SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A) of the
Securities and Exchange Act of 1934
Check the appropriate box:
[X] Preliminary proxy statement
[ ] Confidential, for use of the Commission only
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
NETOBJECTS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person (s) Filing Proxy Statement, if other than Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provide by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration number, of the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
First mailed to stockholders on or about February __, 2000.
<PAGE>
[NETOBJECTS LOGO]
301 Galveston Drive
Redwood City, CA 94063
Dear Stockholder,
You are cordially invited to attend the 2000 Annual Meeting of
Stockholders of NetObjects, Inc. (the "Company") to be held at 10:00 a.m. on
March 15, 2000 at the Hotel Sofitel, 223 Twin Dolphin Drive, Redwood City, CA,
94065 at 10:00 a.m.
The matters expected to be acted upon at the meeting are described in
detail in the following Notice of the 2000 Annual Meeting of Stockholders and
Proxy Statement.
Whether you plan to attend the Annual Meeting or not, it is important
that you promptly complete, sign, date and return the enclosed proxy card, or
vote via the Internet or by telephone in accordance with the instruction set
forth on the proxy card. This will ensure your proper representation at the
Annual Meeting.
Sincerely,
Samir Arora
Chairman of the Board and
Chief Executive Officer
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT.
PLEASE REMEMBER PROMPTLY TO RETURN YOUR PROXY
OR VOTE VIA THE INTERNET OR BY TELEPHONE
- --------------------------------------------------------------------------------
<PAGE>
NETOBJECTS, INC.
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
To be Held on March 15, 2000
To the Stockholders of NetObjects, Inc.:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
NetObjects, Inc., a Delaware corporation (the "Company"), will be held on March
15, 2000 at the Hotel Sofitel, 223 Twin Dolphin Drive, Redwood City, CA, 94065
at 10:00 a.m. for the following purposes:
1. To elect six members of the Board of Directors to hold office until the
next Annual Meeting of Stockholders or until their respective
successors have been elected or appointed. The nominees are Samir
Arora, Robert G. Anderegg, Lee A. Dayton, Blake Modersitzki, John
Sculley, and Michael D. Zisman.
2. To amend the Company's Restated Certificate of Incorporation to
increase the number of shares of Common Stock, par value $.01 per
share, that the Company is authorized to issue from 60,000,000 shares
to 120,000,000 shares.
3. To ratify an amendment to the Company's Amended and Restated 1997 Stock
Option Plan increasing the maximum aggregate number of shares of the
Company's Common Stock that may be optioned and sold under the plan
from 4,500,000 shares to 7,600,000 shares.
4. To ratify the grant of options to purchase an aggregate of 1,400,000
shares of the Company's Common Stock to senior executives of the
Company.
5. To ratify the appointment of the accounting firm of KPMG LLP as
independent auditors for the Company for the fiscal year ending
September 30, 2000.
6. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on February 1,
2000 as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting and at any adjournments thereof. A list of
such stockholders will be available for inspection at the principal office of
the Company.
All stockholders are cordially invited to attend the Annual Meeting.
However, to ensure your representation, you are requested to complete, sign,
date and return the enclosed proxy as soon as possible in accordance with the
instructions on the proxy card. A return addressed envelope is enclosed for your
convenience. Stockholders whose shares are held in the names of brokerage firms
or banks also may vote via the Internet or telephone. Any stockholder attending
the Annual Meeting may vote in person even though the stockholder has returned a
proxy previously. Your proxy is revocable in accordance with the procedures set
forth in the Proxy Statement.
BY ORDER OF THE BOARD OF DIRECTORS
Alan B. Kalin
Secretary
Redwood City, California
February __, 2000
<PAGE>
NETOBJECTS, INC.
301 Galveston Drive
Redwood City, California 94063
---------------------
PROXY STATEMENT
---------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of NetObjects, Inc., a Delaware corporation (the
"Company"), of proxies, in the accompanying form, to be used at the 2000 Annual
Meeting of Stockholders to be held at 10:00 a.m. on March 15, 2000 at the Hotel
Sofitel, 223 Twin Dolphin Drive, Redwood City, CA, 94065 at 10:00 a.m. and any
adjournments thereof (the "Meeting").
This Proxy Statement and the accompanying proxy are being mailed or
will be available electronically on or about February __, 2000 to all
stockholders entitled to notice of and to vote at the Meeting.
SOLICITATION AND VOTING PROCEDURES
Shares represented by valid proxies in the form enclosed, received in
time for use at the Meeting and not revoked at or prior to the Meeting, will be
voted at the Meeting. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of the Company's common stock, par value $.01
per share ("Common Stock"), is necessary to constitute a quorum at the Meeting.
Holders of Common Stock are entitled to one vote on all matters. An automated
system administered by [the Company's transfer agent [or ADP]] tabulates
stockholder votes, and an officer of the Company will tabulate votes cast in
person at the Meeting. With respect to the tabulation of proxies for purposes of
constituting a quorum, abstentions and broker non-votes are treated as present,
but will not be counted as votes cast at the Meeting with respect to any
proposal.
An affirmative vote of a plurality of the shares present or represented
at the Meeting and entitled to vote is required for Proposal No. 1 regarding the
election of directors. An affirmative vote of the holders of a majority of the
outstanding shares of Common Stock is required for approval of Proposal No. 2 to
amend the Company's Restated Certificate of Incorporation. An affirmative vote
of the holders of a majority of the votes cast affirmatively or negatively at
the Meeting is necessary for approval of Proposal No. 3 to ratify the increase
in the number of shares of Common Stock reserved under the Amended and Restated
1997 Stock Option Plan, Proposal No. 4 to ratify the issuance of certain stock
options to senior executives, and Proposal No. 5 to ratify the appointment of
independent auditors. All proxies will be voted as specified on the proxy card
submitted by the stockholder, if the proxy is properly executed and is received
by the Company prior to the close of voting at the Meeting or any adjournment or
postponement thereof. If no choice has been specified, a properly executed and
timely proxy will be voted for Proposals Nos. 1 - 5, which are described in
detail elsewhere in this Proxy Statement.
The close of business on February 1, 2000 has been fixed as the record
date for determining the stockholders entitled to notice of and to vote at the
Meeting. As of that date, the Company had _____________ shares of Common Stock
outstanding and entitled to vote.
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition, the Company will reimburse brokerage firms and other persons
representing beneficial owners of Common Stock for their expenses in forwarding
proxy material to such beneficial owners. Solicitation of proxies by mail may be
supplemented by telephone, telegram, telex and other electronic means, and
personal solicitation by the Directors, officers or employees of the Company. No
additional compensation will be paid to Directors, officers or employees for
such solicitation. The Company has retained Morrow & Company to assist in the
solicitation of proxies for a fee estimated to be approximately $4,000 plus
reasonable out-of-pocket expenses.
4
<PAGE>
The Annual Report to stockholders for the fiscal year ended September
30, 1999 is being mailed to the stockholders with this Proxy Statement. On May
6, 1999, the Company effected a one-for-six reverse stock split applicable to
all shares outstanding immediately prior to the closing of the Company's initial
public offering. All of the share information presented in this Proxy Statement
is on a post-split basis.
VOTING ELECTRONICALLY OR BY TELEPHONE
A number of brokerage firms and banks are participating in a program
provided through ADP Investor Communication Services that offers telephone and
Internet voting options. If your shares are held in an account at a brokerage
firm or bank participating in the ADP program, you may vote those shares by
calling the telephone number which appears on your voting form or though the
Internet in accordance with instructions set forth on the voting form. Votes
submitted through the Internet or by telephone through the ADP program must be
received by midnight on __________________, 2000.
The Internet and telephone voting procedures are designed to
authenticate stockholders' identities, to allow stockholders to vote their
shares and to confirm that their instructions have been properly recorded. The
Company has been advised by its counsel that the procedures that have been put
in place are consistent with the requirements of applicable law. Stockholders
voting via the Internet through ADP Investor Communication Services should
understand that there may be costs associated with electronic access, such as
usage charges from Internet access providers and telephone companies, that would
be borne by the stockholder.
REVOCABILITY OF PROXIES
You can revoke your proxy at any time before the voting at the Meeting
by sending a properly signed written notice of your revocation to the Secretary
of the Company, by submitting another proxy that is properly signed and bears a
later date or by voting in person at the Meeting. Attendance at the Meeting will
not itself revoke an earlier submitted proxy. You should direct any written
notices of revocation and related correspondence to: NetObjects, Inc., 301
Galveston Drive, Redwood City, California 94063, Attention: Secretary.
To revoke a proxy previously submitted electronically through the
Internet or by telephone, you may simply vote again at a later date, using the
same procedures, in which case your later submitted vote will be recorded and
your earlier vote revoked.
-5-
<PAGE>
SHARE OWNERSHIP
<TABLE>
The following table sets forth information as of December 31, 1999
concerning the ownership of Common Stock by (i) each stockholder of the Company
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each current member of the Board of
Directors of the Company, (iii) each executive officer of the Company named in
the Summary Compensation Table appearing under "Executive Compensation" below
and (iv) all current Directors and executive officers of the Company as a group.
<CAPTION>
Shares Beneficially
Name and Address Owned (1)
---------------- -------------------------------------------
Number Percent
------------------ -------------------
<S> <C> <C>
International Business Machines Corporation (2) 16,295,208 52.7%
New Orchard Road
Armonk, NY 10504
Current Directors:
Samir Arora (3) 1,688,406 6.2%
Robert G. Anderegg -- --
Lee A. Dayton -- --
Blake Modersitzki -- --
John Sculley (4) 68,684 *
Michael D. Zisman -- --
Named Executive Officers who are not Directors:
Russell F. Surmanek (5) 161,334 *
Morris Taradalsky (6) 189,491 *
Mark Patton (7) 173,470 *
Jack Rotolo (8) 126,084 *
All executive officers and Directors as a group (13 persons) (9) 3,194,796 11.4%
<FN>
- -------------------
* Represents beneficial ownership of less than 1% of the Company's Common
Stock.
(1) The number of shares of Common Stock issued and outstanding on December 31,
1999 was 27,102,781. The calculation of percentages is based upon the
number of shares of Common Stock issued and outstanding on such date, plus
shares of Common Stock subject to options and/or warrants held by the
respective persons on December 31, 1999 and exercisable within 60 days
thereafter. Such shares are not deemed outstanding for the purpose of
computing the percentage ownership of any other person. Warrants are
assumed to be exercised in full notwithstanding the warrant holders' right
to exercise the warrant on a "net" basis by surrendering shares of Common
Stock having a value equal to the warrant exercise price upon exercise of
the warrant. The persons and entities named in the table have sole voting
and dispositive power with respect to all shares shown as beneficially
owned by them, except as described below.
(2) Includes warrants to purchase 3,482,838 shares of Common Stock at
approximately $6.66 per share that are exercisable on a net basis and
expire on April 11, 2000, warrants to purchase 253,194 shares at
approximately $6.68 per share that are exercisable on a net basis and
expire on various dates in 2003 and 2004, and warrants to purchase 83,333
shares of Common Stock at $10.80 per share that are exercisable on a net
basis and expire in December 2000.
(3) Includes 191,841 shares subject to options to purchase Common Stock held by
Mr. Arora that are exercisable within 60 days of December 31, 1999, and
warrants to purchase 59,672 shares of Common Stock at $10.80 per share that
are exercisable on a net basis and expire on March 14, 2000. Also includes
299,457 shares of Common Stock owned by Information Capital LLC, wholly
owned by Mr. Arora, and 362,129 shares of Common Stock held by Rae
Technology II LLC, of which he is President and owns a majority of the
equity interests. Mr. Arora exercises shared voting and dispositive power
over the shares held by Rae Technology II LLC, but disclaims beneficial
ownership of those shares except to the extent of his pecuniary interest
therein.
-6-
<PAGE>
(4) Includes 18,959 shares subject to options to purchase Common Stock held by
Mr. Sculley that are exercisable within 60 days of December 31, 1999. Also
includes warrants to purchase 13,580 shares of Common Stock at $10.80 per
share that are exercisable on a net basis and expire on March 14, 2000.
(5) Includes 160,554 shares subject to options to purchase Common Stock held by
Mr. Surmanek that are exercisable within 60 days of December 31, 1999.
(6) Includes 165,554 shares subject to options to purchase Common Stock held by
Mr. Taradalsky that are exercisable within 60 days of December 31, 1999.
Also includes warrants to purchase 3,563 shares of Common Stock of $10.80
per share that are exercisable on a net basis and expire on March 14, 2000.
Also includes 20,374 shares of Common Stock held by Rae Technology II LLC,
which represent Mr. Taradalsky's indirect pecuniary interest therein. Mr.
Taradalsky is a member of the Board of Managers of Rae Technology II LLC
and may be deemed to have voting and dispositive power over the shares that
it holds. He disclaims beneficial ownership of all such shares except to
the extent of his pecuniary interest.
(7) Includes 100,112 shares subject to options to purchase Common Stock held by
Mr. Patton that are exercisable within 60 days of December 31, 1999.
(8) All 126,084 shares are subject to options to purchase Common Stock held by
Mr. Rotolo that are exercisable within 60 days of December 31, 1999.
(9) Includes 865,250 shares subject to options to purchase Common Stock that
are exercisable within 60 days of December 31, 1999 and 362,129 shares of
Common Stock held by Rae Technology II LLC.
</FN>
</TABLE>
-7-
<PAGE>
MANAGEMENT
Directors
The Company's bylaws provide that the number of Directors shall be six
until changed by approval of the stockholders or a majority of the Directors.
Each Director is elected to serve until the next annual meeting of stockholders
and until the election and qualification of his or her successor or his or her
earlier resignation or removal.
The names of the Company's Directors and certain information about them
are set forth below:
Name Age Positions with the Company
---- --- --------------------------
Samir Arora 34 Chairman of the Board, Chief
Executive Officer and President
Robert G. Anderegg 50 Director
Lee A. Dayton 56 Director
Blake Modersitzki 33 Director
John Sculley 60 Director
Michael D. Zisman 50 Director
Samir Arora has served as Chairman of the Board, Chief
Executive Officer and President since the Company's inception in November 1995.
In 1992, Mr. Arora founded Rae Technology, a provider of software applications,
and from 1992 through November 1995 served as its CEO. From 1986 to 1992, Mr.
Arora served in several management roles at Apple Computer, Inc. Mr. Arora holds
a diploma in sales and marketing from the London Business School and attended
INSEAD, France and BITS, India. Samir Arora is the brother of Sal Arora, who is
the Company's Chief Technology Architect and Vice President, Engineering Desktop
Products and Online Services.
Robert G. Anderegg has been a Director of the Company since
April 11, 1997. Mr. Anderegg has served as Vice President and Assistant General
Counsel at IBM since August 1998. He has been appointed to serve on the Board of
Directors by IBM as one of its representatives. Mr. Anderegg has served as an
Assistant General Counsel or Associate General Counsel at IBM since 1988. Mr.
Anderegg holds a B.S. degree from Georgia Institute of Technology and received
his J.D. from Harvard Law School.
Lee A. Dayton has been a Director of the Company since April
11, 1997. Mr. Dayton is Vice President, Corporate Development and Real Estate at
IBM. He has been appointed to serve on the Board of Directors by IBM as one of
its representatives. Mr. Dayton has held various management positions at IBM
since he joined in 1965 as a systems engineer. Mr. Dayton holds a B.S. in
Engineering from Northwestern University.
Blake Modersitzki has been a director of the Company since
January 2000. He has been an employee of Novell for the past five years. He is
presently Managing Director of Novell Ventures, in which position he has served
since March 1998. He served as Business Development Director from January 1997
to March 1998 and Senior Manager, Sales and Marketing for Small Business
Networks from May 1995 to January 1997.
John Sculley has been a Director of the Company since December
20, 1996. Since April 1994, Mr. Sculley has been a partner of Sculley Brothers,
an investment capital firm. Mr. Sculley also is a director of General Wireless,
Inc., a wireless communications services provider, Talk City, Inc., an online
chat community, and NFO Worldwide, Inc., a market research firm. From 1983 to
1993, Mr. Sculley served as Chief Executive Officer of Apple Computer, Inc. Mr.
Sculley holds a B.A. in Architectural Design from Brown University, an M.B.A.
from the Wharton School at the University of Pennsylvania and holds eight
honorary doctorates from various schools.
-8-
<PAGE>
Michael D. Zisman has been a Director of the Company since
April 11, 1997. Mr. Zisman is an Executive Vice President of Lotus, a position
that he has held since October 1996. He has been appointed to serve on the Board
of Directors by IBM as one of its representatives. From July 1994 to October
1996, he held other executive positions at Lotus. Mr. Zisman is also the Vice
President of Strategy for the IBM Software Group. Mr. Zisman was the Chief
Executive Officer of Soft-Switch, Inc., a software development company, from
1979 to July 1994. Mr. Zisman is a director of Strategic Weather Services, Inc.,
a privately-held company. Mr. Zisman holds a B.S. from Lehigh University, an
M.S. from the University of Pennsylvania Moore School and a Ph.D. from The
Wharton School at the University of Pennsylvania.
Committees of the Board of Directors and Meetings
The Company's Board of Directors has standing Audit and Compensation
Committees. The Audit Committee currently has two members: Robert G. Anderegg
and John Sculley. Christopher M. Stone was a member of the Audit Committee prior
to his resignation from the Board of Directors effective January 25, 2000. The
Compensation Committee currently has two members: Lee A. Dayton and John
Sculley. Samir Arora was a member of the Compensation Committee until the Board
of Directors reduced the Committee's size at its June 30, 1999 meeting. During
the fiscal year ended September 30, 1999, there were eight meetings of the Board
of Directors, no meetings of the Audit Committee and two meetings of the
Compensation Committee. Mr. Stone attended fewer than 75% of the total number of
meetings of the Board of Directors. In addition, the members of the Board of
Directors and the Compensation Committee acted at various times by unanimous
written consent pursuant to Delaware law.
Compensation of Directors
The Company's Directors do not receive cash compensation for their
services as Directors or members of Committees of the Board of Directors. The
Company's Amended and Restated 1997 Stock Option Plan provides for the automatic
grant of options to purchase 20,000 shares of Common Stock to each outside
Director upon initially joining the Board of Directors. The option exercise
price is equal to the fair market value of a share of Common Stock at the date
of grant, the option term is six years, and the options vest and become
exercisable pro rata at the end of each month for 48 months while the option
holder continues to serve as a Director.
Messrs. Stone, Sculley and Modersitzki have received these automatic
option grants. Mr. Stone's options ceased vesting upon his resignation from the
Board of Directors, at which time options to purchase 3,333 shares of Common
Stock were vested and exercisable for 30 days following the date of his
resignation. The Company also has granted an option to Mr. Sculley to purchase
up to 50,000 shares of Common Stock at an exercise price of $7.50 per share,
vesting over four years, and reimburses him for certain expenses incurred to
attend Board of Directors meetings.
Contractual Arrangements
The Company is party to a voting agreement with IBM (the "IBM Voting
Agreement") which provides that IBM will vote its shares of voting stock in a
way that limits the number of IBM representatives on a six-member Board of
Directors to three, notwithstanding IBM's right to elect a greater number of
directors under the Delaware General Corporation Law. The agreement defines an
IBM representative as an officer, director or other agent or employee of IBM,
IBM's subsidiaries or any other entity controlled by IBM, other than the
Company. The voting agreement also obligates the Company and IBM to maintain a
Board of Directors consisting of six members unless the holders of a majority of
outstanding voting stock, excluding IBM's shares, approve an amendment to the
Company's Amended and Restated Bylaws or Restated Certificate of Incorporation
to change the size of the Board of Directors. The IBM Voting Agreement remains
in effect until IBM holds less than 45% of the Company's voting securities on a
fully-diluted basis (as defined in the IBM Voting Agreement) for a period of 180
consecutive days. As of December 31, 1999, IBM held approximately 52% of the
Company's voting securities as calculated on this fully-diluted basis, which
takes into account outstanding warrants and options to purchase shares of Common
Stock. While the IBM Voting Agreement remains effective, it may allow IBM's
representatives on the Board of Directors
-9-
<PAGE>
to control any determinations with respect to most material transactions outside
the ordinary course of the Company's business, including mergers or other
business combinations, the acquisition or disposition of the Company's assets,
future issuances of Company equity or debt securities and the payment of
dividends.
Executive Officers
<TABLE>
The names of, and certain information regarding, executive officers of
the Company who are not Directors of the Company, are set forth below. The
executive officers serve at the pleasure of the Board of Directors and the Chief
Executive Officer.
<CAPTION>
Name Age Positions with the Company
---- --- --------------------------
<S> <C> <C>
Russell F. Surmanek 42 Executive Vice President, Finance and Operations and Chief Financial Officer
Morris Taradalsky 53 Executive Vice President and General Manager, Enterprise
Mark Patton 42 Executive Vice President and General Manager, Small Business Markets
Peter Shaw 53 Executive Vice President, Corporate Development
Steven Mitgang 38 Executive Vice President, Small Business and Corporate Marketing
Jack Rotolo 39 Senior Vice President, Worldwide Sales
Gagan (Sal) Arora 26 Chief Technology Architect and Vice President, Engineering
</TABLE>
Russell F. Surmanek has served as Executive Vice President,
Finance & Operations, and Chief Financial Officer since April 1999. From 1990 to
1999, Mr. Surmanek served in several senior financial management positions at
Oracle Corporation, most recently as Vice President, Finance & Administration,
Worldwide Operations. From 1989 to 1990, Mr. Surmanek was Controller, North
America Sales & Support for International Computers Limited (ICL). From 1983 to
1989 Mr. Surmanek held various financial management positions at Racal-Milgo,
Inc., a data communications equipment manufacturer. From 1981 to 1983, Mr.
Surmanek held various finance positions at Northern Telecom, Inc. Mr. Surmanek
holds a B.S. in Business Administration from the State University of New York at
Buffalo, and an M.B.A. from the University of Michigan.
Morris Taradalsky has served in various senior executive
capacities since joining the Company in April 1997, and was appointed Executive
Vice President and General Manager, Enterprise in August 1999. From April 1994
to April 1997, Mr. Taradalsky served as Chief Executive Officer of MicroNet
Technology, Inc., a privately-held storage systems supplier. From December 1988
to April 1994, Mr. Taradalsky was employed at Apple Computer, Inc. where he was
General Manager of the Apple Business Systems Division. Prior to joining Apple
Computer, Mr. Taradalsky was employed by IBM for 18 years in a number of
positions, including Vice President and General Manager, Santa Teresa
Laboratory. Mr. Taradalsky graduated magna cum laude from Pennsylvania State
University with a B.S. in Mathematics.
Mark Patton was appointed Executive Vice President and General
Manager, Small Business Markets in October 1999, having served as Senior Vice
President, Worldwide Sales and Corporate Marketing since December 1996. From
February 1995 to November 1996, Mr. Patton was Vice President and General
Manager of the Digital and Applied Imaging Division at Eastman Kodak, Inc. From
February 1994 to February 1995, Mr. Patton was Vice President and General
Manager, American Division at Logitech, Inc., a computer peripheral products
manufacturer. From August 1985 to February 1994, Mr. Patton held various sales
management positions at Apple Computer, Inc. Mr. Patton holds a B.A. in Speech
Communication from the University of Washington.
Peter Shaw was appointed Executive Vice President, Corporate
Development in October 1999. Prior to joining the Company, Mr. Shaw was
Chairman, CEO and President of Sitematic Corporation. From December 1995 to June
1997, Mr. Shaw was senior vice president of NetManage, where he was responsible
for the company's international operations and key North American accounts. From
August 1989 to November 1995, Mr. Shaw was President and CEO of AGE Logic, an
Intranet connectivity software company that he founded and subsequently sold to
NetManage. From September 1976 to February 1983, he was founder, President, and
CEO of Megatek Graphic Systems. Mr. Shaw holds a B.S.E. in engineering from City
College of New York, and an MBA from the University of Connecticut.
-10-
<PAGE>
Steven Mitgang was appointed Executive Vice President, Small
Business and Corporate Marketing in October 1999. Prior to joining the Company,
Mr. Mitgang was Senior Vice President of Marketing and Business Development at
Sitematic. From December 1995 to August 1998, Mr. Mitgang was Senior Vice
President of Marketing for Jostens Learning Corporation, a curriculum software
company. Mr. Mitgang held executive-level positions with the Upper Deck Company
from August 1991 to January 1995 and with Reebok International from August 1989
to August 1991. From June 1984 to August 1989, Mr. Mitgang managed accounts in
the New York office of Chiat/Day Advertising. Mr. Mitgang holds an A.B. in
Architecture from the University of California, Berkeley.
Jack Rotolo was appointed Senior Vice President, Worldwide
Sales in August 1999. From 1997 until August, Mr. Rotolo was Vice President,
Sales. Prior to joining the Company, Mr. Rotolo was senior manager of Apple
Computer's consumer markets solution development organization from February 1993
to February 1996. While at Apple, Mr. Rotolo also managed the business, consumer
and higher education channel strategy organization and held various sales
management positions in the reseller operations group. Before joining Apple, Mr.
Rotolo worked as regional manager for Pepsi-Cola Bottling Group. He holds a B.S.
in Finance from the University of Dayton.
Sal Arora has served as Chief Technology Architect and Vice
President, Engineering, Desktop Products and Online Services since November
1995. From September 1994 to November 1995, Mr. Arora was the lead engineer at
Rae Technology. From June 1992 to September 1994, Mr. Arora was a software
engineer at ACIUS Inc. Mr. Arora holds a B.A. in Computer Science from the
University of California, Berkeley. Sal Arora is the brother of Samir Arora, who
is Chairman of the Board, Chief Executive Officer and President of the Company.
-11-
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
The following Summary Compensation Table sets forth summary information
as to compensation received by the Company's Chief Executive Officer and each of
the four other most highly compensated persons who were serving as executive
officers of the Company as of September 30, 1999, (collectively, the "named
executive officers") for services rendered to the Company in all capacities
during the two fiscal years ended September 30, 1999.
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
--------------------------------- ----------------------------
Securities Underlying
Options
Name and Principal Position Fiscal Year Salary Bonus #'s of shares
- ----------------------------------------------------- ----------------- ------------- --------------------------
<S> <C> <C> <C> <C>
Samir Arora 1999 $183,129 $ 55,987 --
Chairman of the Board, Chief Executive 1998 175,338 47,434 --
Officer, and President
Russell F. Surmanek 1999 108,447 113,750 235,000
Executive Vice President, Finance and 1998 -- -- --
Operations, Chief Financial Officer
Morris Taradalsky 1999 176,073 24,343 63,333
Executive Vice President and General 1998 166,048 86,095 --
Manager, Enterprise
Mark Patton 1999 162,525 105,754 71,666
Executive Vice President and General 1998 150,000 35,555 --
Manager, Small Business Markets
Jack Rotolo (1) 1999 119,923 53,774 166,666
Senior Vice President, Worldwide 1998 -- -- --
Sales
<FN>
- --------------------------
(1) Mr. Rotolo became an executive officer in August 1999, and these figures reflect his compensation for the entire fiscal
year.
</FN>
</TABLE>
-12-
<PAGE>
Option Grants in Last Fiscal Year
<TABLE>
The following table provides information regarding the grant of stock
options during fiscal year 1999 to the named executive officers.
<CAPTION>
Individual Grants
-----------------------------------------------------
Potential Realizable Value
at Assumed Annual Rate of
% of Total Stock Price Appreciation
Number of Options for Option
Shares Granted to Exercise Term (7)
Underlying Employees Price Expiration ---------------------------
Name Options (1) in Fiscal ($/share) Date 5% 10%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Samir Arora -- --% $ -- -- $ -- $ --
Russell F. Surmanek 235,000(2) 13 $ 7.50 24-Mar-09 1,108,427 2,808,971
Morris Taradalsky 33,333(3) 2 7.50 09-Dec-08 157,223 398,432
30,000(5) 2 7.375 01-Jul-09 139,143 352,615
Mark Patton 41,666(3) 2 7.50 09-Dec-08 196,526 498,037
30,000(5) 2 7.375 01-Jul-09 139,143 352,615
Jack Rotolo 16,666(3) 1 7.50 12-Sep-08 78,609 199,210
10,000(4) 1 12.00 05-May-09 75,467 191,249
40,000(5) 2 8.06 30-Jun-09 202,755 513,823
100,000(6) 5 5.81 25-Aug-09 365,388 925,961
<FN>
- ----------------
(1) Options are incentive stock options to the extent qualified and
nonstatutory options otherwise. The options generally terminate 30 days
following the executive's employment with the company or the expiration
date, whichever occurs earlier. The exercise price of each option was
determined to be equal to or greater than the fair market value per share
of the Common Stock at the grant date.
(2) Options to purchase 35,000 shares fully vested three months following the
date of grant. Options to purchase 200,000 shares vest as follows: 25%
after six months, 2.5% per month for the next six months; 50% shall vest in
twenty-four equal monthly installments thereafter, and 10% shall vest in
equal monthly installments for the next twelve months. See "Executive
Compensation--Employment Contracts."
(3) Options vest as to 25% after one year, and 1/36 monthly thereafter.
(4) Options vest in 12 equal monthly installments.
(5) Options vest in 24 equal monthly installments.
(6) Options vest as to 35,000 shares after three months, and as to the balance
of the share over the next 24 months in equal installments, and vesting
will accelerate on a change of control so that 70% of the total number of
shares subject to options will be fully vested on the date of the change of
control.
(7) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses associated
with the exercise of the option or the sale of the underlying shares. The
actual gains, if any, on the exercise of stock options will depend on the
future performance of the Common Stock, the option holder's continued
employment throughout the option period and the date on which the options
are exercised.
</FN>
</TABLE>
-13-
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Values
<TABLE>
The following table provides information regarding the aggregate
exercises of options by each of the named executive officers. In addition, this
table includes the number of shares covered by both exercisable and
unexercisable stock options as of September 30, 1999, and the values of
"in-the-money" options, which values represent the positive spread between the
exercise price of any such options and the fiscal year-end value of the
Company's Common Stock.
<CAPTION>
Value of the Unexercised
Number of Securities In-The
Underlying Unexercised Money Options at Fiscal Year
Shares Options at Fiscal Year End End(2)
Acquired on Value ------------------------------------------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Samir Arora $ 140,625 84,375 $ 558,984 $ 335,390
-- --
Russell F. Surmanek 35,000 200,000
Morris Taradalsky 83,055 113,611 332,289 217,709
Mark Patton 73,358 486,639 16,051 107,255 64,187 177,334
Jack Rotolo 19,069 111,914 13,421 180,627 197,460 85,104
<FN>
- -------------------
(1) The value realized represents the aggregate market value of the shares
covered by the option on the date of exercise less the aggregate exercise
price paid by the executive officer.
(2) The value of unexercised in-the-money options at fiscal year end assumes a
fair market value for the Company's Common Stock of $5.63, the closing
market price per share of the Company's Common Stock as reported on the
Nasdaq National Market on September 30, 1999.
</FN>
</TABLE>
Employment Contracts
The Company entered into an employment agreement with Russell F.
Surmanek, Executive Vice President, Finance and Operations and Chief Financial
Officer, as of April 5, 1999. The employment agreement has a term of 24 months.
Under the agreement, Mr. Surmanek is entitled to receive an annual salary of
$220,000 plus a 15% sales target bonus payable semi-monthly, 20% of his annual
salary as an annual fiscal year bonus, and a starting bonus of $100,000. If Mr.
Surmanek's employment is terminated without cause before April 5, 2001, he is
entitled to be paid the remaining salary which would have been payable during
the term, including pro-rata bonus amounts. Additionally, under the agreement
the Company has granted options to purchase 235,000 shares of Common Stock to
Mr. Surmanek. See "Executive Compensation - Option Grants in the Last Fiscal
Year." If Mr. Surmanek's employment is terminated for any reason, other than for
cause, the agreement provides for the acceleration of vesting of his stock
options so that 65% of the shares underlying the options will be vested as of
the date of termination. If the company is acquired by another company, the
vesting of Mr. Surmanek's stock options also will accelerate by one calendar
year, or as necessary to provide for vesting of at least 65% of the shares
underlying the options as of the date of the acquisition.
-14-
<PAGE>
Loans to Officers and Directors
In October 1999, the Company advanced $200,000 to Russell F. Surmanek,
which is evidenced by a promissory note bearing interest at the applicable
federal rate as defined in Section 1274(d) of the Internal Revenue Code of 1986,
as amended (the "Code"). The note is due in full two years from the date of
issuance. Prior to the due date, under the terms of the promissory note, Mr.
Surmanek is obligated to repay the advance only from certain proceeds from the
sale of 15,000 shares to be acquired upon the exercise of stock options.
PERFORMANCE GRAPH
The following graph compares cumulative total stockholder return on the
Company's Common Stock with that of the Nasdaq Composite Index and the Nasdaq
Computer and Data Processing Services Stocks index (the "Nasdaq Computer
Index"). The comparison assumes that $100 was invested on May 7, 1999 (the date
of the Company's initial public offering) in the Company's Common Stock, the
stocks included in the Nasdaq Composite Index and the stocks included in the
Nasdaq Computer Index. The stock price performance on the graph below is not
necessarily indicative of future price performance.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
5/7/99 9/30/99
------ -------
NetObjects, Inc. 100 41.54
Nasdaq 100 110.06
Nasdaq Computer & Data Processing Services Stocks 100 118.13
[OBJECT OMITTED]
-15-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a summary of certain material transactions between
the Company and any of its Directors, executive officers or holders of more than
5% of the Company's Common Stock, or between the Company and persons in which
Directors, executive officers or such stockholders have direct or indirect
material interests for the period October 1, 1998 through December 31, 1999.
Transactions with IBM
Notes and Warrants. In October and December 1998, the Company issued
10% convertible notes for approximately $10.1 million and $825,000,
respectively, to IBM. The notes, including accrued interest, converted into
1,979,875 shares of Common Stock on the closing of the Company's initial public
offering. With the notes the Company also issued warrants to purchase shares of
Series E-2 Preferred Stock to IBM at an exercise price of approximately $6.68
per share, which converted into the right to purchase 189,062 shares of Common
Stock on the closing of the initial public offering. These warrants are
exercisable for five years from their respective issuance dates and, at IBM's
option, are exercisable on a net basis by surrendering shares of Common Stock as
payment of the exercise price.
On February 4, 1999, IBM agreed to purchase up to approximately $3.4
million of 10% notes and additional warrants. The notes were similar to the
earlier issued notes, but were not convertible into Preferred Stock. The warrant
terms were identical to the earlier issued warrants. The Company issued a note
in the amount of $2.0 million and a warrant to purchase shares of Series E-2
Preferred Stock to IBM on February 18, 1999. On March 23, 1999, the Company
issued a note for approximately $1.41 million and an additional warrant to
purchase shares of Series E-2 Preferred Stock to IBM. The Company repaid all
indebtedness under the additional notes upon the closing of the initial public
offering, at which time the two warrants became exercisable for the purchase of
a total of 64,132 shares of Common Stock.
On April 23, 1999, the Company obtained an additional $2.0 million loan
from IBM under a 10% unsecured demand note. The Company repaid the principal and
interest due under the note from the proceeds of the Company's initial public
offering.
Software License Agreement. The Company and IBM have a 10-year software
license agreement, originally entered into on March 18, 1997. The agreement
provides for payment of royalties by IBM to the Company in connection with sales
of product bundles that include the Company's products and for payment to the
Company for services performed in connection with the IBM WebSphere project. The
agreement has been amended a number of times. The agreement obligates the
Company to place all of its source code into an escrow. IBM may obtain access to
the source code upon events of default related to the Company's failure to
provide required maintenance and support or its bankruptcy or similar event of
financial reorganization. IBM may use the source code that it obtains to create
derivative works, which it will own subject to the Company's rights in the
underlying software. Additional terms of the software license agreement and its
amendments and certain transactions occurring under the agreement as amended
since October 1, 1998 are as follows:
o Amendment Number 1 and Amendment Number 4 license IBM to use the
Company's products in its internal operations by paying for
upgrade copies at an annual rate of 25% of $402,000 or at a per
copy royalty rate. Amendment Number 4 also sets forth royalty
rates for the Company's products if they are bundled and sold by
IBM with IBM products. These rates are based on the percentage
which the value of the Company's product bears to the total value
of all of the other products in the bundle. If the value of the
Company's product is equivalent to or less than the total value of
all of the other products in the bundle, the Company receives 37%
of IBM's average selling price for a stand-alone license of the
Company's product during a calendar quarter. If the value of the
Company's product is more than the value of the other products,
the Company receives 69% of IBM's average selling price for a
stand-alone license of the Company's product during a calendar
quarter. If IBM sells the Company's products alone, the Company
receives 75% of IBM's average selling price for a stand-alone
license of the Company's product during a calendar quarter.
-16-
<PAGE>
o In Amendment Number 3 and Amendment Number 7, IBM agreed to
translate the Company's software into languages other than English
for which we are required to pay 115% of the costs associated with
the translation. The costs are recovered through the sales of the
Company's products outside of the United States by IBM and Lotus
by reducing the royalty rate otherwise due to us by 50%. The
Company is permitted to repay the translation costs over an
extended period of time, and the repayment is derived solely from
earned international royalties. This agreement expired on December
31, 1999.
o The Company became an IBM "Business Partner" under Amendment
Number 5, which permits the Company to resell IBM products and pay
IBM 50% of the royalty payment received by the Company.
o The Company agreed to perform services for IBM to make its
products compatible with and to integrate its products with IBM's
WebSphere products in Amendment Number 6 and Amendment Number 8.
Under Amendment Number 6, the Company was to receive a minimum
amount of license fees equal to the total amount of our
expenditures on the project, plus a 20% profit margin. Amendment
No. 8 modified the arrangement to provide for the Company's
receipt of services revenues equal to the total amount of our
expenditures plus a 5% profit margin instead. These amendments
further provided for the Company to receive license fees on
bundles of its products with IBM's WebSphere products calculated,
generally, at 50% of the applicable software license agreement
royalty rate, as described above.
o IBM has paid the Company $350,000 for developing a capability in
one of our products so that it supports wireless markup language
for IBM's wireless group.
o The Company and IBM amended a letter agreement subject to all
other terms of the software license agreement to bundle NetObjects
Fusion with Lotus' Designer for Domino, extending the term from
September 30, 1998 to June 30, 1999 and increasing the minimum
amount of license fees payable under the agreement by $500,000 and
the minimum number of copies. In April 1999, the Company entered
into a new contract to bundle a version of NetObjects Fusion with
Lotus Designer Application Studio for Domino R5, which expired on
December 31, 1999. The Company and IBM also entered into a letter
agreement, dated December 22, 1999, in which the Company granted
IBM the right to bundle copies of NetObjects' Fusion 3.01 with
Lotus SmartSuite during the calendar year 2000, for which IBM paid
the Company a one-time fee of $1.0 million. The Company agreed to
reimburse IBM for up to $400,000 for promotional and advertising
expenditures that IBM incurs in marketing these bundles.
o IBM granted the Company a non-exclusive right to incorporate
utilities for Lotus FastSite into NetObjects Fusion 5.0 for a
one-time fee of $75,000.
Other License Agreements.
During the fiscal year 1999:
o The Company entered into a trademark license agreement with IBM
that permits IBM to use the NetObjects trademark on certain
products developed by IBM in Japan. IBM must pay the Company fifty
cents for each use.
o IBM granted the Company a license to reproduce and create
derivative works from and to distribute a value-added version of
IBM's Build-IT software until IBM terminates the license. The
Company must pay IBM 10% of the gross revenues received when it
distributes the software. There is a minimum royalty of $5 and a
maximum royalty of $20 per software bundle.
o Lotus granted the Company a license to copy and distribute Lotus
FastSite for NAS, version 2.0, a document conversion program for
use with NetObjects Authoring Server, for a one-year term. The
Company is obligated to pay Lotus a per copy royalty of 25% of our
average selling price up to 5,000
-17-
<PAGE>
units and 20% of our average selling price for copies in excess of
that, but in no event less than $15 per copy. The Company has
granted to Lotus a royalty-free, perpetual right to copy and
distribute software it developed that facilitates integration
between Lotus FastSite and NetObjects Authoring Server.
Loan and Security Agreement. Upon completion of the Company's initial
public offering in May 1999, the Company repaid approximately $19.0 million in
total principal amount under convertible revolving credit notes issued to IBM
Credit Corp pursuant to the terms of a revolving loan and security agreement
dated December 23, 1997.
Voting Agreement. In January 1999, the Company and IBM entered into the
IBM Voting Agreement.
Distribution Agreement with Novell
During fiscal year 1999, Novell bundled NetObjects Fusion with Novell's
NetWare for Small Business product offering under a license agreement providing
for royalties on a per unit basis as products are sold by Novell. The Company
was entitled to receive a minimum of $500,000 of royalties under the Novell
agreement. This license agreement automatically renews for additional one-year
periods unless terminated by either party, and is currently in effect. After
September 30, 2000, either party may terminate the agreement on 90 days' written
notice. Christopher M. Stone, a former Executive Vice President with Novell, was
a director of the Company until January 25, 2000. Blake Modersitzki, Managing
Director of Novell Ventures, was elected as a Director on January 25, 2000.
Other Transactions
Novell purchased 333,333 shares of the Company's Series F-2 Preferred
Stock for $9.00 per share, under a stock purchase agreement dated October 16,
1998. Under the stock purchase agreement, Novell received the right to have an
observer attend meetings of the board of directors so long as Novell remains the
beneficial owner of not less than 1% of the Company's stock, assuming the
exercise or conversion of all options and warrants. The Company's Board of
Directors may terminate this rights in its discretion at any time after October
26, 1999.
During the fiscal year ending September 30, 1999, the Company sold
44,918 and 37,432 shares of Series E Preferred Stock at a purchase price of
approximately $6.68 per share to Samir Arora and one former executive officer,
David Kleinberg, respectively.
The Company is a licensee of Rae Technology, Inc. patents under an
April 10, 1997 license agreement. Samir Arora is a director, President and a
majority shareholder of Rae Technology, Inc. During fiscal year 1999, the
Company reimbursed Rae Technology approximately $30,000 for patent prosecution
expenses under the terms of the license agreement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's Directors and officers, and persons who own more than 10%
of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Directors, officers and greater than ten percent holders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) reports they file.
To the Company's knowledge, except as noted below, based solely on
review of the copies of the above-mentioned reports furnished to the Company and
written representations regarding all reportable transactions, during the fiscal
year ended September 30, 1999, all Section 16(a) filing requirements applicable
to its Directors, officers and greater than ten percent holders were complied
with on time. Jack Rotolo filed late one report on Form 4 reflecting his
acquisition of options to purchase 100,000 shares of Common Stock in August
1999.
-18-
<PAGE>
REPORT ON EXECUTIVE COMPENSATION BY THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee (the "Committee") comprises two independent
members of the Board of Directors. Effective as of the closing of the Company's
initial public offering on May 12, 1999, the Company's Board of Directors
delegated to the Committee responsibility for reviewing, recommending and
approving the Company's compensation policies and benefits programs. The
Committee also has the principal responsibility for the administration of the
company's stock plans, including approving stock option grants to executive
officers.
Compensation Philosophy
The Company's executive compensation policy is designed to attract and
retain qualified executive personnel by providing executives with a competitive
total compensation package based in large part on their contribution to the
financial and operational success of the Company, the executive's personal
performance and increases in stockholder value as measured by the Company's
stock price.
Compensation Program
The compensation package for the Company's executive officers comprises
the following three components:
Base Salary. The Committee determines the base salary of each executive
based on the executive's scope of responsibility, past accomplishments and
experience and personal performance, internal comparability considerations and
data regarding the prevailing compensation levels for comparable positions in
relevant competing executive labor markets. The Committee may give different
weight to each of these factors for each executive, as it deems appropriate. In
selecting comparable companies for the purpose of setting competitive
compensation for the Company's executives, the Committee considers many factors
not directly associated with stock price performance, such as geographic
location, annual revenue and profitability, organizational structure,
development stage and market capitalization.
Annual Incentive Compensation. Annual bonuses can be earned by each
executive officer under the Company's senior executive bonus plan. Each
executive officer's potential bonus under the plan is set at a percentage of his
or her base salary. Generally, bonuses are paid on the basis of the Company's
performance as measured against certain pre-established performance measures,
principally revenues, and the attainment of individual objectives set for each
officer other than the Company's CEO, based upon the CEO's recommendations. The
Committee establishes the performance objectives for the CEO. The current base
salary and bonus percentages for Russell F. Surmanek, the Company's Executive
Vice President, Finance and Operations and Chief Financial Officer, were
established by an employment agreement signed when Mr. Surmanek joined the
Company in April 1999. The agreement has a two-year term.
Stock Options. The Committee believes that granting stock options to
executives and other key employees on an ongoing basis gives them a strong
incentive to maximize stockholder value and aligns their interests with those of
other stockholders. The Committee determines stock option grants to senior
executives and other officers of the Company and has authorized the Company's
CEO and its Chief Financial Officer to determine stock option grants for all
other employees, subject to the Committee's approval of total share allocations
from the Company's option plan. In determining the size of stock option grants,
the Committee considers the executive's current position with and
responsibilities to the Company, potential for increased responsibility and
promotion over the option term, tenure with the Company and performance in
recent periods, as well as the size of comparable awards made to executives in
similar positions in competing executive labor markets. Generally, each stock
option grant allows the executive to purchase shares of the Company's common
stock at a price per share equal to the market price on the date the option is
granted, but the Committee has the power to grant options at a lower price if
considered appropriate under the circumstances. Each stock option grant
generally becomes exercisable, or vests, in installments over time, contingent
upon the executive's continued employment with the Company. The Committee also
has approved some option grants to executives that provide for accelerated
vesting upon a change of control of the Company.
-19-
<PAGE>
Compensation of Chief Executive Officer. The compensation for Samir
Arora, the Company's Chief Executive Officer, is comprised of the three
components described above, and is reviewed annually. In setting Mr. Arora's
compensation package for fiscal year 1999, the Committee intended to provide a
base salary competitive with that paid to other chief executive officers in
competing executive labor markets, and to make a significant portion of the
total compensation package contingent upon the financial and operational
performance of the Company. During the fiscal year, the Company paid Mr. Arora a
base salary of approximately $200,000. Mr. Arora was awarded a total cash bonus
of approximately $47,000 based primarily on the Company's achievement of
financial and operational targets and the Committee's assessment of his personal
performance for the year, including his leadership of the Company to the
successful completion of its initial public offering, as well as his efforts in
closing major contracts for the Company.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of
the Internal Revenue Code generally disallows a tax deduction to publicly-held
companies for compensation paid to certain executive officers, to the extent
that compensation paid to the officer exceeds $1 million during the Company's
taxable year. The compensation paid to the Company's executive officers for the
year ended September 30, 1999 did not exceed the $1 million limit per officer.
In addition, the Company's Amended and Restated 1997 Stock Option Plan and
executive incentive option grants have been structured so that any compensation
deemed paid to an executive officer in connection with the exercise of his or
her outstanding options with an exercise price per share equal to the fair
market value per share of the Common Stock on the grant date will qualify as
performance-based compensation that will not be subject to the $1 million
limitation. It is very unlikely that the cash compensation payable to any of the
Company's executive officers in the foreseeable future will approach the $1
million limit, and the Compensation Committee does not expect to take any action
at this time to modify cash compensation payable to the Company's executive
officers to avoid the application of Section 162(m).
Lee A. Dayton, Compensation Committee Member
John Sculley, Compensation Committee Member
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors was
formed in May 1999 and comprises Messrs. Lee A. Dayton and John Sculley. Neither
of these individuals was at any time during fiscal 1999, or at any other time,
an officer or employee of the Company. Mr. Samir Arora participated in
deliberations of the Board of Directors and of the Compensation Committee, which
was established during fiscal year 1999, concerning executive officer
compensation. No executive officer of the Company serves as a member of the or
compensation committee of any other entity that has one or more executive
officers serving as a member of the Company's Board of Directors or Compensation
Committee.
-20-
<PAGE>
--------------------------------------------------
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
--------------------------------------------------
At the Meeting, six Directors (constituting the entire Board of
Directors) are to be elected to serve until the next annual meeting of
Stockholders and until a successor for such Director is elected and qualified,
or until the death, resignation or removal of such Director. There are six
nominees, all of whom are currently Directors of the Company.
NOMINEES
<TABLE>
Set forth below is information regarding the nominees for election to
the Board of Directors:
<CAPTION>
Name Position(s) with the Company Age First Elected Director
- ------------------------------ ---------------------------------- ----------- ---------------------------
<S> <S> <C> <C>
Samir Arora Chairman of the Board, Chief 34 1995
Executive Officer and President
Robert G. Anderegg Director 50 1997
Lee A. Dayton Director 56 1997
Blake Modersitzki Director 33 2000
John Sculley Director 60 1996
Michael D. Zisman Director 50 1997
</TABLE>
A plurality of the votes cast at the Meeting is required to elect each
nominee as a Director. Unless authority to vote for any of the nominees named
above is withheld, the shares represented by the enclosed proxy will be voted
FOR the election as Directors of such nominees. Each person nominated has agreed
to serve if elected, and the Board of Directors has no reason to believe that
any nominee will be unavailable or will decline to serve. In the event, however,
that any nominee is unable or declines to serve as a Director at the time of the
Meeting, the proxies will be voted for any nominee who is designated by the
current Board of Directors to fill the vacancy.
The Board of Directors recommends that the Stockholders vote FOR the
election of all of the above nominees.
--------------------------------------------------
PROPOSAL NO. 2:
AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
--------------------------------------------------
On January 25, 2000, the Board of Directors unanimously approved an
amendment to the Company's Restated Certificate of Incorporation to increase the
authorized number of shares of Common Stock of the Company from 60,000,000 to
120,000,000. The number of authorized shares of preferred stock of the Company
will remain unchanged at 6,000,000 shares.
If approved by the stockholders, the amendment will become effective
upon the filing of a Certificate of Restated Certificate of Incorporation with
the Delaware Secretary of State. The amendment would change Article IV, Section
1 of the Company's Restated Certificate of Incorporation to read in its entirety
as follows:
-21-
<PAGE>
"SECTION 1. The total number of shares of all classes of stock
which the Corporation has authority to issue is One Hundred
Twenty-Six Million (126,000,000) shares, consisting of two
classes: One Hundred Twenty Million (120,000,000) shares of
Common Stock, $0.01 par value per share, and Six Million
(6,000,000) shares of Preferred Stock, $0.01 par value per
share."
Purpose and Effect of the Amendment
At December 31, 1999, the Company had 27,102,781 shares of Common Stock
outstanding. Taking into account shares authorized for stock options granted
under the Company's Amended and Restated 1997 Stock Option Plan and Amended 1999
Employee Stock Purchase Plan, and otherwise, as well as shares subject to
warrants to purchase Common Stock (without considering the "net exercise"
provisions of such warrants), the Company would have currently fewer than 20
million shares remaining available for other purposes. Accordingly, the
objective of the increase in the authorized number of shares of Common Stock is
to ensure that the Company has sufficient shares available for future issuances.
The Board of Directors believes that it is prudent to increase the
authorized number of shares of Common Stock to the proposed levels in order to
provide a reserve of shares available for issuance to meet business needs as
they arise. Such future activities may include, without limitation, financings,
establishing strategic relationships with corporate partners, providing equity
incentives to employees, officers or directors, or effecting stock splits or
dividends. The additional shares of Common Stock authorized may also be used to
acquire or invest in complementary businesses or products or to obtain the right
to use complementary technologies.
Approval of the increase in the number of authorized shares of Common
Stock would not affect the rights, privileges, and preferences of the holders of
currently outstanding Common Stock of the Company, except for the effects
incidental to increasing the number of shares of the Company's Common Stock
outstanding.
If the stockholders approve the increase in the number of authorized
shares of Common Stock, the Board of Directors may cause the issuance of
additional shares of Common Stock without further vote of stockholders of the
Company, except as provided under Delaware corporate law or under the rules of
the Nasdaq National Market or any national securities exchange on which shares
of Common Stock of the Company are then listed. Current holders of Common Stock
have no preemptive or like rights, which means that current stockholders do not
have a prior right to purchase any new issue of capital stock of the Company in
order to maintain their ownership interest therein. The issuance of additional
shares of Common Stock would decrease the proportionate equity interest of the
Company's current stockholders and, depending upon the price paid for such
additional shares, could result in dilution to the Company's current
stockholders.
Potential Anti-Takeover Effect
In the event this proposal is approved, it could, under certain
circumstances, have an anti-takeover effect, although this is not the intention
of this proposal. The increased number of authorized shares of Common Stock
could discourage, or be used to impede, an attempt to acquire or otherwise
change control of the Company. The private placement of shares of Common Stock
into "friendly" hands, for example, could dilute the voting strength of a party
seeking control of the Company.
Although the Company has no present intention to use the additional
authorized shares of Common Stock for such purposes, if this proposal is
adopted, more capital stock of the Company would be available for such purposes
than is currently available.
-22-
<PAGE>
Vote Required
The affirmative vote of a majority of the outstanding shares of Common
Stock entitled to vote at the Meeting will be required to approve the amendment
to the Company's Certificate of Incorporation increasing the number of
authorized shares of Common Stock from 60,000,000 to 120,000,000.
The Board of Directors recommends that the stockholders vote FOR the
proposal to amend the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock.
--------------------------------------------------
PROPOSAL NO. 3:
AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED
1997 STOCK OPTION PLAN TO INCREASE THE SHARES
ISSUABLE UNDER THE PLAN
--------------------------------------------------
DESCRIPTION OF THE PLAN
General
The Amended and Restated 1997 Stock Option Plan (the "Plan") was
adopted in April 1997 and was amended and restated upon Board of Directors and
stockholder approval effective May 12, 1999 to provide for 4,500,000 shares of
Common Stock reserved for issuance upon the exercise of options granted under
the Plan. On November 22, 1999, the Board of Directors approved an amendment to
the Plan to increase the maximum aggregate number of shares of Common Stock
reserved for issuance under the Plan from 4,500,000 shares to 7,600,000 shares.
The Board of Directors also approved the grant of options for the purchase of
1,000,000 of such additional shares to key managers and employees. None of these
newly granted options can be exercised, however, until the stockholders have
approved the amendment to the Plan. The Board of Directors has considered the
amendment of the Plan to increase the number of shares reserved for issuance
thereunder to be in the Company's best interest so that the Company may attract
high quality employees necessary to build the Company and continue to provide
ongoing incentives to the Company's employees in the form of options to purchase
the Company's Common Stock.
At December 31, 1999, options covering an aggregate of 5,064,739 shares
were outstanding under the Plan and 1,724,383 shares remained available for
future grants. As of December 31, 1999, the options outstanding under the Plan
had a weighted average exercise price of $7.748 per share with expiration dates
between March 2007 and December 2009.
The Plan allows for the grant of stock options intended to qualify as
"incentive stock options" under Section 422 of the Code, as well as options that
are not so qualified, or nonstatutory stock options. See "Federal Income Tax
Consequences" below for information concerning the tax treatment of incentive
stock options and nonstatutory stock options. The Plan is not qualified under
Section 401(a) of the Code and is not subject to the Employee Retirement Income
Security Act of 1974, as amended.
Purpose
The purpose of the Plan is to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentives to employees, directors and consultants of the Company and its
subsidiaries and to promote the success of the Company's business.
-23-
<PAGE>
Administration
The Plan may be administered by the Board of Directors, or by a
committee appointed by the Board of Directors and consisting of at least two
members of the Board of Directors. The Plan currently is administered by the
Compensation Committee (the "Committee") of the Board of Directors, which
currently consists of two outside directors. Option grants may be approved by
the Committee or the Board of Directors. The interpretation and construction of
any provision of the Plan by the Board of Directors or the Committee is final
and conclusive. All costs and expenses incurred in plan administration will be
paid by the Company without charge to participants.
Eligibility
The Plan provides that options may be granted to employees (including
officers and employee directors), non-employee directors and consultants of the
Company and its subsidiaries. The Committee approves the participants and the
number of shares to be subject to each option based upon management
recommendations. The Plan provides that the maximum number of shares of Common
Stock that may be granted in any one calendar year to an eligible participant is
1,000,000 shares. Directors who are not employees of the Company at the date of
grant upon first joining the Board of Directors are automatically granted an
option to purchase 20,000 shares of Common Stock ("Directors Options"). Under
the Plan, the aggregate market value of shares subject to all incentive stock
options granted to an optionee that become exercisable for the first time during
any calendar year cannot exceed $100,000 (determined as of the date of grant).
See "Federal Income Tax Consequences".
Standard Option Terms
Each option is evidenced by a stock option agreement between the
Company and the optionee. The following terms and conditions generally apply to
all options, unless a participant agreement provides otherwise:
Exercise of the Option. Generally, the optionee must earn the right to
exercise the option by continuing to work for the Company. The Committee
determines when options granted under the Plan may be exercisable, but in no
event can any option be exercised more than ten years after the date of grant,
or six years in the case of Directors Options. Unless otherwise provided in the
stock option agreement, the purchase price of shares purchased upon exercise of
an option shall be paid by any of the following means, or by any combination
thereof: (1) cash; (2) check; (3) other shares of the Company's Common Stock.
Exercise Price. The exercise price of options granted under the Plan is
determined by the Committee and must not be less than: (1) the fair market value
of the Common Stock on the date the option is granted in the case of incentive
stock options; or (2) 85% percent of such fair market value in the case of
nonstatutory stock options. Where the participant owns stock representing more
than 10% of the total combined voting power of the Company's outstanding capital
stock, the exercise price for an incentive stock option must not be less than
110% of such fair market value. The Plan further provides that if the optionee
is an employee subject to the provisions of Section 162(m) of the Code, which
limit the Company's income tax deduction for certain excessive compensation, the
option price may not be less than fair market value at the date of grant.
Termination of Employment. If an optionee's employment or other service
with the Company terminates for any reason other than permanent and total
disability or death, options under the Plan may be exercised within 30 days (or
such other period of time as is determined by the Committee) after such
termination, but may be exercised only to the extent the options were
exercisable on the date of termination, subject to the condition that no option
may be exercised after expiration of its term.
Death or Disability. If an optionee should die or become permanently
and totally disabled while employed by or engaged in other service for the
Company, or within 90 days after termination of employment or other service, and
such employment or other service was not interrupted from the date of the option
grant through the date of death, disability or termination, options may be
exercised at any time within 180 days following the date of disability, but only
to the extent the options were exercisable on the date of termination or
disability, whichever occurs first, subject to the condition that no option may
be exercised after expiration of its term.
-24-
<PAGE>
Termination of Options. All options granted under the Plan expire on
the date specified in the option agreement, but in no event shall the term of
such options exceed ten years. However, all incentive stock options granted
under the Plan to any participant who owns stock possessing more than 10% of the
total combined voting power of the Company's outstanding capital stock must
expire not later than five years from the date of grant.
Nontransferability of Options. An option is nontransferable by the
optionee otherwise than by will or the laws of descent and distribution, and is
exercisable during the optionee's lifetime only by the optionee, or in the event
of the optionee's death, by a person who acquires the right to exercise the
option by bequest or inheritance or by reason of the death of the optionee. The
Plan permits the Committee to modify this limitation to permit transfers of
nonstatutory stock options to family members through gift or domestic relations
order.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Plan as may be determined by
the Committee or the Board of Directors.
Securities Subject to the Option Plan
Prior to the approval of this Proposal No. 3 by the stockholders, the
maximum number of shares which may be sold to participants under the Plan is
4,500,000 shares. If Proposal No. 3 is approved by the stockholders, the maximum
number of shares which may be sold to participants under the Plan will be
7,600,000 shares. The Common Stock issuable under the Plan may be either shares
of newly-issued Common Stock or shares of Common Stock reacquired by the
Company, provided that any shares of Common Stock delivered to the Company in
payment for the exercise of options shall not again become available for
issuance under the Plan.
In the event of any change in the Company's capital structure (whether
by reason of any recapitalization, stock dividend, stock split, combination of
shares or other similar change in corporate structure), appropriate adjustments
shall be made by the Board of Directors in the number of shares subject to each
option and the per share exercise price therefor.
Unless otherwise determined by the Board of Directors, upon the
dissolution or liquidation of the Company, all outstanding options granted under
the Plan shall terminate. The Committee may, if it so determines in the exercise
of its sole discretion, make provision for proportionately adjusting the number
or class of securities covered by any option and the option price in the event
the Company effects a reorganization, recapitalization or rights offering, and
in the event the Company is consolidated with or merged into any other
corporation. In addition, upon any merger or consolidation, if the Company is
not the surviving corporation, or if the Company is the surviving corporation in
a "triangular merger" transaction with a subsidiary of a "parent corporation"
(as such term is defined and used in Section 175 and Section 1101 of the
California General Corporation Law), the options granted under the Plan shall
either be assumed by the new entity or the parent corporation, or shall
terminate pursuant to the preceding sentence.
Amendment and Termination of the Plan
The Board of Directors may amend the Plan at any time or from time to
time as it deems advisable, subject to compliance with all applicable laws and
stock exchange listing requirements. Amendments with respect to incentive stock
options granted or to be granted under the Plan are further subject to any
approval by stockholders required under the Code. However, no such action by the
Board of Directors or stockholders may alter or impair any option previously
granted under the Plan. In any event, the Plan terminates in April 2007.
No Additional Rights
Neither the establishment of, nor a participant's participation in, the
Plan shall be held or construed to confer upon any person any right to
employment by the Company or any subsidiary of the Company.
-25-
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. An incentive stock option, or ISO, has
restrictions on the option terms and the disposition of shares acquired from
exercising the option. The option holder has the right to exercise the option
during the option term. As the value of the stock increases, the option holder
can benefit to the extent of the amount of such value in excess of the option
exercise price. If the option holder satisfies the holding period requirements
under the Code, the option holder does not recognize ordinary income at the time
of option grant or exercise (although the spread between the option price and
the option stock's fair market value constitutes an item of adjustment for
alternative minimum tax, purposes under Section 56 of the Code), and the Company
cannot deduct the related compensation expense. The option holder is taxed only
upon disposition of the option stock. The gain is treated as a sale or exchange
of a capital asset for a qualifying disposition. If disposition occurs within
two years of the option holder's receipt of the option or within one year of
receipt of the stock (i.e., a disqualifying disposition), the option holder
generally recognizes at the time of the disposition first, ordinary income
measured by the excess of the fair market value of the stock at the time of
option exercise over the option price (i.e., the "bargain purchase element"),
and second, capital gain measured by the excess of the disposition proceeds over
the fair market value of the stock on the date of exercise. In such cases, the
amount of ordinary income includible in the option holder's income is deductible
by the employer.
Nonstatutory Stock Options. The term nonstatutory stock option refers
to options to purchase employer stock which, for some reason, do not satisfy the
legal requirements to qualify as an ISO. A nonstatutory stock option is taxed to
the optionee at the time of grant only if it has a readily ascertainable fair
market value at that time (the Company's stock options do not have a readily
ascertainable fair market value). Otherwise, the optionee is taxed at the time
of exercise on ordinary income measured by the excess of the fair market value
of the underlying shares at the time of exercise over the exercise price of the
options. The employer has a corresponding compensation deduction at the time of
exercise.
Vote Required.
The affirmative vote of a majority of the votes cast affirmatively or
negatively at the Meeting is required to ratify the Plan amendment. IBM and
Samir Arora, who together hold more than 50% of the outstanding shares of Common
Stock, have advised the Company that they will vote all of their shares in favor
of this Proposal.
The Board of Directors recommends that the Stockholders vote FOR the
proposal to ratify the amendment of the Company's Amended and Restated 1997
Stock Option Plan to increase the number of shares of Common Stock reserved for
issuance thereunder.
-26-
<PAGE>
--------------------------------------------------
PROPOSAL NO. 4:
APPROVAL OF STOCK OPTION GRANTS TO EXECUTIVE
OFFICERS
--------------------------------------------------
On November 8, 1999, the Compensation Committee of the Board of
Directors approved the issuance of new options to purchase a total of 1,400,000
shares of Common Stock to existing senior executives. These options generally
vest monthly based on continued employment with the Company over the following
24 months. The options have a term of 10 years and an exercise price equal to
the fair market value of the Company's Common Stock on the date of grant. None
of these options are exercisable, however, until their issuance has been
ratified by the stockholders. At the time the Compensation Committee approved
these option issuances, the Committee members considered them necessary to
retain the Company's competitiveness in view of the tight labor market faced by
all Silicon Valley e-commerce companies.
<TABLE>
The following table sets forth the stock option grants to be approved
in this Proposal No. 4:
NEW PLAN BENEFITS
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Name and Position Dollar Value ($)(1) Number of Units
- ---------------------------------------------------- ------------------------------ -----------------------------
<S> <C> <C>
Samir Arora (2) $1,875,000 200,000
Chairman of the Board, Chief Executive Officer
and President
Russell F. Surmanek(3) 1,875,000 200,000
Executive Vice President, Finance and
Operations, Chief Financial Officer
Morris Taradalsky 1,875,000 200,000
Executive Vice President and General Manager,
Enterprise Markets
Mark Patton 1,875,000 200,000
Executive Vice President and General Manager,
Small Business Markets
Sal Arora (2) 1,875,000 200,000
Vice President, Product Development
Steve Mitgang (3) 1,875,000 200,000
Executive Vice President, Small Business and
Corporate Marketing
Jack Rotolo (3), (4) 1,875,000 200,000
Senior Vice President, Worldwide Sales ----------- ---------
Executive Group
$13,125,000 1,400,000
<FN>
- -------------------
(1) Based upon a market price of $16.50, which is the closing price of a share
of Common Stock on December 31, 1999, less the exercise price of $7.125,
which was the closing price of a share of Common Stock on the date of
grant.
(2) Samir Arora and Sal Arora are brothers.
(3) Upon a change of control of the Company, as defined in the Executive Stock
Option Agreement, these options vest in full.
(4) Mr. Rotolo's options vest ratably over 12 months.
</FN>
</TABLE>
All of the preceding option grants are subject to the terms of the
Executive Stock Option Agreement in the form attached as Exhibit A, subject to
the differences noted in the foregoing table. All of the options are
nonstatutory stock options having the federal income tax consequences briefly
summarized in the text accompanying Proposal No. 3. In addition, stockholder
approval of these options prior to their exercise is required if they are to
constitute performance-based compensation that is not subject to the
deductibility limits of Section
-27-
<PAGE>
162(m) of the Code. See "Report on Executive Compensation by the Compensation
Committee of the Board of Directors."
The affirmative vote of a majority of the votes cast affirmatively or
negatively at the Meeting is required to approve Proposal No. 4. The executives
listed above, including Mr. Arora, who is a Director, have a substantial direct
interest in the approval of this Proposal No. 4. IBM and Mr. Arora, who together
hold a majority of the shares of Common Stock outstanding, have advised the
Company that they will vote all of their shares in favor of this Proposal.
The Board of Directors recommend that the stockholders vote FOR
ratification of the issuance of the preceding stock option grants to senior
executives of the Company.
--------------------------------------------------
PROPOSAL NO. 5:
INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors has appointed KPMG LLP, independent public
accountants, to audit the financial statements of the Company for the fiscal
year ending September 30, 2000. The Board of Directors proposes that the
stockholders ratify this appointment. KPMG LLP has audited the Company's
financial statements annually since fiscal 1998. The Company expects that its
representatives will be present at the Annual Meeting, will have the opportunity
to make a statement if they desire to do so, and will be available to respond to
appropriate questions.
In the event that stockholders fail to ratify the appointment, the
Board of Directors will reconsider its selection. Even if the selection is
ratified, the Board of Directors, in its discretion, may direct the appointment
of a different independent accounting firm at any time during the year if the
Board of Directors determines that such a change would be in the Company's and
its stockholders' best interests.
Ernst & Young LLP was previously the Company's principal accountant. On
October 29, 1997, Ernst & Young LLP was dismissed as the Company's principal
accountant and KPMG LLP was engaged to audit the Company's consolidated
financial statements. The Board of Directors approved the dismissal of Ernst &
Young LLP and the appointment of KPMG LLP as the Company's principal
accountants.
In connection with the audit for the period from November 21, 1995, the
Company's inception, through September 30, 1996, and the subsequent interim
period through October 29, 1997, there were no disagreements with Ernst & Young
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to their satisfaction would have caused them to make reference in connection
with their opinion on the subject matter of the disagreement.
The affirmative vote of a majority of the votes cast affirmatively or
negatively at the Meeting is required to ratify the appointment of the
independent public accountants.
The Board of Directors recommends that the stockholders vote FOR the
proposal to ratify the selection of KPMG LLP to serve as the Company's
independent public accountants for the fiscal year ending September 30, 2000.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
To be considered for inclusion in the Company's proxy statement
relating to the 2001 Annual Meeting of Stockholders, stockholder proposals must
be received no later than October [18], 2000. All stockholder proposals should
be addressed to the attention of the Chief Executive Officer at the principal
office of the Company.
-28-
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters to be presented for
shareholder action at the Annual Meeting. However, if other matters do properly
come before the Annual Meeting or any adjournments or postponements thereof, the
Board of Directors intends that the persons named in the proxies will vote upon
such matters in accordance with the best judgment of the proxy holders.
Whether or not you intend to be present at the meeting, you are urged
to fill out, sign, date and return the enclosed proxy at your earliest
convenience.
BY ORDER OF THE BOARD OF DIRECTORS
Alan B. Kalin
Secretary
Redwood City, California
February ___, 2000
-29-
<PAGE>
Appendix A
Exhibit A
NETOBJECTS, INC.
EXECUTIVE STOCK OPTION AGREEMENT
NetObjects, Inc., a Delaware corporation (the "Company"), has awarded
and hereby grants [Employee]> (the "Optionee"), an option (the "Option") to
purchase a total of ([Share_2]) shares of Common Stock (the "Shares") of the
Company, at the price set forth herein as an incentive to Optionee's continued
employment as a senior executive of the Company, and in all respects subject to
such continued employment and all other terms and conditions of this Agreement.
1. Nature of the Option. The Option is intended to be a "Nonstatutory
Stock Option", as defined in Section 2(n) of the Company's Amended and Restated
1997 Stock Option Plan (the "Plan").
2. Option Price. The Option Price is $[Price] for each Share.
3. Vesting and Exercise of Option. The Option shall vest and, subject
to stockholder approval as described in Section 3(d), become exercisable during
its term in accordance with the following provisions:
(a) Vesting and Right of Exercise.
(i) The Option shall vest and become exercisable with respect to
[1/12] [1/24] of the shares at the end of each calendar month beginning
with December 1999 for a period of [12] [24] months, subject to the
Optionee's Continuous Employment by the Company or a Subsidiary of the
Company, as such terms are defined in the Plan.
(ii) In the event of the Optionee's death, disability or other
termination of employment, the Option shall be exercisable in the manner
and to the extent provided in Sections 9(d), (e) and (f) of the Plans as if
the Option had been granted under the Plan, which provisions are
incorporated into this Agreement by this reference; or, as provided in
Section 11 of this Agreement, if applicable.
(iii) The Option may not be exercised for fractional shares or for
less than one hundred (100) Shares.
(iv) No disposition of Shares may be effected within six months
following the date of grant.
(b) Method of Exercise. In order to exercise any portion of this Option
which has vested, the Optionee shall notify the Company in writing of the
election to exercise the Option and the number of shares in respect of which the
Option is being exercised, by executing and delivering the Notice of Exercise of
Stock Option in the form attached as Appendix I hereto. The certificate or
<PAGE>
certificates representing Shares as to which this Option has been exercised
shall be registered in the name of the Optionee.
(c) Restrictions on Exercise. This Option may not be exercised if the
issuance of the Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities law or other law or regulation. Furthermore, the
method and manner of payment of the Option Price will be subject to the rules
under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G")
as promulgated by the Federal Reserve Board if such rules apply to the Company
at the date of exercise. As a condition to the exercise of this Option, the
Company may require the Optionee to make any representation or warranty to the
Company at the time of exercise of this Option as in the opinion of legal
counsel for the Company may be required by any applicable law or regulation,
including the execution and delivery of an appropriate representation statement.
Accordingly, the stock certificates for the Shares issued upon exercise of this
Option may bear appropriate legends restricting transfer.
(d) Prior Approval by Stockholders. In no event may the Optionee
exercise any portion of this Option before the holders of a majority of the
Corporation's outstanding shares of Common Stock have ratified the authorization
of the Option by the compensation Committee of the Board of Directors of the
Company (the "Committee") as of November 8, 1999.
4. Non-Transferability of Option. This Option may be exercised during
the lifetime of the Optionee only by the Optionee and may not be transferred in
any manner other than by will or by the laws of descent and distribution. The
terms of this Option shall be binding upon the executors, administrators, heirs
and successors of the Optionee.
5. Method of Payment. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) certified or bank cashier's check; or
(c) for as long as there exists a public market for the Company's
Common Stock on the date of exercise, by surrender of shares of the Company's
Common Stock, provided that if such shares were acquired upon exercise of an
incentive stock option, the Optionee must have first satisfied the holding
period requirements under Section 422(a)(1) of the Code. In this case payment
shall be made as follows:
(i) In addition to the execution and delivery of the Notice of
Exercise of Stock Option, Optionee shall deliver to the Secretary of the
Company a written notice which shall set forth the portion of the purchase
price the Optionee wishes to pay with Common Stock, and the number of
shares of such Common Stock the Optionee intends to surrender pursuant to
the exercise of this Option, which shall be determined by dividing the
aforementioned portion of the purchase price by the average of the last
reported bid and asked prices per share of Common Stock of the Company, as
-2-
<PAGE>
reported in The Wall Street Journal (or, if not so reported, as otherwise
reported by Nasdaq or, in the event the Common Stock is listed on a
national securities exchange, or on the Nasdaq National Market (or any
successor national market system), the closing price of Common Stock of the
Company on such exchange as reported in The Wall Street Journal, for the
day on which the notice of exercise is sent or delivered);
(ii)Fractional shares shall be disregarded and the Optionee shall
pay in cash an amount equal to such fraction multiplied by the price
determined under subparagraph (i) above;
(iii) The written notice shall be accompanied by a duly endorsed
blank stock power with respect to the number of Shares set forth in the
notice, and the certificate(s) representing said Shares shall be delivered
to the Company at its principal offices within three working days from the
date of the notice of exercise;
(iv)The Optionee hereby authorizes and directs the Secretary of
the Company to transfer so many of the Shares represented by such
certificate(s) as are necessary to pay the purchase price in accordance
with the provisions herein; and
(v) Notwithstanding any other provision herein, the Optionee shall
only be permitted to pay the purchase price with Shares of the Company's
Common Stock owned by him as of the exercise date in the manner and within
the time periods allowed under 17 CFR ss.240.16b-3 promulgated under the
Securities Exchange Act of 1934 as such regulation is presently
constituted, as it is amended from time to time, and as it is interpreted
now or hereafter by the Securities and Exchange Commission.
The Optionee may elect to pay the exercise price by authorizing a third
party to sell Shares subject to the Option and remit to the Company a sufficient
portion of the sale proceeds to pay the entire exercise price and any tax
withholding resulting from such exercise.
6. Adjustments Upon Changes in Capitalization or Merger. The number of
Shares covered by this Option shall be adjusted only in accordance with the
provisions of Section 10 of this Agreement in the event of changes in the
capitalization or organization of the Company, or if the Company is a party to a
merger or other corporate reorganization.
7. Term of Option. This Option may not be exercised more than ten (10)
years from the Date of Grant set forth in the signature page of this Agreement,
and may be exercised during such term only in accordance with the terms of this
Agreement.
8. Not Employment Contract. Nothing in this Agreement shall confer upon
the Optionee any right to continue in the employ of the Company or shall
interfere with or restrict in any way the rights of the Company, which are
hereby expressly reserved, to discharge the Optionee at any time for any reason
whatsoever, with or without cause, subject to the provisions of applicable law.
-3-
<PAGE>
9. Income Tax Withholding.
(a) The Optionee authorizes the Company to withhold in accordance with
applicable law from any compensation payable to him or her any taxes required to
be withheld by federal, state or local laws as a result of the exercise of this
Option.
(b) Any adverse consequences incurred by an Optionee with respect to
the use of shares of Common Stock to pay any part of the Option Price or of any
tax in connection with the exercise of an Option, including, without limitation,
any adverse tax consequences arising as a result of a disqualifying disposition
within the meaning of Section 422 of the Code shall be the sole responsibility
of the Optionee.
10. Adjustments upon changes in Capitalization. Subject to any required
action by the shareholders of the Company, the number of Shares covered by this
Option, and the per share exercise price of the Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, recapitalization,
combination, reclassification, the payment of a stock dividend on the Common
Stock or any other increase or decrease in the number of such shares of Common
Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Committee, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common
Stock subject to the Option.
Subject to the terms of any agreement between the Optionee and the
Company related to the Optionee's employment by the Company, the Committee may,
if it so determines in the exercise of its sole discretion, also make provision
for proportionately adjusting the number or class of securities covered by the
Option, as well as the price to be paid therefor, in the event that the Company
effects one or more reorganizations, recapitalizations, rights offerings, or
other increases or reductions of shares of its outstanding Common Stock, and in
the event of the Company being consolidated with or merged into any other
corporation.
[11. Include only where applicable Post-acquisition Employment
Termination. In the event that Optionee's employment is terminated other than
for cause within 12 months following an acquisition of the company, vesting of
the options granted to Optionee shall automatically accelerate to provide for
vesting of 100% of the total number of shares subject to such options as of the
effective date of the employment termination. Optionee will be considered
employed under this Section as long as Optionee has been offered employment by
the Company or any Subsidiary, or by the acquiring entity or its parent or
subsidiary organizations, except as otherwise provided below:
(i) For purposes of this Section 11, Optionee's resignation without
cause will not constitute an employment termination, and Optionee's resignation
with cause will constitute an employment termination. Optionee will be
considered to have resigned with cause only if the dollar value of the total
compensation package represented by Optionee's annualized base pay, benefits and
potential bonus combined for the 12-month post-acquisition period is less than
the dollar value of the
-4-
<PAGE>
compensation package provided by the Company (determined on the same annualized
basis) prior to the acquisition, excluding bonuses tied to stock price
performance and the like.
(ii) For purposes of this Section 11, "Cause" shall mean where the
Company determines, in its discretion, that Optionee should be terminated for
willful beach or neglect of duty, failure or refusal to work, dishonesty,
insubordination, use of alcohol or drugs so as to interfere with his performance
of his duties, or conducting himself in a manner which a reasonable person would
believe would tend to bring the Company into disrepute or to adversely affect
its business. "Cause" also includes Optionee's resignation as an employee of the
Company without cause, as defined above.
(iii) For purposes of this Section, an "acquisition" means (A) any
transaction or series of transactions, in which all stockholders of the company
are legally entitled to participate and pursuant to which shares of voting stock
representing more than 50% of the total outstanding shares of voting stock of
the company are purchased by a person not controlled by, in control of or under
common control with the Company immediately prior to such transaction, (B) the
merger or consolidation of the company and another entity (other than a merger
or consolidation in which the holders of shares of voting stock of the Company
immediately before the merger or consolidation own immediately after the merger
or consolidation, voting securities of the surviving or acquiring entity or a
parent company of such surviving or acquiring entity possessing more than 50% of
the voting power of the surviving or acquiring entity or parent party) resulting
in the exchange of the outstanding shares of voting stock of the company for
cash, securities or other property, or (C) any sale, lease, license, exchange or
other disposition (whether in one transaction or a series of related
transactions) of assets representing more than 50% of the total fair market
value of the Company's assets.
(iv) All disputes concerning the interpretation of the Section 11 must
be resolved by mediation and arbitration in Palo Alto, California pursuant to
the rules for commercial arbitration of the American Arbitration Association.]
THIS OPTION AGREEMENT is binding upon the parties and entered into
effective as of the date of grant set forth below.
NETOBJECTS, INC.
By: _______________________________
Its: ______________________________
Date of Grant: November 8, 1999
-5-
<PAGE>
ACKNOWLEDGMENT BY OPTIONEE
The undersigned Optionee has reviewed all of the terms of this Option
Agreement, accepts them all and agrees to be bound by this Agreement [including
the arbitration provisions of Section 11]. The Optionee represents and warrants
that the Optionee is aware of and familiar with the provisions of the Restated
Certificate of Incorporation of the Company ("Restated Certificate"), in
particular Article X of the Restated Certificate.
________________________________
(signature)
________________________________
(name)
CONSENT OF SPOUSE
I, ____________________, spouse of the Optionee who executed the
foregoing Option Agreement, hereby agree that my spouse's interest in the shares
of Common Stock subject to said Option Agreement shall be irrevocably bound by
the Option Agreement's terms. I further agree that my community property
interest in such shares, if any, shall similarly be bound by said Option
Agreement and that such consent is binding upon my executors, administrators,
heirs and assigns. I agree to execute and deliver such documents as may be
necessary to carry out the intent of said Option Agreement and this consent.
Dated: ____________, 19___
________________________________
-6-
<PAGE>
Appendix I
NETOBJECTS, INC.
NOTICE OF EXERCISE OF STOCK OPTION
I ________________________________________ (print legibly) hereby elect
to exercise the following stock options(s) granted to me by NETOBJECTS, INC.
(the "Company") under its 1997 Special Stock Option Plan or Amended and Restated
1997 Stock Option Plan (the "Plan"). All shares being purchased are fully vested
and exercisable pursuant to Section 3 of the listed Stock Option agreement.
1. _____________ Shares at $ ________ per share (Grant date): ____________ )
2. _____________ Shares at $ ________ per share (Grant date): ____________ )
3. _____________ Shares at $ ________ per share (Grant date): ____________ )
4. _____________ Shares at $ ________ per share (Grant date): ____________ )
- --------------------------------------------------------------------------------
Cash exercise in the amount of $ ____________________
Shares purchased under the Plan should be issued to me as follows:
- --------------------------------------------------------------------------------
Name: ________________________________________________
- --------------------------------------------------------------------------------
If you choose to include your spouse, you must designate below how you wish your
shares to be registered by checking the appropriate box. If we receive no
designation, the shares will be designated as Joint Tenants.
______ Joint Tenants ______ Community Property
______ Tenants in Common ______ Tenancy by Entirety
- --------------------------------------------------------------------------------
Verification by __________________________________________Stock Administration
- --------------------------------------------------------------------------------
Certificate to be delivered to (complete item 1 or 2 below)
1. Employee ____________________ Home Address: _____________________________
_____________________________
2. (Insert Name of Second Broker) ____________________________________________
Acct #: ______________________________________________________
Contact Name & Number: ____________________________________________________
- --------------------------------------------------------------------------------
Signature: __________________________________ Date: __________________
__________________________________
Social Security #: __________________________________
As of the date set forth above, the above named person has the vested right to
exercise the number of shares set forth above.
Date: ______________________________ _____________________________________
Amount due Company: $ ______________ NetObjects, Inc. Stock Administration
301 Galveston Drive
Redwood City, CA 94063
(650) 482-3200
<PAGE>
Appendix B
NETOBJECTS, INC.
301 Galveston Road
Redwood City, CA 94063
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Samir Arora and Russell F. Surmanek,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated on the reverse side, all shares of common
stock of NetObjects, Inc. (the "Company") held of record by the undersigned on
February 1, 2000 at the Annual Meeting of Stockholders to be held on March 15,
2000 and any adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE
VOTED FOR SUCH PROPOSAL.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE. NO POSTAGE REQUIRED IF MAILED IN THE UNITED STATES.
Dear Stockholder:
Please take note of the important information enclosed with this
Proxy. There are a number of issues related to the operation of the Company
that require your immediate attention.
Your vote counts, and you are strongly encouraged to exercise your
right to vote your shares.
Please mark the boxes on the proxy card to indicate how your
shares will be voted. Then sign the card, detach it and return your proxy
in the enclosed postage paid envelope.
Thank you in advance for your prompt consideration of these
matters.
Sincerely,
NetObjects, Inc.
- --------------------------------------------------------------------------------
DETACH HERE
<TABLE>
<CAPTION>
[ X ] Please mark
votes as in this
example
<S> <C>
1. Election of Directors Nominees: 4. Ratify the issuance of stock
Samir Arora, Lee A. Dayton, Michael options to senior executives of the
D. Zisman, Robert G. Anderegg, John Company.
Sculley and Blake Modersitzki FOR AGAINST ABSTAIN
FOR WITHHELD [ ] [ ] [ ]
[ ] [ ]
5. Ratify the appointment of KPMG LLP
2. Approve the amendment to the as independent auditors.
Restated Certificate of FOR AGAINST ABSTAIN
Incorporation [ ] [ ] [ ]
FOR AGAINST ABSTAIN
[ ] [ ] [ ] 6. In their discretion, the proxies
are authorized to vote upon any
3. Ratify the amendment to the Amended other business that may properly
and Restated 1997 Employee Stock come before the meeting.
Option Plan. FOR AGAINST ABSTAIN
FOR AGAINST ABSTAIN [ ] [ ] [ ]
[ ] [ ] [ ]
MARK HERE FOR
_________________________________________ ADDRESS CHANGE
Name AND NOTE AT LEFT [ ]
_________________________________________ Please sign exactly as name appears
Street Address hereon. Joint owners should each
sign. Executors, administrators,
_________________________________________ trustees, guardians or other
City State Country Zip Code fiduciaries should give full title
as such. If signing for a
corporation, please sign in full
corporate name by a duly authorized
officer.
Signature: ______________________ Date: _____________ Signature: ____________________ Date: _____________
</TABLE>
