares effective a registration statement on Form S-1 or Form S-3 or successor form regarding an offering of shares of common stock the issuance of which would have the effect increasing the number of shares of common stock outstanding by eighty percent (80%) or more, or (iii) such date as determined by the board of directors of MagnaCash in its sole discretion, common stock may not be, directly or indirectly, sold, transferred, assigned, pledged, exchanged, hypothecated, gifted or otherwise disposed of except: (A) by Cybergold or its successor, in connection with the initial distribution by Cybergold of common stock to the holders of Cybergold's common stock, as of the record date of August 3, 2000, (B) from any holder of common stock that is a natural person to (i) such stockholder's spouse or children, (ii) to any trust solely for the benefit of such stockholder or the children or spouse of such stockholder or (iii) to any party pursuant to applicable laws of descent and distribution and (C) from any holder of common that is a corporation, limited liability company, limited partnership or general partnership to any affiliate (as defined under Rule 405 of the Securities Act of 1933, as amended). 38 MATERIAL FEDERAL INCOME TAX CONSIDERATIONS Material Federal Income Tax Considerations of the Distribution The following discussion summarizes the material federal income tax consequences of the distribution of interests in the MagnaCash business to the Cybergold stockholders. This discussion is based on the Internal Revenue Code, applicable Treasury Regulations, judicial authority and administrative rulings and practice, all as of the date hereof. No ruling regarding the distribution will be sought; therefore the IRS may disagree with the statements and conclusions set forth herein. In addition, future legislative, judicial or administrative changes or interpretations could adversely affect the accuracy of the statements and conclusions set forth herein. Any such changes or interpretations could be applied retroactively and could affect the tax consequences of the distribution to Cybergold or its stockholders, or both. Stockholders of Cybergold should be aware that the following discussion does not deal with all federal income tax consequences that may be relevant to Cybergold stockholders in light of their particular circumstances, such as stockholders who are foreign persons, stockholders who acquired their Cybergold stock in compensatory transactions, and stockholders who do not hold Cybergold shares as capital assets. Accordingly, Cybergold stockholders are urged to consult their own tax advisors as to the specific tax consequences to them of the distribution of the MagnaCash business, including the applicable federal, state, local and foreign tax consequences. The distribution of the MagnaCash business will be a taxable distribution to Cybergold. Cybergold will recognize any gain (but not loss) on the distribution equal to the difference between its tax basis in the shares of MagnaCash that it distributes and the fair market value of such stock on the date of the distribution. Cybergold stockholders will be treated as having received a distribution of property with respect to their Cybergold shares equal to the fair market value of the MagnaCash stock received in the distribution. The distribution will be taxable as a dividend to the extent of Cybergold's current and accumulated earnings and profits. Any amount not taxable as a dividend will be applied against and reduce the adjusted basis of the stockholder's MyPoints stock. To the extent that the fair market value of the portion of the distribution which is not a dividend exceeds the stockholder's adjusted tax basis in the MyPoints shares, the excess will be treated as gain from the sale or exchange of property. Cybergold does not have accumulated earnings and profits, and does not expect to have current earnings and profits in its taxable year during which the MagnaCash stock is distributed. However, whether Cybergold will have current earnings and profits for its taxable year during which the distribution occurs depends upon the date on which the merger is completed, the date of the distribution, and the fair market value of the MagnaCash business at the time of the distribution, among other things, none of which can be known with any certainty at present. Therefore, it is possible that under certain circumstances all or a portion of the distribution will be taxable as a dividend. Cybergold will provide information to stockholders regarding the amount of the distribution taxable as a dividend following the close of the calendar year in which the distribution occurs. Distribution of the MagnaCash stock may be subject to information reporting to the IRS and possible backup withholding at a rate of 31%. Backup withholding will not apply, however, to a Cybergold stockholder who furnishes a correct taxpayer identification number and makes other required certifications or is otherwise exempt from backup withholding. Amounts withheld under backup withholding rules may be credited against a stockholder's tax liability, and a stockholder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate form for refund with the IRS. 39 DESCRIPTION OF MAGNACASH'S CAPITAL STOCK Following the distribution, MagnaCash authorized capital stock will consist of 75,000,000 shares of common stock, $.001 par value, and 10,000,0000 shares of preferred stock, $.001 par value. The description set forth below is incomplete and is qualified by reference to the certificate of incorporation and the bylaws, which are set forth in Exhibits 2.0 and 3.0. Common Stock The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Except as otherwise provided by law, the holders of common stock vote together with the holders of preferred stock as one class. Subject to the rights of holders of any shares of preferred stock which may at the time be outstanding, holders of common stock will be entitled to such dividends as the board of directors may declare out of funds legally available therefor. Subject to the prior rights of creditors and holders of any preferred stock which may be outstanding from time to time, the holders of common stock are entitled, in the event of liquidation, dissolution or winding up of MagnaCash, to share equally in the distribution of all remaining assets. The common stock is not liable for any calls or assessments and is not convertible into any other securities. Prior to the earliest of (i) the date that is the first anniversary of the date that Cybergold ceases to be the sole holder of outstanding shares of common stock, (ii) the date the Securities and Exchange Commission or successor organization declares effective a registration statement on Form S-1 or Form S-3 or successor form regarding an offering of shares of common stock the issuance of which would have the effect of increasing the number of shares of common stock outstanding by eighty percent (80%) or more, or (iii) such date as determined by the board of directors of MagnaCash in its sole discretion, common stock may not be, directly or indirectly, sold, transferred, assigned, pledged, exchanged, hypothecated, gifted or otherwise disposed of except: (A) by Cybergold or its successor, in connection with the initial distribution by Cybergold of common stock to the holders of Cybergold's common stock, as of the record date of August 3, 2000, (B) from any holder of common stock that is a natural person to (i) such stockholder's spouse or children, (ii) to any trust solely for the benefit of such stockholder or the children or spouse of such stockholder or (iii) to any party pursuant to applicable laws of descent and distribution and (C) from any holder of common that is a corporation, limited liability company, limited partnership or general partnership to any affiliate (as defined under Rule 405 of the Securities Act of 1933, as amended). In addition, there are no redemption or sinking fund provisions applicable to the common stock. Preferred Stock The certificate provides that the board of directors is authorized to provide for the issuance of shares of preferred stock, from time to time, in one or more series. Prior to the issuance of shares in each series, the board of directors is required by the certificate and the Delaware General Corporation Law to adopt resolutions and file a Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof or the "Certificate of Designation" with the Secretary of State of Delaware, fixing for each such series the designations, preferences and relative, participating, optional or other special rights applicable to the shares to be included in any such series and any qualifications, limitations or restrictions thereon, including, but not limited to, dividend rights, dividend rate or rates, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences as are permitted by Delaware law. Certain Charter and Bylaw Provisions and Delaware Law After the distribution, provisions of our charter and bylaws may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. These provisions are expected to discourage coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of MagnaCash to first negotiate with us. These provisions could limit the price investors might be willing to pay in the future for our common stock and could have the effect of delaying or preventing a change in control. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited acquisition proposal outweigh the disadvantages of discouraging these 40 proposals because, among other things, negotiation will result in an improvement of their terms. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions include: - division of the board of directors into three separate classes; - elimination of cumulative voting in the election of directors; - prohibitions on our stockholders from acting by written consent and calling special meetings; - procedures for advance notification of stockholder nominations and proposals; and - the ability of the board of directors to alter our bylaws without stockholder approval. In addition, subject to limitations prescribed by law, our board of directors has the authority to issue up to 10,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The issuance of preferred stock, while providing flexibility in connection with possible financings or acquisitions or other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. MagnaCash is subject to the provisions of Section 203 of the Delaware General Corporation Law, an antitakeover law. In general, the statute prohibits a publicly held Delaware corporation from entering into a business combination with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a business combination includes a merger, asset sale or transaction resulting in a financial benefit to the interested stockholder, and an interested stockholder is a person who, together with affiliates and associates, owns (or within three years prior, did own) 15% or more of its voting capital stock. THE PROVISIONS OF THE CERTIFICATE, BYLAWS AND DELAWARE LAW ARE INTENDED TO ENCOURAGE POTENTIAL ACQUIRERS TO NEGOTIATE WITH US AND ALLOW MAGNACASH'S BOARD OF DIRECTORS THE OPPORTUNITY TO CONSIDER ALTERNATIVE PROPOSALS IN THE INTEREST OF MAXIMIZING STOCKHOLDER VALUE. SUCH PROVISIONS, HOWEVER, MAY ALSO HAVE THE EFFECT OF DISCOURAGING ACQUISITION PROPOSALS OR DELAYING OR PREVENTING A CHANGE IN CONTROL, WHICH MAY HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF THE COMMON STOCK. DIVIDEND POLICY MagnaCash has never declared or paid any cash dividends on its capital stock. MagnaCash currently intends to retain all future earnings, if any, for use in the operation and expansion of its business and does not anticipate declaring or paying cash dividends. INDEMNIFICATION OF DIRECTORS AND OFFICERS As permitted by the Delaware General Corporate Law, MagnaCash has included in its certificate a provision to eliminate the personal liability of its directors for monetary damages for breach or alleged breach of their fiduciary duties as directors, subject to certain exceptions. In addition, the bylaws require the companies to: . indemnify their officers and directors under certain circumstances, including those circumstances in which indemnification would otherwise be discretionary; and . advance expenses to their officers and directors as incurred in connection with proceedings against them for which they may be indemnified. 41 MagnaCash has entered into indemnification agreements with its officers and directors containing provisions that are in some respects broader than the specific indemnification provisions contained in the Delaware General Corporate Law. The indemnification agreements may require the companies, among other things, to indemnify such officers and directors against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from willful misconduct of a culpable nature), to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors' and officers' insurance if available on reasonable terms. MagnaCash believes that these charter provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. MagnaCash understands that the staff of the Securities and Exchange Commission is of the opinion that statutory, charter and contractual provisions as are described above have no effect on claims arising under the federal securities laws. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the MagnaCash common stock is U.S. Stock Transfer Corporation, 1745 Gardena Avenue, Glendale, CA 91204; telephone: (818) 502-1404. LEGAL MATTERS The statements included in this prospectus under the caption "Material Federal Income Tax Considerations" have been reviewed by and validity of the securities offered hereby will be passed upon for us by Morrison & Foerster LLP, San Francisco, California. Morrison & Foerster LLP is legal counsel to both Cybergold and MagnaCash. The Board of Directors of MagnaCash have not selected auditors for MagnaCash for the period after the distribution of shares. Such selection will be acted upon by the Audit Committee of the Board of Directors of MagnaCash after the transaction contemplated in this document has been consummated. EXPERTS The financial statements included in this registration statement, to the extent and for the period 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. WHERE YOU CAN FIND MORE INFORMATION As a result of the distribution, the Securities Exchange Act of 1934 requires us to file annual, quarterly and other reports with the Securities and Exchange Commission. We intend to provide annual reports containing audited financial statements to its stockholders in connection with its annual meetings of stockholders. We filed with the Securities and Exchange Commission a registration statement, which includes certain exhibits, under the Securities Act, for the securities issued under this prospectus. This prospectus contains general information about the contents of contracts and other documents filed as exhibits to the registration statement. However, this prospectus does not contain all of the information set forth in the registration statement and the exhibits filed with the registration statement. You should read the registration statement and the exhibits for further information about MagnaCash and the distribution. You should rely only on the information in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this document or the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this document does not extend to you. The information contained in this document speaks only as of the date of this document unless the information specifically indicates that another date applies. 42 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Financial Statements: Report of Independent Public Accountants................. F-2 Balance Sheet............................................ F-3 Statements of Operations................................. F-4 Statements of Divisional Equity.......................... F-5 Statements of Cash Flows................................. F-6 Notes to Financial Statements............................ F-7
_______________________________________________________________________________ F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Cybergold, Inc.: We have audited the accompanying balance sheet of MagnaCash, Inc. (a division of Cybergold, Inc. - Note 1) as of December 31, 1999 and the related statements of operations, divisional equity and cash flows for the year then ended. 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 audit provides 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 MagnaCash, Inc. as of December 31, 1999 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to these statements, the Company has an accumulated deficit of approximately $1,035,000 at December 31, 1999 and has continued to incur losses in 2000. Management's plans with regard to these matters are also described in Note 3. These factors raise substantial doubt as to the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. ARTHUR ANDERSEN LLP San Francisco, July 24, 2000 _______________________________________________________________________________ F-2 MAGNACASH, INC. BALANCE SHEETS
JUNE 30, DECEMBER 31, 2000 1999 (unaudited) ------------- ----------- ASSETS Property Computer equipment and licenses.............................. 416,127 702,891 Furniture and fixtures....................................... 55,144 55,144 Accumulated depreciation..................................... (90,589) (287,506) ----------- ---------- Property, net................................................. 380,682 470,529 ----------- ---------- Total assets.................................................. $ 380,682 $ 470,529 =========== ========== LIABILITIES AND DIVISIONAL EQUITY Accrued liabilities Payroll and benefits......................................... 52,503 61,944 ----------- ---------- Total current liabilities..................................... 52,503 61,944 ----------- ---------- Divisional equity Cybergold, Inc. investment................................... 1,489,190 2,360,522 Deferred compensation........................................ (125,519) (84,692) Accumulated deficit.......................................... (1,035,492) (1,867,245) ----------- ---------- Total divisional equity...................................... 328,179 408,585 ----------- ---------- Total liabilities and divisional equity....................................................... $ 380,682 $ 470,529 =========== ==========
The accompanying Notes to the Financial Statements are an integral part of these statements. ________________________________________________________________________________ F-3 MAGNACASH, INC. STATEMENTS OF OPERATIONS
YEAR ENDED SIX MONTHS ENDED JUNE 30, DECEMBER 31, 1999 2000 1999 (UNAUDITED) (UNAUDITED) -------------- -------------- -------------- Net revenues.......................................... $ 4,347 $ 1,254 $ 7,725 Cost of revenues...................................... 36,109 17,345 26,452 ------------ ----------- ----------- Gross margin.......................................... (31,762) (16,091) (18,727) Sales and marketing expenses.......................... 295,880 98,833 412,790 General and administrative expenses................... 122,500 36,185 115,233 Research and development expenses..................... 281,173 107,497 266,601 Amortization of deferred compensation................. 304,177 284,298 18,402 ------------ ----------- ----------- Net loss............................................. $ (1,035,492) $ (542,904) $ (831,753) ============ =========== ===========
The accompanying Notes to the Financial Statements are an integral part of these statements. ________________________________________________________________________________ F-4 MAGNACASH, INC. STATEMENTS OF DIVISIONAL EQUITY
CYBERGOLD, DEFERRED INC. ACCUMULATED TOTAL COMPENSATION INVESTMENT DEFICIT ------------- ----------- ----------- ------------- BALANCES AT JANUARY 1, 1999.......... $(503,272) $ 503,272 $ - - Net loss............................ - - (1,035,492) (1,035,492) Deferred compensation............... 73,576 (73,576) - - Amortization of deferred comp....... 304,177 - 304,177 Capital contribution................ - 1,059,494 - 1,059,494 --------- ------------ ---------- ---------- BALANCES AT DECEMBER 31, 1999........ (125,519) 1,489,190 (1,035,492) 328,179 Net loss (1)........................ - - (831,753) (831,753) Deferred compensation.(1) 22,425 (22,425) - Amortization of deferred comp. (1) 18,402 - - 18,402 Capital contribution (1)............ - 893,757 893,757 --------- ---------- ------------ ---------- BALANCES AT JUNE 30, 2000 (1)........ $ (84,692) $2,360,522 $(1,867,245) $ 408,585 ========= ========== ============ ==========
(1) unaudited The accompanying Notes to the Financial Statements are an integral part of these statements. _______________________________________________________________________________ F-5 MAGNACASH, INC. STATEMENTS OF CASH FLOWS
YEAR ENDED SIX MONTHS ENDED JUNE 30, 1999 2000 1999 (UNAUDITED) (UNAUDITED) ---------- ------------ ---------------- OPERATING ACTIVITIES Net loss........................................... $ (1,035,492) $ (542,904) $ (831,753) Adjustments for noncash charges included in net loss: Depreciation....................................... 90,589 24,670 98,785 Amortization of deferred compensation 304,177 284 18,402 Changes in current assets and liabilities: Increase in accrued liabilities................... 52,503 24,729 9,441 ---------- --------- --------- Net cash used in operating activities........................................ (588,223) (209,207) (705,125) ---------- --------- --------- INVESTMENT ACTIVITIES Purchases of property and equipment................. (471,271) (63,413) (188,632) ---------- --------- --------- Net cash used in investment activities (471,271) (63,413) (188,632) ---------- --------- --------- FINANCING ACTIVITIES Cybergold capital contribution...................... 1,059,494 272,620 893,757 ---------- --------- --------- Net cash provided by financing activities........................................ 1,059,494 272,620 893,757 ---------- --------- --------- Increase in cash and equivalents........................................ 0 0 0 Cash and equivalents at beginning of period............................................. 0 0 0 ---------- --------- --------- Cash and equivalents at end of period............................................. $ 0 $ 0 $ 0 ========== ========= =========
The accompanying Notes to the Financial Statements are an integral part of these statements. _______________________________________________________________________________ F-6 MAGNACASH, INC. NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1999 AND THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) AND JUNE 30, 1999 (UNAUDITED) 1.) OPERATIONS MagnaCash, Inc. ("MagnaCash"or the "Company"), a division of Cybergold, Inc. ("Cybergold"), is a provider of on-line payment infrastructure to on-line businesses and organizations. MagnaCash offers an on-line funds transfer system that enables its customers to create individual accounts for consumers and businesses with whom they have relationships. Transfers within accounts in the system occur immediately. These accounts can be used to store value credited to the accounts by transfers from bank accounts and credit cards or earned by users from promotional and other activities performed by them on the Internet. Users can apply funds from these accounts to credit cards, transmit them to bank accounts, or use them to make purchases directly from merchants who participate in the MagnaCash payment system. Transfers to accounts outside the system are credited immediately within the system, but are subject to standard bank and credit card protocols for audit outside the system. MagnaCash currently manages 9,000,000 accounts on behalf of Cybergold, Inc., its former corporate parent where the payment infrastructure business conducted by MagnaCash was developed. Over 50 merchants and organizations currently participate in the MagnaCash system. 2.) BASIS OF PRESENTATION On April 14, 2000, Cybergold entered into an agreement and plan of merger and reorganization with MyPoints.com, Inc. ("MyPoints"). As outlined in the merger agreement between Cybergold and MyPoints, Cybergold is to create an independent company, MagnaCash, Inc. ("MagnaCash" or the "Company") comprised of Cybergold's internet payments business. After completion of MagnaCash's initial public offering, Cybergold will own 19.9% of MagnaCash's outstanding common stock. In connection with the creation of MagnaCash as a separate company, Cybergold and MagnaCash will enter into a series of agreements (collectively referred to as the "Separation Agreements") (See Note 10 of the financial statements). Pursuant to the Separation Agreements, Cybergold will transfer to MagnaCash up to $5 million in cash in addition to certain assets and liabilities that relate to the MagnaCash business prior to the date of completion of MagnaCash's initial public offering (the "separation date"). The accompanying financial statements of MagnaCash reflect the historical results of operations and cash flows of the MagnaCash on-line payments business of Cybergold for the year ended December 31, 1999. Under Cybergold's ownership, MagnaCash's operations were a division of Cybergold and not a separate legal entity. The technology utilized by MagnaCash was developed by Cybergold for use in its business. On or about January 1, 1999, management of Cybergold decided to develop MagnaCash into a separate business venture in addition to a servicing vehicle for Cybergold. As a result, the financial information presented in this Registration Statement is for the period starting January 1, 1999. MagnaCash's historical financial information, as part of Cybergold, is shown in the financial statements. As a result of the various allocations and lack of specific identifiable historical divisional financial statements, the accompanying statements do not necessarily reflect what the financial position, results of operations and cash flows would have been had MagnaCash been a separate, stand-alone entity during the periods presented. In addition, the historical information is not necessarily indicative of what MagnaCash's results of operations, financial position and cash flows will be in the future. Management has not made adjustments to reflect many significant changes that will occur in MagnaCash's cost structure, funding and operations as a result of the separation from Cybergold, including changes in employee base, changes in legal structure, increased costs associated with reduced ________________________________________________________________________________ F-7 MAGNACASH, INC. NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1999 AND THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) AND JUNE 30, 1999 (UNAUDITED) economies of scale, increased marketing expenses related to establishing a new brand identity and increased costs associated with being a public, stand-alone company. The financial statements include allocations of applicable Cybergold expenses, including accounting, real estate, human resources, and other Cybergold corporate services and infrastructure costs. The expense allocations have been determined on the basis that Cybergold and MagnaCash management considered to be reasonable reflections of the utilization of services provided by Cybergold. 3.) RISK FACTORS Through December 31, 1999, MagnaCash had an accumulated deficit of approximately $1,035,000 and has continued to incur losses in 2000. In addition, under the terms of the Merger Agreement with MyPoints, should this Registration Statement not be declared effective on or before September 30, 2000, MyPoints has the option to dividend an amount equal to $5 million less any operating expenses funded by MyPoints through the date of the distribution, less any taxes payable upon the distribution of up to $5 million to the Cybergold stockholders and MagnaCash would cease operations. These factors raise substantial doubt as to the Company's ability to continue as a going concern. In addition to these factors, MagnaCash is exposed to a number of other risks including, but not limited to, intense competition, possible undue influence of one customer, a new and unproven market, ability to raise additional capital, rapidly changing technology, regulation, and lack of an active public market for its stock. 4.) SIGNIFICANT ACCOUNTING POLICIES Use of Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities; the disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting period. Significant estimates include those related to the allocation of expenses to MagnaCash. Actual results could differ from those estimates. Interim financial information--The financial information as of June 30, 1999 and 2000 is unaudited and includes adjustments, consisting only of normal and recurring adjustments, that management considered necessary for a fair presentation of MagnaCash's financial position, operating results and cash flows. Results for the six months ended June 30, 2000 are not necessarily indicative of results to be expected for the full fiscal year or for any future period. Receivables--MagnaCash has no accounts receivable as the transaction fees that it earns are credited to its account as soon as the transaction is completed. Property--Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight line basis over the estimated useful lives of the assets. All property and equipment is depreciated over 3 years. Maintenance and repair costs are charged to earnings while expenditures for major renewals and improvements are capitalized. Research and development costs - The Company accounts for its development costs in accordance with SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". Management determined that the software was substantially complete and ready for its intended use in early 1999 and the costs incurred during 1999 and 2000 relate to maintenance and minor enhancements. These costs have been expensed as incurred. Divisional Equity--Payable to/receivable from Cybergold represents the net amount due to or from Cybergold as a result of intercompany transactions between MagnaCash and Cybergold. See Note 10 for a description of the relationship with Cybergold. ________________________________________________________________________________ F-8 MAGNACASH, INC NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1999 AND THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) AND JUNE 30, 1999 (UNAUDITED) Revenue Recognition--Revenues are recognized at the time of the transaction, which occurs when a customer completes a transaction that transfers value in their personal on-line account to another merchant, their individual bank account or personal credit card. MagnaCash earns a transaction fee based on a percentage of the value transferred. Cost of revenues-- Cost of revenues represent fees paid to various banking organizations as client's members transfer earned balances to a bank account or a VISA card or spend in a payment transaction. Deferred Compensation--Employee stock options are accounted for under the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25). APB No. 25 requires the use of the intrinsic value method, which measures compensation cost as the excess, if any, of the quoted market price of the stock at grant over the amount an employee must pay to acquire the stock. MagnaCash makes pro forma disclosures of net earnings as if the fair value based method of accounting had been applied as required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS No. 123"). Income taxes--MagnaCash's operating results historically generated losses that have been included in Cybergold's consolidated U.S. and state income tax returns. As a result of the significant losses of Cybergold, the resulting net deferred tax asset was fully reserved. In the future, MagnaCash will record a provision for income taxes in its financial statements and will file separate tax returns. Deferred tax assets and liabilities will be recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts to the extent that these assets and liabilities are realizable. Comprehensive income--There are no other comprehensive income items except for net loss for any of the periods presented. Segment information--Management believes that the Company operates in one segment only. 5.) STOCK OPTIONS CYBERGOLD STOCK BASED PLANS STOCK OPTIONS-- MagnaCash employees participate in Cybergold's stock option plan. Generally, the exercise price of each stock option was equal to 100% of the market price of Cybergold's stock on the date of grant and has a maximum term of 10 years. Options vest 25% after 12 months of service and then vest ratably over the following three years. During 1999, Cybergold instituted a broad-based stock option incentive program under which Cybergold granted options, to essentially all full-time employees, including current MagnaCash employees, to purchase a total of approximately 140,000 shares of Cybergold common stock. A portion of the stock options granted was at exercise prices below market price of Cybergold's stock on the date of grant. In connection with the granting of these stock options, during 1999 Cybergold recorded deferred compensation of $1,279,995, of which $370,068 related to MagnaCash employees or a proportionate share of Cybergold employee deferred compensation relating to time spent on the MagnaCash business.In addition, all remaining Cybergold employees will receive one MagnaCash stock option for every four Cybergold stock options they have been granted. As of the effective date of MagnaCash's initial public distribution, the vesting of all Cybergold stock options held by Magnacash employees will cease. ______________________________________________________________________________ F-9 MAGNACASH, INC NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1999 AND THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) AND JUNE 30, 1999 (UNAUDITED) A summary of options held by MagnaCash employees under the Cybergold option plans follows:
NUMBER OF WEIGHTED CYBERGOLD AVERAGE EXERCISABLE EXERCISABLE EXERCISE OPTIONS SHARES PRICE ------------- ---------------- ----------------- Outstanding at January 1, 1999.................... 141,599 141,599 $ 0.20 Granted......................................... 134,400 84,600 $ 4.43 Exercised....................................... (90,666) (90,666) $ 0.05 Canceled/Expired................................ (13,600) (13,600) $ 0.23 ------- -------- ------ Outstanding at December 31, 1999.................. 171,733 121,933 $ 3.58 Granted......................................... 75,800 - $10.02 Exercised....................................... (58,545) (58,545) $ 0.41 Canceled/Expired................................ (17,490) (13,490) $ 3.36 ------- -------- ------ Outstanding at June 30, 2000(unaudited) 171,498 49,898 $ 7.53
The weighted average fair value of individual options granted during 1999 was $1.25 The fair value of each MagnaCash employee option grant under the Cybergold plans is estimated on the date of grant using the Black-Scholes option-pricing model and the following weighted average assumptions: 1999 --------- Expected lives.................................. 4 years Risk-free interest rate......................... 6.28% Expected volatility............................. 0% Dividend yield.................................. 0% The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compenation." Had compensation expense been determined based on the fair value at the grant dates, as prescribed in SFAS No. 123, the Company's net loss would have increased by approximately $13,000 for the year ended December 31, 1999. MAGNACASH STOCK BASED PLANS STOCK OPTIONS. Concurrent with the initial public offering, MagnaCash intends to establish a stock option plan for MagnaCash employees. No future stock option grants will be made under the Cybergold plan to MagnaCash employees; instead, future grants to MagnaCash employees will be made under the MagnaCash plan. _______________________________________________________________________________ F-10 MAGNACASH, INC NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1999 AND THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) AND JUNE 30, 1999 ((UNAUDITED) 6.) EMPLOYEE STOCK PURCHASE PLAN (ESPP) Cybergold maintains an ESPP that permits full-time MagnaCash employees to purchase a limited number of Cybergold common shares at 85% of market value. Under the plan, Cybergold sold 2,789 shares to MagnaCash employees in 1999. 7.) LEASES MagnaCash will enter into a sublease agreement with Cybergold to lease space consisting of 7,258 sq. ft. located at 1330 Broadway, Suite 1535 in Oakland, California. The sublease is for a period of 60 months and requires lease payments of $14,516 per month. Rent expense included in these financial statements for the year ended December 31, 1999 was $50,402 and was allocated based on headcount. 8.) EQUITY Following the distribution, MagnaCash's authorized capital stock will consist of 11,500,000 shares of common stock, $.001 par value, and 0 shares of preferred stock, $.001 par value. The holders of common stock are entitled to one vote for each share held. Except as otherwise provided by law, the holders of common stock vote together with the holders of preferred stock as one class. Subject to the rights of holders of any shares of preferred stock which may at the time be outstanding, holders of common stock will be entitled to such dividends as the board of directors may declare out of funds legally available therefor. Subject to the prior rights of creditors and holders of any preferred stock which may be outstanding from time to time, the holders of common stock are entitled, in the event of liquidation, dissolution or winding up of MagnaCash, to share equally in the distribution of all remaining assets. Prior to the distribution, there has been no public market for our common stock. MagnaCash has not applied to have the MagnaCash common stock included for quotation on the Nasdaq Stock Market's National Market or listed on any exchange. Prior to the earliest of (i) the date that is the first anniversary of the date that Cybergold ceases to be the sole holder of outstanding shares of common stock, (ii) the date the Securities and Exchange Commission or successor organization declares effective a registration statement on Form S-1 or Form S-3 or successor form regarding an offering of shares of common stock the issuance of which would have the effect of increasing the number of shares of common stock outstanding by eighty percent (80%) or more, or (iii) such date as determined by the board of directors of MagnaCash in its sole discretion, common stock may not be, directly or indirectly, sold, transferred, assigned, pledged, exchanged, hypothecated, gifted or otherwise disposed of except: (A) by Cybergold or its successor, in connection with the initial distribution by Cybergold of common stock to the holders of Cybergold's common stock, as of the record date of August 3, 2000, (B) from any holder of common stock that is a natural person to (i) such stockholder's spouse or children, (ii) to any trust solely for the benefit of such stockholder or the children or spouse of such stockholder or (iii) to any party pursuant to applicable laws of descent and distribution and (C) from any holder of common that is a corporation, limited liability company, limited partnership or general partnership to any affiliate (as defined under Rule 405 of the Securities Act of 1933, as amended). 9.) CONTINGENCIES MagnaCash is presently not a party to any pending legal proceeding or claims. 10.) RELATIONSHIP WITH CYBERGOLD MagnaCash's costs and expenses include allocations from Cybergold for certain centralized accounting, human resources, benefits administration and real estate leases. These allocations have been determined on a basis that MagnaCash and Cybergold considered to be reasonable reflections of the utilization of services provided or the benefit received by MagnaCash. The allocation methods include relevant equipment, revenues and headcount. Allocated costs included in Sales and Marketing, General and Administrative and Research and Development expenses in the accompanying statement of operations for the year ended 1999 are $63,755, 31,878 and 31,878, respectively. All revenues have been generated by servicing Cybergold's accounts. For purposes of governing certain of the ongoing relationships between MagnaCash and Cybergold at and after the separation date and to provide for an orderly ______________________________________________________________________________ MAGNACASH, INC NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1999 AND THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) AND JUNE 30, 1999 (UNAUDITED) transition, MagnaCash and Cybergold have entered or will enter into various agreements, subject to change until finalized. A brief description of each of the draft agreements follows: SERVICES AGREEMENT The Services Agreement governs the relationship between MagnaCash and Cybergold for the management of Cybergold's consumer loyalty rewards system related to the spending and other redemption of incentive payments earned by Cybergold members. This agreement will be in effect for three years commencing on August 1, 2000 and includes terms for the payment of a monthly base fee and an active account fee which is based on the total number of active accounts managed by MagnaCash. In addition, the agreement will be renewed automatically for successive one year renewal terms unless either party give the other written notice of nonrenewal at least 120 days prior to the end of the initial term. The agreement also includes a provision to renegotiate the terms of this agreement after six months due to the evolving business needs of MagnaCash and Cybergold. LICENSE AND ASSIGNMENT AGREEMENT The License and Assignment Agreement governs the use by MagnaCash of Cybergold's intellectual and other property including the transaction system MagnaCash uses to complete real-time, on-line cash transactions that enable the movement of money between any combination of individuals, merchants and businesses participating in the system. In addition, this agreement outlines the proposed sharing of certain desktop and server software which will be used by both MagnaCash and Cybergold for the foreseeable future. This agreement grants MagnaCash an exclusive, perpetual, irrevocable, worldwide, royalty-free license to use the above noted intellectual property. As a condition of this agreement, certain third party banking agreements will be assigned to MagnaCash. TRANSITIONAL SERVICES AND JOINT OPERATION MagnaCash will enter into a transitional services agreement with Cybergold covering the provision of various transitional services, including telecommunications, accounting, computer facilities, technical support, human resources and other services by Cybergold to MagnaCash and, if necessary in certain circumstances, vice versa. The transitional services agreement will have an initial term of six months from the date of separation. TAX SHARING AGREEMENT Prior to the distribution, MagnaCash will enter into a tax sharing agreement with MyPoints providing for, among other things, the allocation of tax liabilities arising prior to, as a result of, and subsequent to the distribution. MagnaCash _______________________________________________________________________________ F-12 MAGNACASH, INC NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1999 AND THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED) AND JUNE 30, 1999 (UNAUDITED) will be required to pay its share of income taxes shown as due on any consolidated, combined or unitary tax returns filed by MyPoints or Cybergold for tax periods ending on or before or including the distribution date. MyPoints will indemnify MagnaCash against liability for all taxes in respect of consolidated, combined or unitary tax returns for periods as to which MyPoints or Cybergold files group returns which include MagnaCash. MagnaCash will be responsible for filing any separate tax returns for any taxable period, including for tax periods of MagnaCash beginning on or after the date of the distribution, at which time MagnaCash will no longer be a member of MyPoint's group for federal, state or local tax purposes, as the case may be. MagnaCash will be responsible for any tax liabilities, and entitled to any refunds or credits of taxes, with respect to separately filed tax returns. MagnaCash will indemnify MyPoints against any tax liability with respect to separately filed tax returns. MagnaCash will also indemnify MyPoints against all federal, state, local and foreign taxes related to the distribution of the MagnaCash stock. The tax sharing agreement will allocate responsibility with respect to tax matters including audits, and will provide for the exchange of information and the retention of records which may affect the income tax liability of either party. 11.) RECENT ACCOUNTING PRONOUNCEMENTS In June 1998 and June 1999, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities-- Deferral of the Effective Date of FASB Statement No. 133. These statements outline the accounting treatment for all derivative activity. MagnaCash does not presently use derivative instruments. As a result management believes that these accounting statements will not have an effect on MagnaCash. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company has adopted SAB 101. ________________________________________________________________________________ F-13 You may read and copy the registration statement and other materials that MagnaCash files with the Securities and Exchange Commission at the Public Reference Room of the Securities and Exchange Commission, 450 Fifth Street, Washington, D.C. 20549 and at the Securities and Exchange Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of these documents, upon payment of a duplication fee, by writing to the Securities and Exchange Commission's Public Reference Section. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the Public Reference Rooms. The Securities and Exchange Commission filings of MagnaCash are also available to the public on the Securities and Exchange Commission Internet site (http://www.sec.gov). PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the costs and expenses payable by the Registrant in connection with the sale of Common Stock being registered. All amounts are estimates except the registration fee.
Amount to be Paid SEC Registration Fee................................................. $ 264 Printing and Engraving............................................... 65,000 Legal Fees and Expenses.............................................. 175,000 Accounting Fees and Expenses......................................... 125,000 Blue Sky Qualification Fees and Expenses............................. not applicable Transfer Agent Fees.................................................. 10,000 Miscellaneous........................................................ 9,000 Total.............................................................. 384,264
Item 14. Indemnification of Directors and Officers As permitted by Section 145 of the Delaware General Corporation Law, the Registrant's certificate of incorporation includes a provision that eliminates the personal liability of its directors for monetary damages for breach or alleged breach of their duty of care to the Company or its stockholders. In addition, as permitted by Section 145 of the Delaware General Corporation Law, the certificate of incorporation of the Registrant provides, inter alia, that each person who is made a party or is threatened to be made a party to or otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or officer of the Company or, while a director or officer of the Company, is or was serving at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, is authorized to be indemnified and held harmless by the Company to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee's heirs, executors and administrators; provided, however, that, except with respect to the proceedings brought by an indemnitee to enforce rights to indemnification (subject to certain restrictions and as more fully described in the Registrant's certificate of incorporation), the Company shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Company. The right to indemnification conferred in the Registrant's certificate of incorporation includes the right to be paid by the Company the expenses incurred in connection with any such proceeding in advance of its final disposition; provided, however, that, if and to the extent that the Delaware General Corporation Law requires, such an advancement of expenses incurred by an indemnitee II-1 in his or her capacity in which service was or is rendered by such indemnitee, including, without limitation, service with respect to an employee benefit plan, shall be made only upon delivery to the Company of an undertaking by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under the Company's certificate of incorporation or otherwise. The Registrant's policy is to enter into indemnification agreements with each of its directors and executive officers that provide the maximum indemnity allowed to directors and executive officers by Section 145 of the Delaware General Corporation Law and the Bylaws, as well as certain additional procedural protections. The indemnity agreements provide that directors and executive officers will be indemnified to the fullest possible extent not prohibited by law against all expenses (including attorney's fees) and settlement amounts paid or incurred by them in any action or proceeding, including any derivative action by or in the right of the Registrant, on account of their services as directors or executive officers of the Registrant or as directors or officers of any other company or enterprise when they are serving in such capacities at the request of the Registrant. Pursuant to the indemnity agreements, the Company will not be obligated to indemnify or advance expenses to an indemnified party with respect to proceedings or claims initiated by the indemnified party and not by way of defense, except with respect to proceedings specifically authorized by the Board of Directors or brought to enforce a right to indemnification under such indemnity agreement, the Company's certificate of incorporation, Bylaws or any statute or law, or as otherwise required under Section 145 of the Delaware General Corporation Law. Also under the indemnity agreements, the Company is not obligated to indemnify the indemnified party for (i) any expenses incurred by the indemnified party with respect to any proceeding instituted by the indemnified party to enforce or interpret the agreement, if a court of competent jurisdiction determines that each of the material assertions made by the indemnified party in such proceeding was not made in good faith or was frivolous, (ii) acts, omissions or transactions on the part of the indemnified party from which such party may not be relieved of liability under applicable law or (iii) expenses and the payment of profits arising from the purchase and sale by the indemnified party of securities in violation of Section 16(b) of the Exchange Act, or any similar or successor statute. The indemnification provisions in the certificate of incorporation and the indemnification agreements entered into between the Registrant and its directors and executive officers, may be sufficiently broad to permit indemnification of the Registrant's officers and directors for liabilities arising under the 1933 Act. Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein: Item 15. Exhibits and Financial Schedules (a) EXHIBITS EXHIBIT DESCRIPTION ------------------- 3.1 Certificate of Incorporation of MagnaCash, Inc. 3.2 Bylaws of MagnaCash, Inc. 5.1 Form of Legal Opinion of Morrison & Foerster LLP* 10.1 Form of Master Separation and Distribution Agreement between Cybergold, Inc. and MagnaCash, Inc.* 10.2 Form of Tax Sharing Agreement between MyPoints.com, Inc. and MagnaCash, Inc.* 10.3 Form of License Assignment and Assumption Agreement between Cybergold, Inc. and MagnaCash, Inc.* 10.4 Form of Transitional Services and Joint Operating Agreement between Cybergold, Inc. and MagnaCash, Inc.* 10.5 Form of Services Agreement between Cybergold, Inc. and MagnaCash, Inc. 21.1 2000 Omnibus Equity Incentive Plan* 23.1 Independent Auditor's Consent 23.2 Consent of Morrison & Foerster LLP (included in Exhibit 5.1)* __________________ *To be filed by amendment. II-2 24.1 Power of Attorney (included in signature pages to the Registration Statement) (b) FINANCIAL STATEMENT SCHEDULES Independent Auditors' Report S-1 ITEM 16. UNDERTAKINGS 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 provisions referenced in Item 14 of this Registration Statement 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 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 whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the 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 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 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. SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oakland, State of California, on the 4th day of August, 2000. MagnaCash Inc. By: /s/ Barry McCarthy ________________________________________ Barry McCarthy COO, President and Director Each person whose signature appears below constitutes and appoints Barry McCarthy with full power of substitution and resubstitution; his true and lawful attorney-in-fact agent, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the securities and exchange commission or any state, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be in and about the premises, as II-3 fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or his substitution many lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date - --------------------------------- -------------------------------- -------------------------------- /s/ Barry McCarthy Director, President and Chief August 4, 2000 _________________________________ BARRY MCCARTHY Operating Officer (Principal Executive Officer) /s/ A. Nathaniel Goldhaber Director August 4, 2000 _________________________________ A. NATHANIEL GOLDHABER /s/ Gary Fitts Director, Chief Technical Officer August 4, 2000 _________________________________ GARY FITTS /s/ Barry McCarthy August 4, 2000 _________________________________ BARRY MCCARTHY (ATTORNEY-IN-FACT)
II-4 EXHIBIT INDEX EXHIBIT DESCRIPTION _______________________ 3.1 Certificate of Incorporation of MagnaCash, Inc. 3.2 Bylaws of MagnaCash, Inc. 5.1 Form of Legal Opinion* 10.1 Form of Master Separation and Distribution Agreement between Cybergold, Inc. and MagnaCash, Inc.* 10.2 Form of Tax Sharing Agreement between MyPoints.com, Inc. and MagnaCash, Inc.* 10.3 Form of License Assignment and Assumption Agreement between Cybergold, Inc. and MagnaCash, Inc.* 10.4 Form of Transitional Services and Joint Operating Agreement between Cybergold, Inc. and MagnaCash, Inc.* 10.5 Form of Services Agreement between Cybergold, Inc. and MagnaCash, Inc.* 21.1 2000 Omnibus Equity Incentive Plan* 23.1 Independent Auditor's Consent 23.2 Consent of Morrison & Foerster LLP (included in Exhibit 5.1)* 24.1 Power of Attorney (included in signature pages to the Registration Statement) _________________________________ *To be filed by amendment. II-5 EX-3.1 2 0002.txt CERTIFICATE OF INCORPORATION OF MAGNACASH, INC. EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF MAGNACASH, INC. A DELAWARE CORPORATION (PURSUANT TO SECTIONS 228, 242 AND 245 OF THE DELAWARE GENERAL CORPORATION LAW) ARTICLE I The name of the corporation is Magnacash, Inc. (the "Corporation"). ARTICLE II A. The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, 19801, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. B. The name and mailing address of the sole incorporator is as follows: Katherine R. Perkins c/o Morrison & Foerster LLP 425 Market Street San Francisco, CA 94105-2482 ARTICLE III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV The Corporation is authorized to issue two classes of stock to be designated common stock ("Common Stock") and preferred stock ("Preferred Stock"). The number of shares of Common Stock authorized to be issued is Seventy-Five Million (75,000,000), par value $0.001 per share. The number of shares of Preferred Stock authorized to be issued is Ten Million (10,000,000), par value $0.001 per share. Prior to the earliest of (i) the date that is the first anniversary of the date that Cybergold, Inc. ("Cybergold"), ceases to be the sole holder of outstanding shares of Common Stock, (ii) the date the Securities and Exchange Commission or successor organization declares effective a registration statement on Form S-1 or Form S-3 or successor form regarding an offering of shares of Common Stock the issuance of which would have the effect increasing the number of shares of Common Stock outstanding by eighty percent (80%) or more, or (iii) such 1 date as determined by the board of directors of the corporation in its sole discretion, Common Stock may not be, directly or indirectly, sold, transferred, assigned, pledged, exchanged, hypotheticated, gifted or otherwise disposed of except: (A) by Cybergold or its successor, in connection with the initial distribution by Cybergold of Common Stock to the holders of Cybergold's common stock, as of a record date prior to August 3, 2000, (B) from any holder of Common Stock that is a natural person to (i) such stockholder's spouse or children, (ii) to any trust solely for the benefit of such stockholder or the children or spouse of such stockholder or (iii) to any party pursuant to applicable laws of descent and distribution and (C) from any holder of Common that is a corporation, limited liability company, limited partnership or general partnership to any affiliate (as defined under Rule 405 of the Securities Act of 1933, as amended). Preferred Stock may be issued from time to time in one or more series, without further stockholder approval. The Board of Directors is hereby authorized, in the resolution or resolutions adopted by the Board of Directors providing for the issue of any wholly unissued series of Preferred Stock, within the limitations and restrictions stated in this Certificate of Incorporation, to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, preemptive rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them, and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. ARTICLE V Except as otherwise provided in this Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation. ARTICLE VI The number of directors which shall constitute the whole of the Board of Directors shall initially be three (3). With the exception of the first Board of Directors, which shall be elected by the incorporator, the number of directors of the Corporation shall be fixed from time to time by a bylaw or amendment thereof duly adopted by the Board of Directors. ARTICLE VII Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. ARTICLE VIII 2 Except as otherwise provided in this Certificate of Incorporation, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of the stockholders of the Corporation, and no action required to be taken or that may be taken at any annual or special meeting of the stockholders of the Corporation may be taken by written consent. ARTICLE IX A director of the Corporation shall, to the fullest extent permitted by the General Corporation Law as it now exists or as it may hereafter be amended, not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the General Corporation Law is amended, after approval by the stockholders of this Article, to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law, as so amended. Any amendment, repeal or modification of this Article IX, or the adoption of any provision of this Certificate of Incorporation inconsistent with this Article IX, by the stockholders of the Corporation shall not apply to or adversely affect any right or protection of a director of the Corporation existing at the time of such amendment, repeal, modification or adoption. ARTICLE X In addition to any vote of the holders of any class or series of the stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of a majority of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal any provision of this Certificate of Incorporation not specified in the preceding sentence. ARTICLE XI To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) agents of the Corporation (and any other persons to which General Corporation Law permits the Corporation to provide indemnification) through bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and 3 advancement otherwise permitted by Section 145 of the General Corporation Law, subject only to limits created by applicable General Corporation Law (statutory or non-statutory), with respect to actions for breach of duty to the Corporation, its stockholders, and others. Any amendment, repeal or modification of the foregoing provisions of this Article XI shall not adversely affect any right or protection of a director, officer, agent, or other person existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to, such amendment, repeal or modification. I, the undersigned, being the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and, accordingly, have hereunto set my hands this 1st day of August, 2000. ---------------------------- Katherine R. Perkins Sole Incorporator 4 EX-3.2 3 0003.txt BYLAWS OF MAGNACASH, INC. EXHIBIT 3.2 BYLAWS OF MAGNACASH, INC., A DELAWARE CORPORATION BYLAWS OF MAGNACASH, INC., A DELAWARE CORPORATION TABLE OF CONTENTS
PAGE ARTICLE I OFFICE AND RECORDS Section 1.1 Delaware Office..................................... 4 Section 1.2 Other Offices....................................... 4 Section 1.3 Books and Records................................... 4 ARTICLE II STOCKHOLDERS Section 2.1 Annual Meeting...................................... 3 Section 2.2 Special Meeting..................................... 3 Section 2.3 Place of Meeting.................................... 3 Section 2.4 Notice of Meeting................................... 3 Section 2.5 Quorum and Adjournment.............................. 4 Section 2.6 Proxies............................................. 4 Section 2.7 Notice of Stockholder Business and Nominations...... 4 Section 2.8 Procedure for Election of Directors................. 7 Section 2.9 Inspectors of Elections............................. 8 Section 2.10 Consent of Stockholders in Lieu of Meeting......... 8 ARTICLE III BOARD OF DIRECTORS Section 3.1 General Powers...................................... 9 Section 3.2 Number, Tenure and Qualifications................... 9 Section 3.3 Regular Meetings.................................... 9 Section 3.4 Special Meetings.................................... 9 Section 3.5 Notice.............................................. 9 Section 3.6 Conference Telephone Meetings....................... 10 Section 3.7 Quorum.............................................. 10 Section 3.8 Vacancies........................................... 10 Section 3.9 Committee........................................... 11 Section 3.10 Removal............................................ 11 ARTICLE IV STOCKHOLDERS Section 4.1 Elected Officers.................................... 11 Section 4.2 Election and Term of Office......................... 14 Section 4.3 Chairman of the Board............................... 14 Section 4.4 President and Chief Executive Officer............... 14 Section 4.5 Secretary........................................... 14
Section 4.6 Treasurer........................................... 13 Section 4.7 Removal............................................. 13 Section 4.8 Vacancies........................................... 13 ARTICLE V STOCK CERTIFICATES AND TRANSFERS Section 5.1 Stock Certificates annd Transfers................... 13 ARTICLE VI INDEMNIFICATION Section 6.1 Right to Indemnification............................ 14 Section 6.2 Prepayment of Expenses.............................. 15 Section 6.3 Claims.............................................. 15 Section 6.4 Nonexclusivity of Rights............................ 15 Section 6.5 Amendment or Repeal................................. 15 Section 6.6 Other Indemnfication and Prepayment of Expenses..... 15 ARTICLE VII MISCELLANEOUS PROVISIONS Section 7.1 Fiscal Year......................................... 15 Section 7.2 Dividends........................................... 16 Section 7.3 Seal................................................ 16 Section 7.4 Waiver of Notice.................................... 16 Section 7.5 Audits.............................................. 16 Section 7.6 Resignations ....................................... 16 Section 7.7 Contracts........................................... 16 Section 7.8 Proxies............................................. 17 ARTICLE VIII AMENDMENTS Section 8.1 Amendments.......................................... 17
3 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 Wilmington, County of New Castle. 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 Oakland, 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. A. 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. 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, 4 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 5 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) 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 tenth 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 6 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 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 7 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 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 8 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. So long as Cybergold, Inc. ("Cybergold") or its successor is the sole holder of shares of capital stock of the Company, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or 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 to be 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 entitles to vote thereon were present and voted. After the Corporation has issued capital stock to a party other than Cybergold, or Cybergold has transferred any shares of the Corporation's capital stock to any other party, 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. 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. A. 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 9 Certificate of Incorporation, to elect directors under specified circumstances, the number of directors shall initially be three, but shall in no case be greater than nine. With the exception of the first Board of Directors, which shall be elected by the incorporators, the number of directors shall be fixed from time to time thereafter by a majority of the Board of Directors. B. The Board of Directors shall be and is divided into three classes, Class I, Class II and Class III. Such classes shall be as nearly equal in number of directors as possible. Each director shall serve for a term ending on the third annual meeting following the annual meeting at which such director was elected; provided, however, that the directors first elected to Class I shall serve for a term ending on the annual meeting of stockholders for fiscal year 2001, the directors first elected to Class II shall serve for a term ending on the annual meeting of stockholders for fiscal year 2002, and the directors first elected to Class III shall serve for a term ending on the annual meeting of stockholders for fiscal year 2003. The foregoing notwithstanding, each director shall serve until his successor shall have been duly elected and qualified, unless he shall resign, become disqualified, disabled or shall otherwise be removed. C. At each annual election, directors chosen to succeed those whose terms then expire shall be of the same class as the directors they succeed, unless by reason of any intervening changes in the authorized number of directors, the Board shall designate one or more directorships whose term then expires as directorships of another class in order more nearly to achieve equality of number of directors among the classes. D. Notwithstanding the rule that the three classes shall be as nearly equal in number of directors as possible, in the event of any change in the authorized number of directors each director then continuing to serve as such shall nevertheless continue as a director of the class of which he is a member until the expiration of his current term, or his prior death, resignation or removal. If any newly created directorship may, consistently with the rule that the three classes shall be as nearly equal in number of directors as possible, be allocated to either class, the Board shall allocate it to that of the available class whose term of office is due to expire at the earliest date following such allocation. 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. 10 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 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 11 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 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 seventy-five percent (75%) of the voting power of the then outstanding Voting Stock, voting together as a single class. 12 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 13 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 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. 14 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 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. 15 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. 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 January and end on the thirty-first day of December of each year. Section 7.2 Dividends. The Board of Directors may from time to 16 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. 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 17 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 seventy-five percent (75%) 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. CERTIFICATE OF SECRETARY OF MAGNACASH, INC. 18 The undersigned, Barry McCarthy, hereby certifies that he is the duly elected and acting Secretary of Magnacash, Inc., a Delaware corporation (the "Corporation"), and that the Bylaws attached hereto constitute the Bylaws of said Corporation as duly adopted by the Directors on ________, 2000. IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name this ___ day of July, 2000. ------------------------- Barry McCarthy Secretary 19 EX-23.1 4 0004.txt INDEPENDENT AUDITOR'S CONSENT EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report (and to all references to our Firm) included in or made a part of this registration statement. San Francisco, California Arthur Andersen LLP August 3, 2000 -----END PRIVACY-ENHANCED MESSAGE-----