<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Section 240.14a-11(c) or Section
240.14a-12
NETGRAVITY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(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 provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
[LOGO]
NETGRAVITY, INC.
1900 S. NORFOLK STREET, SUITE 150
SAN MATEO, CA 94403
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of NetGravity, Inc. ("NetGravity") which will be held on May
27, 1999, at 1:00 p.m. local time at the hotel Crowne Plaza located at 1221
Chess Drive, Foster City, California 94404. The actions expected to be taken at
the Annual Meeting are described in detail in the attached Proxy Statement and
Notice of Annual Meeting. There will also be a report on NetGravity's business,
and stockholders will have an opportunity to ask questions.
Included with the Proxy Statement is a copy of NetGravity's 1998 Annual
Report and Form 10-K for the year ended December 31, 1998. We encourage you to
read these documents which include information on NetGravity's operations,
markets, products and services, as well as NetGravity's audited financial
statements.
Please use this opportunity to take part in the affairs of NetGravity by
voting on the business to come before this meeting. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING
PROXY IN THE ENCLOSED SELF-ADDRESSED STAMPED ENVELOPE. Returning the proxy does
NOT deprive you of your right to attend the meeting and to vote your shares in
person for the matters acted upon at the meeting. We appreciate your continuing
interest in NetGravity and look forward to seeing you at the Annual Meeting.
Sincerely,
[/S/ JOHN W. DANNER]
John W. Danner
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
San Mateo, California
April 23, 1999
<PAGE>
NETGRAVITY, INC.
1900 S. NORFOLK STREET, SUITE 150
SAN MATEO, CA 94403
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders (the "Annual Meeting") of NetGravity,
Inc., a Delaware corporation ("NetGravity"), will be held on Thursday, May 27,
1999, at 1:00 p.m. local time at the hotel Crowne Plaza located at 1221 Chess
Drive, Foster City, California 94404 for the following purposes:
1. To elect directors of NetGravity to serve until the 2000 Annual Meeting
of Stockholders and until their successors are duly elected and
qualified.
2. To ratify the appointment by the Board of Directors of the firm KPMG LLP
as independent auditors of NetGravity for the year ending December 31,
1999.
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice of Annual Meeting. Only holders of record of
NetGravity's common stock at the close of business on April 14, 1999, the record
date, are entitled to vote on the matters listed in this Notice of Annual
Meeting. Any stockholder attending the Annual Meeting may vote in person even if
he or she has returned a proxy.
By Order of the Board of Directors
of NetGravity, Inc.
[LOGO]
Stephen E. Recht
CHIEF FINANCIAL OFFICER AND SECRETARY
San Mateo, California
April 23, 1999
------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN, DATE, AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED SELF-ADDRESSED
STAMPED ENVELOPE.
------------------------
<PAGE>
NETGRAVITY, INC.
----------------
PROXY STATEMENT
FOR
1999 ANNUAL MEETING OF STOCKHOLDERS
---------------------
PROCEDURAL MATTERS
GENERAL
This Proxy Statement is furnished to holders of common stock, par value
$0.001 per share (the "Common Stock"), of NetGravity, Inc., a Delaware
corporation ("NetGravity"), in connection with the solicitation of proxies by
the Board of Directors of NetGravity for use at the Annual Meeting of
Stockholders of NetGravity (the "Annual Meeting") and at any adjournment or
postponement thereof for the purpose of considering and acting upon the matters
set forth herein. The Annual Meeting will be held on May 27, 1999, at 1:00 p.m.
local time at the hotel Crowne Plaza located at 1221 Chess Drive, Foster City,
California 94404. NetGravity's address is 1900 South Norfolk Street, Suite 150,
San Mateo, California 94403 and its telephone number at that location is (650)
425-6000.
This Proxy Statement, enclosed proxy card and NetGravity's Annual Report on
Form 10-K are first being mailed on or about April 23, 1999 to all holders of
Common Stock entitled to vote at the Annual Meeting.
VOTING AT THE ANNUAL MEETING; RECORD DATE
Only holders of record of NetGravity's Common Stock at the close of business
on April 14, 1999 (the "Record Date") are entitled to notice of and to vote at
the Annual Meeting. Such stockholders are entitled to cast one vote for each
share of Common Stock held as of the Record Date on all matters properly
submitted for the vote of stockholders at the Annual Meeting. As of the Record
Date, there were 17,195,046 shares of NetGravity's Common Stock outstanding and
entitled to be voted at the Annual Meeting. For information regarding security
ownership by management and by the beneficial owners of more than 5% of
NetGravity's Common Stock, see "Security Ownership of Certain Beneficial Owners
and Management."
QUORUM; REQUIRED VOTE
A majority of the shares entitled to vote, present in person or represented
by proxy, shall constitute a quorum at the Annual Meeting. If a quorum is
present, in all matters other than the election of directors, the affirmative
vote of the majority of votes cast on the matter shall be required to approve
any matter presented at the Annual Meeting. Directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy.
Under the General Corporation Law of the State of Delaware, both abstaining
votes and broker "non-votes" are counted as present and entitled to vote and
are, therefore, included for purposes of determining whether a quorum of shares
is present at a meeting. However, broker "non-votes" are not deemed to be "votes
cast." As a result, broker "non-votes" are not included in the tabulation of the
voting results on the election of directors or issues requiring approval of a
majority of the votes cast. A broker "non-vote" occurs when a nominee holding
shares for a beneficial owner does not vote on a particular proposal because the
nominee does not have discretionary voting power with respect to that item and
has not received instructions from the beneficial owner.
1
<PAGE>
PROXIES
All shares of Common Stock entitled to vote and represented by properly
marked, dated, signed and unrevoked proxies received prior to the Annual Meeting
will be voted at the Annual Meeting in accordance with the instructions
indicated on those proxies. If no instructions are indicated on a properly
completed proxy, the shares represented by that proxy will be voted as
recommended by the Board of Directors. If any other matters are properly
presented for consideration at the Annual Meeting, including, among other
things, consideration of a motion to adjourn the Annual Meeting to another time
or place (including, without limitation, for the purpose of soliciting
additional proxies), the persons named in the enclosed proxy and acting
thereunder will have discretion to vote on those matters in accordance with
their best judgment. NetGravity does not currently anticipate that any other
matters will be raised at the Annual Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. A proxy may be revoked: (i) by filing
with the Secretary of NetGravity, at or before the taking of the vote at the
Annual Meeting, a written notice of revocation or a duly executed proxy, dated
later than the prior proxy relating to the same shares, or (ii) by attending the
Annual Meeting and voting in person (although attendance at the Annual Meeting
will not of itself revoke a proxy). Any written notice of revocation or
subsequent proxy must be received by the Secretary of NetGravity before the vote
at the Annual Meeting. Such written notice of revocation or subsequent proxy
should be hand delivered to the Secretary of NetGravity or should be sent to
NetGravity, Inc., 1900 S. Norfolk Street, Suite 150, San Mateo, California
94403, Attention: Secretary.
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by NetGravity. NetGravity may
reimburse brokerage firms, custodians, nominees, fiduciaries, and other persons
representing beneficial owners of Common Stock for their reasonable expenses in
forwarding solicitation material to such beneficial owners. Directors, officers,
and employees of NetGravity may also solicit proxies in person or by telephone,
letter, facsimile, e-mail or other means of communication. Such directors,
officers, and employees will not be additionally compensated, but may be
reimbursed for their reasonable out-of-pocket expenses in connection with such
solicitation.
PROCEDURE FOR SUBMITTING STOCKHOLDER PROPOSALS
Stockholders may present proper proposals for inclusion in NetGravity's
proxy statement and for consideration at the next annual meeting of its
stockholders by submitting their proposals in writing to the Secretary of
NetGravity in a timely manner. In order to be included in NetGravity's proxy
materials for the 1999 Annual Meeting of Stockholders, stockholder proposals
must be received by the Secretary of NetGravity no later than December 27, 1999,
and must otherwise comply with the requirements of Rule 14a-8 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
In addition, NetGravity's Bylaws establish an advance notice procedure with
regard to certain matters, including stockholder proposals not included in
NetGravity's proxy statement, to be brought before an annual meeting of
stockholders. In general, nominations for the election of directors may be made
by: (i) the Board of Directors, (ii) any nominating committee appointed by the
Board of Directors, or (iii) any stockholder entitled to vote who has delivered
written notice to the Secretary of NetGravity 60 days in advance of the annual
meeting (or, with respect to an election of directors to be held at a special
meeting, the close of business on the seventh day following the date on which
notice of such meeting is first given to stockholders), which notice must
contain specified information concerning the nominees and concerning the
stockholder proposing such nominations. NetGravity's Bylaws also provide that
the only business that shall be conducted at an annual meeting is business that
is brought before such meeting: (i) by or at the direction of the chairman of
the meeting, or (ii) by any stockholder entitled to vote who has delivered
2
<PAGE>
written notice to the Secretary of NetGravity 60 days in advance of the annual
meeting, which notice must contain specified information concerning the matters
to be brought before such meeting and concerning the stockholder proposing such
matters. In the event that less than 70 days notice or prior public disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder must be received not later than the close of business on the tenth
day following the earlier of the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made. If a stockholder
who has notified NetGravity of his intention to present a proposal at an annual
meeting does not appear or send a qualified representative to present his
proposal at such meeting, the Bylaws do not require NetGravity to present the
proposal for a vote at such meeting. A copy of the full text of the Bylaw
provisions discussed above may be obtained by writing to the Secretary of
NetGravity. All notices of proposals by stockholders, whether or not included in
NetGravity's proxy materials, should be sent to NetGravity, Inc., 1900 S.
Norfolk Street, Suite 150, San Mateo, California 94403, Attention: Secretary.
3
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
GENERAL
NetGravity's Board of Directors is currently comprised of six members. A
director serves in office until his respective successor is duly elected and
qualified or until such director's earlier resignation or removal.
NOMINEES
The Board of Directors has selected six nominees, all of whom are currently
serving as directors of NetGravity. The names of persons who are nominees for
director and their positions with NetGravity as of March 15, 1999 are set forth
below. Each person nominated for election has agreed to serve if elected, and
management has no reason to believe that any nominee will be unavailable to
serve. In the event any nominee is unable or declines to serve as a director at
the time of the Annual Meeting, the proxies will be voted for any nominee who
may be designated by the current Board of Directors to fill the vacancy. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the nominees named below.
REQUIRED VOTE
Directors are elected by a plurality of votes cast. Votes withheld and
broker non-votes are not counted toward a nominee's total.
DIRECTORS/NOMINEES
The directors of the Company, and their ages as of March 15, 1999, are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH NETGRAVITY
- ----------------------------------- --- -----------------------------------
<S> <C> <C>
Chairman of the Board and Chief
John W. Danner(1).................. 32 Executive Officer
J. Scott Briggs.................... 48 Director
John D. D. Kohler(2)............... 44 Director
Amnon Landan....................... 40 Director
Jonathan D. Lazarus(3)............. 47 Director
Alexander R. Slusky(2)(3).......... 31 Director
</TABLE>
- ------------------------
(1) Member of New-Hire Option Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
JOHN W. DANNER co-founded the Company in 1995, served as its President from
inception until April 1998 and has served as Chief Executive Officer and as a
Director since inception. In April 1998, Mr. Danner was elected Chairman of the
Board. From 1994 to 1995, Mr. Danner was a technical lead/ architect for Silicon
Graphics, Inc. ("Silicon Graphics"), where he architected the set-top and server
side of a component of Silicon Graphics' interactive television system. From
1990 to 1994, Mr. Danner was a development manager at Oracle Corporation
("Oracle"), where he oversaw product development for Oracle Book, a multimedia
browser. Since January 1998, Mr. Danner has served on the Board of Directors of
the Internet Advertising Bureau, an online advertising advocacy group and
standards-setting body for online content publishers. Mr. Danner holds B.S.E.E.
and M.S.E.E. degrees from Stanford University.
4
<PAGE>
J. SCOTT BRIGGS has served as a Director of the Company since December 1998.
Mr. Briggs has also been a consultant to the Company since December 1998. From
June 1975 to July 1997, Mr. Briggs served in various positions, including
president, at Ziff-Davis Inc. ("Ziff-Davis"), an integrated media and marketing
company. Since July 1997, Mr. Briggs has served as a consultant to Ziff-Davis.
Mr. Briggs serves on the boards of directors of several Internet-related private
companies and is a senior advisor to Red Herring Communications. Mr. Briggs
holds a B.A. degree from Williams College.
JOHN D. D. KOHLER has served as a Director of the Company since inception.
In 1996, Mr. Kohler founded Redleaf Venture Management, L.L.C., a venture
management firm, of which he is currently a Managing Member. From 1994 to 1995,
Mr. Kohler was Vice President and General Manager, Customer Solutions, at
Netscape Communications Corporation. From 1991 to 1993, Mr. Kohler was a Vice
President and General Manager at Silicon Graphics. Over the previous 15 years,
Mr. Kohler held executive positions at Hewlett Packard Company, Convergent
Technologies and Unisys Corporation. Mr. Kohler holds a B.A. degree in
International Relations and Economics from the University of California, Los
Angeles.
AMNON LANDAN has served as a Director of the Company since October 1998. He
has served as President and Chief Executive Officer of Mercury Interactive
Corporation ("Mercury") since February 1997 and as a director of Mercury since
February 1996. Prior to his current positions, Mr. Landan held various
management positions at Mercury including President from October 1995 to January
1997, President of North American Operations from March 1995 to September 1995
and Chief Operating Officer from August 1993 to March 1995. Mr. Landan holds a
B.S. in Computer Science from the Technion Israel Institute of Technology.
JONATHAN D. LAZARUS has served as a Director of the Company since 1996. From
1985 to August 1996, Mr. Lazarus worked at Microsoft Corporation ("Microsoft"),
where he served most recently as Vice President, Strategic Relations. Mr.
Lazarus has also served as an advisor to Microsoft, the Universal Studios New
Media Group and ZDTV. Mr. Lazarus currently serves on the boards of directors of
Ziff-Davis Inc. and the following private companies: HomeGrocer.com, Inc. and
Vision Solutions, Inc. Mr. Lazarus holds a B.S. degree in Communications from
Temple University.
ALEXANDER R. SLUSKY has served as a Director of the Company since 1997.
Since January 1998, Mr. Slusky has been the Managing Member of Vector Capital
Partners, L.L.C., the General Partner of Vector Capital, L.P. ("Vector
Capital"), a technology equity fund affiliated with Ziff Brothers Investments
("ZBI"). From August 1995 to December 1997, Mr. Slusky was a Principal of ZBI
and from 1996 to April 1998 he was a General Partner of Vector Capital. From
August 1992 to August 1995, Mr. Slusky was an Associate at New Enterprise
Associates ("NEA"), a venture capital fund, and from 1993 until 1995 a Special
Limited Partner of NEA VI, an entity affiliated with NEA. Mr. Slusky serves on
the boards of directors of several private companies. Mr. Slusky holds an A.B.
degree in Economics from Harvard University and an M.B.A. from the Harvard
Business School.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
ABOVE.
BOARD MEETINGS AND COMMITTEES
During fiscal 1998, the Board of Directors held sixteen meetings (including
regularly scheduled and special meetings), and no director attended fewer than
75% of the total number of meetings of the Board of Directors and the
committees, if any, of which he was a member. Certain matters approved by the
Board of Directors were approved by unanimous written consent.
The Board of Directors currently has three standing committees: an Audit
Committee, a Compensation Committee and a New-Hire Option Committee. NetGravity
has no nominating committee or committee performing a similar function. The
Audit Committee currently consists of Messrs. Kohler and
5
<PAGE>
Slusky. The Compensation Committee currently consists of Messrs. Lazarus and
Slusky. The New-Hire Option Committee currently consists of Mr. Danner.
AUDIT COMMITTEE. The Audit Committee, which met once during 1998, reviews
and monitors the corporate financial reporting and the internal and external
audits of the Company and its subsidiaries, including, among other things, the
Company's internal audit and control functions, the results and scope of the
annual audit and other services provided by the Company's independent auditors
and the Company's compliance with legal matters that have a significant impact
on the Company's financial reports. The Audit Committee also consults with the
Company's management and the Company's independent auditors prior to the
presentation of financial statements to stockholders and, as appropriate,
initiates inquiries into aspects of the Company's financial affairs. In
addition, the Audit Committee has the responsibility to consider and recommend
the appointment of, and to review fee arrangements with, the Company's
independent auditors. The current members of the Audit Committee are Messrs.
Kohler and Slusky.
COMPENSATION COMMITTEE. The Compensation Committee, which met once during
1998, reviews and makes recommendations to the Board regarding all forms of
compensation provided to the executive officers and directors of the Company and
its subsidiaries including stock compensation and loans. In addition, the
Compensation Committee reviews and makes recommendations on bonus and stock
compensation arrangements for all employees of the Company. As part of the
foregoing, the Compensation Committee also administers the Company's 1995 Stock
Option Plan, 1998 Stock Plan and 1998 Employee Stock Purchase Plan. The current
members of the Compensation Committee are Messrs. Lazarus and Slusky.
NEW-HIRE OPTION COMMITTEE. The New-Hire Option Committee, which acted 18
times during 1998 has the authority to grant options under the Company's 1998
Stock Plan to newly-hired employees (other than executive officers), in each
case in an amount determined by the New-Hire Option Committee at an exercise
price per share equal to the fair market value of the Company's common stock
determined on the date of grant of such options, and otherwise on the terms and
conditions specified in the 1998 Stock Plan.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their service
as directors. Pursuant to the NetGravity 1998 Director Option Plan (the
"Director Plan"), each non-employee director was automatically granted an option
to purchase 25,000 shares of common stock (the "First Option") on the later of
(i) the June 1998 effective date of the Director Plan or (ii) the date which
such person first became a non-employee director. In addition to the First
Option, each non-employee director shall automatically be granted an option to
purchase 5,000 shares (a "Subsequent Option") on the date of each of the
Company's annual meeting of stockholders, if on such date he or she shall have
served on the Board for at least six months. Each First Option and Subsequent
Option shall have a term of 10 years. The shares subject to the First Option and
Subsequent Option shall vest as to 25% of the optioned stock one year from the
date of grant, and 1/48 of the optioned stock shall vest each month thereafter,
provided the person continues to serve as a director on such dates. Holders of
options granted under the Director Plan may exercise their options prior to
complete vesting of shares, subject to such holders entering into restricted
stock purchase agreements granting the Company an option to repurchase any
unvested shares at a price per share equal to the original exercise price per
share for the option in the event of a termination of the optionee's
directorship. The exercise price of each First Option was, and each Subsequent
Option shall be, 100% of the fair market value per share of the common stock on
the date of grant.
In the event of a merger of the Company or the sale of substantially all of
the assets of the Company, each option may be assumed or an equivalent option
substituted for by the successor corporation. If an option is assumed or
substituted for by the successor corporation, it shall continue to vest as
provided in the Director Plan. However, if a non-employee director's status as a
director of the Company or the
6
<PAGE>
successor corporation, as applicable, is terminated other than upon a voluntary
resignation by the non-employee director, each option granted to such
non-employee director shall become fully vested and exercisable upon such
termination date. If the successor corporation does not agree to assume or
substitute for the option, each option shall become fully vested and exercisable
for a period of fifteen days from the date the Board notifies the optionee of
the option's full exercisability, after which period the option shall terminate.
Options granted under the Director Plan must be exercised within three months of
the end of the optionee's tenure as a director of the Company, or within twelve
months after such director's termination by death or disability, but in no event
later than the expiration of the option's ten-year term. Options granted under
the Director Plan are generally not transferable by the optionee other than by
will or the laws of descent and distribution, and each option is exercisable,
during the lifetime of the optionee, only by such optionee.
If re-elected at the Annual Meeting, Messrs. Kohler, Landan, Lazarus and
Slusky will each be automatically granted a Subsequent Option.
7
<PAGE>
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
GENERAL
The Board of Directors has appointed KPMG LLP ("KPMG") as independent
auditors of NetGravity to audit the consolidated financial statements of
NetGravity for the year ending December 31, 1999, and has determined that it
would be desirable to request that the stockholders ratify such appointment.
Effective March 1997, NetGravity's Board of Directors engaged KPMG as the
Company's principal accountants to audit the Company's financial statements.
Prior to such engagement, KPMG and the Company discussed matters including the
application of accounting principles and auditing standards. Such discussions
occurred in the normal course of business, and KPMG's responses were not a
condition to its engagement by the Company. Ernst & Young LLP ("Ernst & Young")
served as the Company's independent auditors from the Company's inception until
the Company's dismissal of Ernst & Young effective March 1997, which dismissal
was approved by the Company's Board of Directors. Ernst & Young performed the
first full fiscal year audit of the Company's financial statements for the then
fiscal year ended March 31, 1996 (the "March 31, 1996 Audit"), which was the
only audit of the Company performed by Ernst & Young. The report of Ernst &
Young on the financial statements of the Company prepared in connection with the
March 31, 1996 Audit did not contain an adverse opinion or disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope or accounting
principles. Furthermore, in connection with the March 31, 1996 Audit and during
the subsequent interim period prior to the dismissal of Ernst & Young, there
were no disagreements between Ernst & Young and the Company on any matters of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of Ernst & Young,
would have caused Ernst & Young to make reference to the subject matter of such
disagreements in connection with its report.
A representative of KPMG is expected to be present at the Annual Meeting
with the opportunity to make a statement if he or she desires to do so, and is
expected to be available to respond to appropriate questions.
REQUIRED VOTE
Although stockholder approval is not required for the appointment of KPMG
(as the Board of Directors has the responsibility for selecting auditors), the
Board of Directors has directed management to seek stockholder ratification of
the selection of KPMG. In the event that the stockholders do not approve the
selection of KPMG, the Board of Directors and the Audit Committee will
reconsider the selection of KPMG.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of NetGravity's Common Stock as of March 31, 1999 (as adjusted to
reflect sales by the persons listed below completed on April 5, 1999 pursuant to
a Registration Statement on Form S-1 filed with the Securities and Exchange
Commission) by (i) each person or entity who is known by the Company to own
beneficially 5% or more of the Company's outstanding Common Stock, (ii) each
director of the Company, (iii) the Company's Chief Executive Officer and each of
the Company's four other most highly compensated executive officers for fiscal
1998 (collectively, the "Named Executive Officers") and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
---------------------
NAME AND ADDRESS NUMBER PERCENT(1)
- --------------------------------------------------------- --------- ----------
<S> <C> <C>
Vector Capital, L.P.(2) ................................. 1,627,307 9.5%
3000 Sand Hill Road
Building 4, Suite 235
Menlo Park, CA 94025
London Pacific Life & Annuity Company(3) ................ 1,377,467 8.0
3109 Poplarwood Court, Suite 300
Raleigh, NC 24604
John W. Danner(4)........................................ 1,094,632 6.4
J. Scott Briggs(5)....................................... 25,000 *
John D. D. Kohler(6)..................................... 216,150 1.3
Amnon Landan(7).......................................... 25,000 *
Jonathan D. Lazarus(8)................................... 77,335 *
Alexander R. Slusky(2)(9)................................ 1,647,513 9.6
Stephen E. Recht(10)..................................... 146,805 *
Rick E. D. Jackson IV(11)................................ 144,252 *
Martin G. Lane-Smith(12)................................. 192,023 1.1
John K. Donnelly(13)..................................... 24,913 *
All directors and executive officers as a group
(15 people)(14)........................................ 4,059,325 22.3
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1% of the Adjusted Outstanding
Shares.
(1) Applicable percentage ownership is based on 13,941,051 shares of common
stock outstanding as of March 31, 1999 adjusted by adding the 3,218,440
shares issued by NetGravity on April 5, 1999 pursuant to Registration
Statements on Form S-1 filed with the Securities and Exchange Commission
(such adjusted number of shares, the "Adjusted Outstanding Shares").
Beneficial ownership of shares is determined in accordance with the rules
of the Securities and Exchange Commission and generally includes shares as
to which a person holds sole or shared voting or investment power. Shares
of common stock subject to options that are exercisable within 60 days of
March 31, 1999 are deemed to be beneficially owned by the person holding
such options for the purpose of computing the percentage ownership of such
person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Unless otherwise noted, the
address for the stockholders named in this table is NetGravity, Inc., 1900
S. Norfolk Street, Suite 150, San Mateo, California 94403.
9
<PAGE>
(2) Consists of 1,572,513 shares held by Vector Capital, L.P. ("Vector
Capital"), 50,000 shares held by Vector Capital Partners, L.L.C. ("VCP")
and 4,794 shares held by PBK Holdings, Inc. ("PBK"), in each case as of
March 26, 1999. Alexander R. Slusky is the Managing Member of VCP, which is
a general partner of Vector Capital. Philip B. Korsant is the president and
sole shareholder of PBK, a general partner of Vector Capital. Each of such
persons disclaims beneficial ownership of such shares except to the extent
of its respective pecuniary interest in such shares, if any.
(3) This information was obtained from a Schedule 13G, as amended, filed
pursuant to the Exchange Act.
(4) Includes 113 shares of common stock issuable upon exercise of a stock
option exercisable within 60 days of March 31, 1999.
(5) Consists of 25,000 shares of common stock issuable upon exercise of a stock
option exercisable within 60 days of March 31, 1999.
(6) Consists of 191,150 shares held by the Kohler Family Trust, of which Mr.
Kohler is a trustee and 25,000 shares issuable upon exercise of a stock
option held by Mr. Kohler exercisable within 60 days of March 31, 1999.
(7) Consists of 25,000 shares of common stock issuable upon exercise of a stock
option exercisable within 60 days of March 31, 1999.
(8) Consists of 52,335 shares of common stock held by Lazarus Family
Investments LLC, of which Mr. Lazarus is a Managing Member, and 25,000
shares of common stock issuable upon exercise of a stock option exercisable
within 60 days of March 31, 1999.
(9) Includes 25,000 shares of common stock issuable to Mr. Slusky upon exercise
of stock options exercisable within 60 days of March 31, 1999.
(10) Includes 136,692 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1999.
(11) Consists of 144,252 shares of common stock issuable upon exercise of stock
options exercisable within 60 days of March 31, 1999.
(12) Includes 106,699 shares of common stock issuable upon exercise of stock
options exercisable within 60 days of March 31, 1999.
(13) Includes 23,745 shares of common stock issuable upon exercise of stock
options exercisable within 60 days of March 31, 1999. Mr. Donnelly, the
Company's Vice President of North American Sales, has indicated that he
will terminate his employment with the Company as of April 23, 1999.
(14) Includes 1,032,171 shares of common stock issuable upon exercise of stock
options exercisable within 60 days of March 31, 1999.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act ("Section 16(a)") requires NetGravity's
executive officers, directors, and persons who own more than ten percent of a
registered class of NetGravity's equity securities ("10% Stockholders") to file
reports of ownership on a Form 3 and changes in ownership on a Form 4 or a Form
5 with the Commission and The Nasdaq Stock Market, Inc. Such executive officers,
directors, and 10% Stockholders are also required by Commission rules to furnish
NetGravity with copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by
NetGravity, or written representations from certain reporting persons that no
Forms 5 were required for such persons, NetGravity believes that during 1998 its
executive officers, directors, and 10% Stockholders complied with all applicable
10
<PAGE>
Section 16(a) filing requirements, except that (i) executive officers Douglas S.
Kaplan and Martin Lane-Smith each filed one late Form 4 relating to a single
transaction and (ii) PBK Holdings, Inc. and Philip B. Korsant, persons that may
be deemed to be 10% Stockholders, jointly filed one late Form 3.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
Messrs. Lazarus and Slusky. No interlocking relationship exists between any
member of the Company's Board of Directors or the Company's Compensation
Committee and any member of the board of directors or compensation committee of
any other company, and no such interlocking relationship has existed in the
past.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning total
compensation received by the Chief Executive Officer and the other Named
Executive Officers for services rendered to NetGravity during each of the last
two fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- ---------------------------------------- ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John W. Danner, Chairman of the Board
and Chief Executive Officer........... 1998 $ 129,327 $ -- 266 $ --
1997 124,280 -- -- --
Stephen E. Recht, Chief Financial
Officer and Secretary................. 1998 $ 176,183 $ -- 5,907 $17,907(1)
1997 154,517 -- 78,408 --
Rick E. D. Jackson IV, Vice President of
Marketing(2).......................... 1998 $ 167,069 $ 22,627 22,952 $ --
1997 78,462 -- 150,000 --
Martin G. Lane-Smith, Vice President of
Engineering(3)........................ 1998 $ 194,506 $ -- 82,792 $ --
1997 21,346 25,000 214,603 --
John K. Donnelly, Vice President of
North American Sales(4)............... 1998 $ 89,719 $129,004 16,134 $ --
1997 77,915 143,642 13,976 --
</TABLE>
- ------------------------
(1) Represents forgiveness by the Company of a previously outstanding loan
pursuant to a debt forgiveness agreement by and between Mr. Recht and the
Company dated November 20, 1998.
(2) Mr. Jackson joined the Company in June 1997; his annualized base salary for
fiscal 1997 was $150,000.
(3) Mr. Lane-Smith joined the Company in November 1997; his annualized base
salary for fiscal 1997 was $185,000.
(4) Mr. Donnelly has indicated that he will terminate his employment with the
Company as of April 23, 1999.
11
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the fiscal year ended December
31, 1998. All such options were awarded under the Company's 1995 Stock Option
Plan and 1998 Stock Plan. No stock appreciation rights were granted to these
individuals during such year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
PERCENT OF POTENTIAL REALIZED VALUE
NUMBER OF TOTAL OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES IN EXERCISE FOR OPTION TERM(1)
OPTIONS FISCAL PRICE PER EXPIRATION --------------------------
NAME AND PRINCIPAL POSITIONS GRANTED(#) 1998(%) SHARE($)(2)(3) DATE(4) ($)5% ($)10%
- ----------------------------------- ---------- ------------- --------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Danner, Chairman of the
Board and Chief Executive
Officer.......................... 113(5) 0.01% $23.69 7/8/98 $ 1,683.35 $ 4,265.95
113(5) 0.01 0.61 5/26/98 43.35 109.86
Stephen E. Recht, Chief Financial
Officer and Secretary............ 113(5) 0.01 23.69 7/8/2008 1,683.35 4,265.95
5,681 0.69 6.60 4/6/2008 23,580.15 59,756.74
113(5) 0.01 0.50 1/28/2008 35.53 90.05
Rick E. D. Jackson IV, Vice
President of Marketing........... 113(5) 0.01 23.69 7/8/2008 1,683.35 4,265.95
22,726 2.74 6.60 4/6/2008 94,328.91 239,047.98
113(5) 0.01 0.55 1/28/2008 39.09 99.05
Martin G. Lane-Smith, Vice
President of Engineering......... 113(5) 0.01 23.69 7/8/2008 1,683.53 4,266.40
78,021 9.41 11.94 11/3/2008 585,859.83 1,484,683.84
4,545 0.55 6.60 4/6/2008 18,864.95 47,807.49
113(5) 0.01 0.55 1/28/2008 39.09 99.05
John K. Donnelly, Vice President of
North American Sales............. 113(5) 0.01 23.69 7/8/2008 1,683.35 4,265.95
15,908 1.84 6.60 4/6/2008 66,029.41 167,331.48
113(5) 0.01 0.55 1/28/2008 39.09 99.05
</TABLE>
- --------------------------
(1) The 5% and 10% assumed annual rates of compound stock price appreciation are
prescribed by the rules and regulations of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future trading prices of its common stock. There can be no assurance that
the actual stock price appreciation over the ten-year option term will be at
the assumed 5% and 10% levels or at any other defined level. Actual gains,
if any, on stock option exercises are dependent on numerous factors,
including the future performance of the Company, overall market conditions
and the option holder's continued employment with the Company throughout the
entire vesting period and option term, which factors are not reflected in
this table. The potential realizable value is calculated by multiplying the
exercise price per share by the stated annual appreciation rate compounded
annually for the option term, subtracting the exercise price per share from
the product, and multiplying the remainder by the number of shares
underlying the option granted.
(2) Options were granted at an exercise price equal to the fair market value of
the Company's common stock.
(3) Exercise price may be paid (i) in cash, (ii) by check, (iii) by promissory
note, (iv) by delivery of already-owned shares of the Company's common stock
subject to certain conditions, (v) by delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds required
to pay the exercise price or (vi) by any combination of the foregoing
methods of
12
<PAGE>
payment under applicable law. In addition, the consideration for shares
acquired upon exercise of options granted under the 1998 Stock Plan may
consist of a reduction in the amount of any Company liability to the
optionee.
(4) Twenty-five percent (25%) of the shares issuable upon exercise of options
granted under the Company's 1995 Stock Option Plan or 1998 Stock Plan
generally become vested on the first anniversary of the vesting commencement
date and the balance generally vests at the rate of 1/48th of such shares
for each month thereafter.
(5) This option was fully vested on date of grant.
OPTION EXERCISES AND HOLDINGS
The following table sets forth, as to the Named Executive Officers,
information concerning stock options exercised during fiscal 1998 and the number
of shares subject to both exercisable and unexercisable stock options as of
December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1998(#) DECEMBER 31, 1998($)(1)
ACQUIRED VALUE ------------------------------ ---------------------------
NAME ON EXERCISE(#) REALIZED($)(2) EXERCISABLE(3) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- -------------- -------------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Danner, Chairman of the
Board and Chief Executive
Officer.......................... 113 $ 808 113 -- $ -- $ --
Stephen E. Recht, Chief Financial
Officer and Secretary............ 10,000 183,126 173,692 -- 2,702,832 --
9,600 162,000 -- --
Rick E. D. Jackson IV, Vice
President of Marketing........... 8,700 146,813 164,252 -- 2,445,084 --
Martin G. Lane-Smith, Vice
President of Engineering......... 10,000 168,750 209,374 78,021 3,273,104 316,960
John K. Donnelly, Vice President of
North American Sales............. 1,900 32,063 28,097 -- 872,367 --
</TABLE>
- --------------------------
(1) Represents the difference between the fair market value of the shares of
common stock underlying the options at December 30, 1998, $16 per share (the
closing price of the common stock on the last trading day of fiscal 1998 as
reported by the Nasdaq National Market) less the corresponding exercise
price of such options.
(2) The amount set forth represents the difference between the fair market value
of the shares on the date of exercise and the exercise price of the option.
(3) The option shares are immediately exercisable, subject to the Company's
repurchase option at the original exercise price upon the optionee's
cessation of service prior to vesting in such option shares. The repurchase
option generally lapses or the option shares generally vest as follows: 25%
of the option shares vest upon the completion of one year of service from
the vesting commencement date and an additional 1/48th of such shares become
exercisable each month thereafter.
EMPLOYMENT AND SEVERANCE AGREEMENTS
JOHN DANNER STOCK PURCHASE AGREEMENT. Pursuant to the Founder's Stock
Purchase Agreement entered into in September 1995 by and between the Company and
John W. Danner, the Company's Chairman of the Board and Chief Executive Officer,
the vesting of the stock purchased under such agreements will accelerate upon
certain changes of control of the Company.
JITENDRA VALERA EMPLOYMENT AGREEMENT. In May 1998, the Company and Mr.
Valera, the Company's Vice President and General Manager of Europe, entered into
an employment agreement under which Mr. Valera is entitled to receive severance
benefits under certain circumstances. In the event Mr. Valera is
13
<PAGE>
involuntarily terminated from the Company or a successor Company without cause
within 12 months of a Change of Control, defined to include (i) the acquisition
of the Company, (ii) the merger or consolidation of the Company with any other
corporation, (iii) a sale of all or substantially all of the Company's assets or
(iv) the acquisition by any person of beneficial ownership of 50% or more of the
total voting power of the Company's then outstanding securities, Mr. Valera
would be entitled to a lump sum payment equal to 18 months of Mr. Valera's base
salary as in effect immediately prior to the Change of Control, which lump sum
payment would equal approximately $204,188, based on Mr. Valera's current base
salary. In the event of any other involuntary termination of Mr. Valera's
employment with less than six months notice, Mr. Valera would be entitled to
continued monthly payment of his base salary for six months following such
notice.
SUSAN ATHERTON EMPLOYMENT AGREEMENT. In April 1998, the Company and Ms.
Atherton, the Company's Vice President of Worldwide Sales, entered into an
employment agreement under which Ms. Atherton is entitled to receive severance
benefits under certain circumstances. Pursuant to her employment agreement, Ms.
Atherton was granted an option to purchase up to 176,802 shares of the Company's
common stock, subject to the Company's standard vesting provisions. In the event
Ms. Atherton is involuntarily terminated by the Company or a successor company
without cause within 12 months of a Change of Control, defined to include (i)
the acquisition of the Company, (ii) the merger or consolidation of the Company
with any other corporation or (iii) a sale of all or substantially all of the
Company's assets, Ms. Atherton would be entitled to a lump sum payment equal to
18 months of Ms. Atherton's base salary as in effect immediately prior to the
Change of Control, which lump sum payment would equal approximately $159,386,
based on Ms. Atherton's current base salary.
STEPHEN E. RECHT EMPLOYMENT AND SEVERANCE AGREEMENT. In March 1998, the
Company and Mr. Recht, Chief Financial Officer and Secretary of the Company,
entered into an employment and severance agreement under which Mr. Recht is
entitled to receive certain benefits generally in the event Mr. Recht is
involuntarily terminated by the Company or a successor company without cause (i)
upon the acquisition of the Company, (ii) upon the merger or consolidation of
the Company with any other corporation, (iii) upon a sale of all or
substantially all of the Company's assets (each a "Change of Control") or (iv)
within 12 months of a Change of Control. Upon such a termination, Mr. Recht
would be entitled to (i) a total of 18 monthly payments equal to Mr. Recht's
monthly base salary as in effect immediately prior to the Change of Control,
currently $14,681, and (ii) reimbursements for a period of 18 months for the
cost of Mr. Recht's group health and dental plan coverage.
PROTEGE SOFTWARE PROFESSIONAL SERVICES AGREEMENT. In March 1997, the
Company and Protege Software (Holdings) Limited ("Protege") entered into a
professional services agreement (the "Professional Services Agreement") under
which Protege agreed to act as general manager for the Company in Europe. In
addition, Protege agreed to perform certain professional services for the
Company. In connection with the Professional Services Agreement, Jitendra Valera
the Company's Vice President and General Manager of Europe, served in such
capacity via the Professional Services Agreement as an employee of Protege from
March 1997 through May 1998. In May 1998, the Company and Protege amended the
Professional Services Agreement to, among other things, allow the Company to
hire Mr. Valera directly. Effective May 1998, Mr. Valera became an employee of
NetGravity Europe Limited and continued to serve as the Company's Vice President
and General Manager of Europe. The Professional Services Agreement was
terminated by the Company in December 1998.
ASIA PACIFIC VENTURES CO. CONSULTANT AND REPRESENTATIVE AGREEMENT. In June
1998, the Company and Asia Pacific Ventures Co. ("Asia Pacific Ventures")
entered into a consultant and representative agreement (the "Consultant and
Representative Agreement") under which Asia Pacific Ventures agreed to advise
and represent the Company in Asia. In connection with the Consultant and
Representative Agreement, Douglas Kaplan, then an employee of Asia Pacific
Ventures, served as the Company's Vice President and General Manager of Asia
Pacific. The Consultant and Representative Agreement was terminated by the
14
<PAGE>
Company in September 1998. Mr. Kaplan is now an employee of the Company and
continues to serve as its Vice President and General Manager of Asia Pacific.
THOMAS A. SHIELDS SEPARATION AGREEMENT AND RELEASE OF ALL CLAIMS. In
December 1998, the Company and Mr. Shields, the Company's former Vice President,
Chief Technology Officer, entered into a separation agreement and release of all
claims pursuant to which Mr. Shields terminated his employment with the Company
(the "Termination Agreement"). Pursuant to the Termination Agreement, Mr.
Shields received a severance payment of $110,000 and will continue to be a
consultant to the Company until May 1999. In addition, pursuant to the
Termination Agreement, Mr. Shields generally agreed to release the Company from
any claims arising out of or relating to his employment with or his resignation
from the Company, and the Company agreed to release Mr. Shields from any claims
arising out of or relating to his employment with the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1998, there were no transaction or series of similar
transactions to which the Company was or is a party in which the amount involved
exceeded or exceeds $60,000 and in which any Director, executive officer, holder
of more than 5% of any class of the Company's voting securities or any member of
the immediate family of any of the foregoing persons had or will have a direct
or indirect material interest, other than the transactions described below.
SERIES C PREFERRED STOCK FINANCING. In November 1997 and March 1998, the
Company issued and sold an aggregate of 3,887,978 shares of Series C Preferred
Stock for aggregate net proceeds to the Company of $8,683,000, or approximately
$2.24 per share. The investors in such shares included, among others, (1) London
Pacific Life & Annuity Company, an owner of more than 5% of the Company's common
stock, which purchased 2,437,241 shares of Series C Preferred Stock and (2)
Vector Capital, L.P. ("Vector Capital"), a general partner of which is Vector
Capital Partners, L.L.C., of which Alexander R. Slusky, a Director of the
Company, is the Managing Member, which limited partnership purchased 669,571
shares of Series C Preferred Stock. Upon consummation of the Company's initial
public offering, the outstanding shares of Series C Preferred Stock
automatically converted into an aggregate of 1,767,261 shares of common stock.
CONSULTING ARRANGEMENTS WITH J. SCOTT BRIGGS. In addition to serving on the
Board of Directors, Mr. Briggs was engaged as a consultant to the Company in
December 1998. On December 8, 1998, NetGravity granted Mr. Briggs, in his
capacity as a consultant, an option to purchase up 7,500 shares of Common Stock
at an exercise price of $18.50 per share (the then-current fair market value of
such stock). The option will fully vest on June 8, 1999 and will expire on
December 8, 1999. In addition, for services rendered and to be rendered to the
Company in his capacity as a consultant, the Company has agreed to pay Mr.
Briggs cash compensation totaling $25,002 during the six month period ending May
1, 1999.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors (the "Committee")
consists of directors Jonathan D. Lazarus and Alexander R. Slusky, neither of
whom is an employee or officer of NetGravity. The Committee sets policy and
administers NetGravity's cash and equity incentive programs for the purpose of
attracting and retaining highly skilled executives who will promote NetGravity's
business goals and build long-term stockholder value. The Committee is also
responsible for reviewing and making recommendations to the Board of Directors
regarding all forms of compensation to be provided to the executive officers of
NetGravity, including stock compensation and loans, and all bonus and stock
compensation to all employees. Consistent with customary management practices of
privately-held companies, NetGravity's full Board of Directors set the Company's
compensation structure prior to the Company's June 1998 initial public offering.
15
<PAGE>
COMPENSATION PHILOSOPHY AND POLICIES
The compensation policies of the Committee are designed to attract and
retain key personnel through the payment of competitive base salaries and to
encourage and reward performance through bonuses and stock ownership. The
Committee's objectives are to:
- ensure that there is an appropriate relationship between executive
compensation and the creation of stockholder value;
- ensure that the total compensation program will motivate, retain, and
attract executives of outstanding abilities; and
- ensure that current cash and equity incentive opportunities are
competitive with comparable companies.
ELEMENTS OF COMPENSATION
Compensation for officers and key employees includes: (i) annual cash
compensation in the form of base salary and bonuses, (ii) equity elements, and
(iii) employee benefits available to all employees of NetGravity, such as health
insurance and an employee "401(k)" plan.
SALARY AND BONUS. Cash compensation consists of base salary, which is
determined on the basis of the level of responsibility, expertise, and
experience of the employee and competitive conditions in the industry. The
Committee believes that the salaries of NetGravity's officers are comparable to
other similarly situated officers in the software industry. In addition, cash
bonuses may be awarded to officers and other key employees. Compensation of
sales personnel also includes sales commissions.
EQUITY ELEMENTS. Ownership of NetGravity's Common Stock is a key element of
executive compensation. Officers and other employees of NetGravity are eligible
to participate in the 1998 Stock Plan and the 1998 Employee Stock Purchase Plan.
The 1998 Stock Plan permits the Board of Directors or the Committee to grant
stock options to employees on such terms as the Board or the Committee may
determine. The Committee has authority to grant stock options to executive
officers of NetGravity and is currently administering stock option grants to all
employees, except in the case of grants to newly hired employees (other than
executive officers) which are administered by the New-Hire Option Committee. In
determining the size of a stock option grant to a new officer, the Committee
takes into account equity participation by comparable employees within
NetGravity, external competitive circumstances and other relevant factors.
Additional options may be granted to current employees to reward exceptional
performance or to provide additional unvested equity incentives. These options
typically vest over 48 months and thus require the employee's continuing
services to NetGravity. The 1998 Employee Stock Purchase Plan permits employees
to acquire Common Stock of NetGravity through payroll deductions and promotes
broad-based equity participation throughout NetGravity. The Committee believes
that such stock plans align the interests of the employees with the long-term
interests of the stockholders.
BENEFITS. NetGravity believes that it must offer a competitive benefit
program to attract and retain officers and key employees. During 1998,
NetGravity provided medical and other benefits to its executive officers that
are generally available to NetGravity's other employees. Additionally,
NetGravity maintains a 401(k) Plan to provide retirement benefits through
tax-deferred salary deductions for all its employees. NetGravity did not make
contributions to the 401(k) Plan in 1998.
1998 EXECUTIVE COMPENSATION
Executive compensation for 1998 included base salary and cash bonuses, plus,
in the case of sales executives, sales commissions. For 1998, NetGravity
implemented compensation and bonus guidelines for its employees. In addition to
individual achievement, 1998 compensation and bonus awards for executive
16
<PAGE>
officers were based on the following measures of NetGravity's performance: total
revenues, operating income and the market share of certain of NetGravity's
products.
CHIEF EXECUTIVE OFFICER COMPENSATION FOR 1998
The 1998 compensation of John W. Danner, NetGravity's Chief Executive
Officer, was determined in part in reference to the performance measures
mentioned above under "1998 Executive Compensation." The Committee expects to
review Mr. Danner's compensation package on an ongoing basis.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Jonathan D. Lazarus
Alexander R. Slusky
17
<PAGE>
NETGRAVITY STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders on
NetGravity's Common Stock with the cumulative total return of the Nasdaq Stock
Market (U.S.) Index and the Hambrecht & Quist Internet Index. The graph assumes
that $100 was invested on June 12, 1998 in NetGravity's Common Stock, the Nasdaq
Stock Market (U.S.) Index, and the Hambrecht & Quist Internet Index, including
reinvestment of dividends. No dividends have been declared or paid on
NetGravity's Common Stock. Note that historic stock price performance is not
necessarily indicative of future stock price performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
06/12/98 06/30/98 09/30/98 12/31/98
<S> <C> <C> <C> <C>
NETGRAVITY, INC. $100 $146 $131 $186
NASDAQ STOCK MARKET (U.S.) $100 $109 $99 $128
HAMBRECHT & QUIST INTERNET $100 $124 $99 $172
</TABLE>
OTHER MATTERS
The Board of Directors does not know of any other matters to be presented at
the Annual Meeting. If any additional matters are properly presented at the
Meeting, the persons named in the enclosed proxy will have discretion to vote
shares they represent in accordance with their own judgment on such matters.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. You are, therefore, urged to execute and
return, at your earliest convenience, the accompanying proxy in the envelope
which has been enclosed.
BY ORDER OF THE BOARD OF DIRECTORS
San Mateo, California
April 23, 1999
18
<PAGE>
PROXY
NETGRAVITY, INC.
PROXY FOR 1998 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of NetGravity, Inc., a Delaware
corporation ("NetGravity"), hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and accompanying Proxy Statement each dated
April 23, 1999 and hereby appoints John W. Danner and Stephen E. Recht, or
either of them, proxies and attorneys-in-fact, each with full power of
substitution, to represent the undersigned at the Annual Meeting of
Stockholders of NetGravity, Inc. to be held on May 27, 1999, at 1:00 p.m.
local time at the hotel Crowne Plaza located at 1221 Chess Drive, Foster
City, California 94404 and at any adjournment thereof, and to vote all shares
of Common Stock of NetGravity held of record by the undersigned on April 14,
1999 as hereinafter specified upon the proposals listed on the reverse side.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
NETGRAVITY, INC. FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 27, 1999. IN
ORDER TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING OF STOCKHOLDERS,
PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY IN THE
ENCLOSED ENVELOPE. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE
MANNER DIRECTED HEREIN. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED
"FOR" THE PROPOSALS BELOW AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THESE PROPOSALS.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SIDE SEE REVERSE SIDE
- --------------------------------------------------------------------------------
- DETACH HERE -
<PAGE>
Please mark
your votes as /X/
indicated in
this example
1. Election of Directors
FOR all WITHHOLD AUTHORITY
nominees to vote for all nominees
/ / / /
Nominees: John W. Danner J. Scott Briggs
John D. D. Kohler Amnon Landan
Jonathan D. Lazarus Alexander R. Slusky
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
2. Proposal to ratify the appointment of KPMG LLP as independent auditors of
NetGravity for the year ending December 31, 1999.
FOR AGAINST ABSTAIN
/ / / / / /
UNLESS OTHERWISE SPECIFIED, THE PROXIES ARE GRANTED THE AUTHORITY TO VOTE FOR
THE ELECTION OF ALL OR ANY OF THE NOMINEES FOR DIRECTOR, FOR PROPOSAL 2,
AND AS SUCH PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING AND ANY ADJOURNMENT(S) THEREOF.
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
Signature(s) Dated , 1999
----------------------------------------- -------------
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
