NETCENTIVES INC, 424B4, 1999-10-15

NETCENTIVES INC
424B4, 1999-10-15
BUSINESS SERVICES, NEC

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<PAGE>

Filed Pursuant to Rule 424(b)(4)
Registration No. 333-83443

6,000,000 Shares

[LOGO APPEARS HERE]

Common Stock

------------

Prior to this offering, there has been no public market for our common stock.
Our common stock has been approved for listing on The Nasdaq Stock Market's
National Market under the symbol "NCNT."

The underwriters have an option to purchase a maximum of 900,000 additional
shares to cover over-allotments of shares.

Investing in the common stock involves risks. See "Risk Factors" on page 5.

<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Netcentives
-------------- -------------- --------------
<S> <C> <C> <C>
Per Share.................................. $12.00 $0.84 $11.16
Total...................................... $72,000,000 $5,040,000 $66,960,000
</TABLE>

Delivery of the shares of common stock will be made on or about October 19,
1999.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Credit Suisse First Boston

Hambrecht & Quist

Thomas Weisel Partners LLC

The date of this prospectus is October 13, 1999
<PAGE>

[INSIDE FRONT COVER]

[Circular diagram entitled
The Netcentives
Loyalty Model showing the
three elements of a
loyalty system]

Title: The Netcentives Loyalty Model

Graphic: An elliptical set of arrows connecting three numbered circles
representing the elements of a loyalty system.

Labels: 1: Recognize--Our loyalty programs identify and recognize prospects,
customers and employees and then acknowledge then for their purchase behavior
or superior performance.

2: Reward--Our system then rewards customers and employees with the
right reward at the right time.

3: Respond-In turn, customers respond by repeat purchase and
employees respond with increased productivity.
<PAGE>

[GATEFOLD]

[Circular Diagram Showing
the Operation of Netcentives
Loyalty Programs, including
Logos of ClickRewards
Merchants and Rewards
Suppliers]

Title: The Netcentives Loyalty Platform

Graphic: An elliptical set of arrows connection icons representing
transactions, rewards, tracking, redemption and the Netcentives products.

Labels: Transaction--Consumer performs an action -- buys a book, for example --
at an online merchant. Employee performs a task well -- meets a sales quota for
example -- at work. Each transaction is performed or recorded online with
Netcentives RewardBroker Software.

Reward--Then, the online shopper or employee is automatically
rewarded with miles, points, or other custom currency.

Tracking--Next, secure tracking of rewards is performed through
Netcentives' Online systems; personal account statements can be
checked online and are also sent to customers and employees through
their e-mail.

Redemption--In turn, customers and employees electronically redeem
-- through Netcentives -- their currency for frequent flyer miles,
merchandise, or other incentives. And the process starts all over
again.

ClickRewards

Custom Loyalty Networks

Enterprise Incentive Solutions

Logos:

Representative ClickRewards Merchants based on: time in network, type of
promotions, and number of ClickMiles purchased barnesandnoble.com, macys.com,
OfficeMax.com, CDNOW, E*TRADE, eBags, Cooking.com, planetRx, enutrition,
Cooking.com, ShopSports. com

Representative ClickRewards Suppliers British Airways, Delta Airlines,
Northwest Airlines, TWA, United Airlines, American Airlines, US Airways,
Continental, shop.the.globe.com, barnesandnoble.com, CDNOW

Screen shot of the ClickRewards Web page.
Caption: ClickRewards develops direct marketing, promotion, and loyalty
programs for ecommerce merchants.

Screen shot of the Cisco ClickRewards Program Web page.
Caption: Enterprise Incentive Solutions creates loyalty programs for employees,
resellers, and partners for such companies as Adacution, Cisco Systems,
EventSource, and Exceptional People. Revenues from these programs through
6/30/99 were not material.

Screen shot of the LookSmart RewardPoints Web page.
Caption: Custom Loyalty Networks produces loyalty networks for the GO Network,
LookSmart, and Lycos. Revenues from these programs through 6/30/99 were not
material.
<PAGE>

[Screen Shots of
Sample ClickRewards,
Enterprise Incentive
Solutions and Custom
Loyalty Network
implementations]
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 2
Risk Factors............................................................. 5
Special Note Regarding Forward-Looking Statements........................ 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 32
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 47
Related Party Transactions................................................. 58
Principal Stockholders..................................................... 60
Description of Capital Stock............................................... 62
Shares Eligible for Future Sale............................................ 64
Underwriting............................................................... 66
Notice to Canadian Residents............................................... 69
Legal Matters.............................................................. 70
Experts.................................................................... 70
Where You Can Find More Information........................................ 70
Index to Consolidated Financial Statements................................. F-1
</TABLE>

You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.

Dealer Prospectus Delivery Obligation

Until November 7, 1999, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as an underwriter and with respect to unsold
allotments or subscriptions.

1
<PAGE>

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in this offering. You should read the
entire prospectus carefully.

Netcentives Inc.

Our Business

Netcentives believes that it is a leading provider of Internet loyalty,
direct marketing and promotion products and services used to drive consumer
behavior. Netcentives' flagship program, the ClickRewards Network, is a
powerful online promotion and loyalty program that allows e-commerce sites to
reward consumers with ClickMiles, a digital promotion currency, for making
online purchases. The ClickRewards Network was launched in March 1998, and as
of September 23, 1999, included over 2.0 million members who have earned, in
the aggregate, over 310 million ClickMiles. Members include those who have
either earned ClickMiles from participating merchants, enrolled in the
ClickRewards program at our Web site or a third party Web site, participated in
a sweepstakes in which ClickMiles are a prize, or joined the ClickRewards
Network in any of the ways we regularly develop. The ClickRewards Network
includes e-commerce companies from a broad range of industries. These e-
commerce companies purchase ClickMiles from us and award them to consumers in
order to convert browsers to buyers, increase average purchase size, drive
repeat purchases and build loyalty to their sites. Representative companies in
the ClickRewards Network include large, established Web sites who have been a
part of the ClickRewards Network for an extended period of time and are ranked
by Media Metrix as being among the top 500 advertising supported Web sites,
such as barnesandnoble.com, E*TRADE, macys.com and OfficeMax.com, as well as
smaller, newer Web sites who have joined the ClickRewards Network more
recently, such as Cooking.com, eBags, eNutrition, PlanetRx and ShopSports. Our
technology allows consumers to earn rewards currency at the point of purchase
on sites throughout the Web and to track and manage them in their own personal
account at a central Web site.

As of June 30, 1999, we had derived substantially all of our revenues from
the ClickRewards Network and our technical consulting services. Utilizing the
technology platform we have developed for the ClickRewards Network and our
expertise with promotional products and services, we have expanded our product
offerings to provide Custom Loyalty Networks. Custom Loyalty Networks are
promotional programs for portals, companies with major brands and other Web
sites with substantial membership that use a customized currency. The currency
and network are branded with our customer's identity. We launched our first
Custom Loyalty Network for Looksmart in July 1999 and have signed contracts to
develop Loyalty Networks for the GO Network and Lycos that we expect to launch
in the fourth quarter of 1999. We have also launched Enterprise Incentive
Solutions programs with four corporate customers. These are programs through
which corporations use ClickMiles to motivate and reward employees, partners
and stakeholders. We have also begun to offer a broad array of complementary
services to our ClickRewards merchants and Custom Loyalty and Enterprise
Incentive customers. In addition to the technical consulting and development
services we have historically offered through our Netcentives Professional
Services organization, we have also begun to offer marketing, consulting, on-
line advertising and sponsorship, joint marketing programs and e-mail direct
marketing.

We have exclusive agreements with eight major airlines for the use of their
frequent flyer miles in points-based Internet promotions networks. These
relationships allow consumers to redeem ClickMiles one-for-one for frequent
flyer miles from American Airlines, British Airways (USA), Continental
Airlines, Delta Air Lines, Northwest Airlines, TWA, United Airlines and US
Airways. These exclusive agreements give our ClickRewards merchants the ability
to attract and retain online shoppers using a compelling, relevant and
differentiated rewards currency. They also give our merchants access to
frequent flyer program members, a set of consumers that we believe has a
demographic profile closely aligned with that of online consumers. According to
Jupiter Communications, 41% of online consumers are also members of frequent
flyer programs.

2
<PAGE>

In addition to frequent flyer miles, ClickRewards and our other programs offer
redemption options such as merchandise and other travel awards.

In order to drive purchases at the merchant Web sites participating in the
ClickRewards Network and to make our products more valuable to them, we
actively recruit a consumer membership base for ClickRewards. Consumers
participating in our ClickRewards and Custom Loyalty Networks can learn about
offers and track and redeem their loyalty currencies at a centralized Web site
for each network. In addition, for ClickRewards merchants and our Custom
Loyalty Network customers we offer a variety of direct marketing services.
These services include collecting information about consumers and their
purchasing behavior, offering e-mail direct marketing using this information
and managing merchant promotions.

Risks

Our business is subject to risks. In particular, we have incurred losses
since our inception, including losses of $14.1 million in 1998 and
$16.1 million for the first six months of 1999. Our accumulated deficit as of
June 30, 1999 was $34.7 million, and we expect to continue to incur losses for
the foreseeable future. Furthermore, we have a limited operating history and
limited revenues from operations, and we operate in a highly competitive
market. These risks, as well as others that are important to our business, are
detailed in the Risk Factors section beginning on page 5.

----------------

All information in this prospectus assumes:

. no exercise of the underwriters' over-allotment option;

. the exercise of outstanding warrants to purchase 46,891 shares of Series B
preferred stock which expire upon the closing of this offering;

. the conversion of all outstanding shares of our convertible preferred
stock into an aggregate of 20,569,126 shares of common stock upon
completion of this offering; and

. the filing of our Amended and Restated Certificate of Incorporation,
authorizing a class of 5,000,000 shares of undesignated preferred stock
upon completion of this offering.

----------------

Netcentives, ClickRewards, ClickMiles, Custom Loyalty Networks, Enterprise
Incentive Solutions, RewardBroker, Secure Value Transfer Protocol,
SecureRewards Architecture, the Netcentives logo and the ClickRewards logo are
trademarks of Netcentives. This prospectus also contains brand names,
trademarks, or service marks of companies other than Netcentives, which are the
property of their respective holders.

3
<PAGE>

This Offering

<TABLE>
<C> <S>
Common Stock offered........................ 6,000,000 shares
Common Stock to be outstanding after this
offering................................... 31,793,417 shares
Use of proceeds............................. For general corporate purposes,
including working capital
Nasdaq National Market symbol............... NCNT
</TABLE>

The information in the above table excludes:

. 4,816,475 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $2.05 per share as of June 30, 1999;

. 615,448 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $1.13 per share as of June 30, 1999;
and

. an aggregate of 2,318,014 shares available for future issuance under our
employee benefit plans as of June 30, 1999.

Summary Consolidated Financial Data
(in thousands, except per share data)

<TABLE>
<CAPTION>
Inception Years Ended Six Months Ended
(June 21, 1996) December 31, June 30,
to December 31, ----------------- -----------------
1996 1997 1998 1998 1999
--------------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Total revenues......... -- $ 9 $ 647 $ 127 $ 3,021
Loss from operations... $ (273) (4,265) (14,408) (5,205) (16,596)
Net loss............... (266) (4,180) (14,111) (5,131) (16,149)
Basic and diluted net
loss per share........ $(0.97) $ (5.70) $ (8.58) $ (3.68) $ (5.10)
Shares used to compute
basic and diluted
net loss per share.... 273 734 1,644 1,396 3,167
</TABLE>

<TABLE>
<CAPTION>
June 30, 1999
-------------------
Pro Forma
Actual As Adjusted
------- -----------
<S> <C> <C>
Consolidated Balance Sheets Data:
Cash and equivalents...................................... $36,152 $101,959
Working capital........................................... 27,635 93,442
Deferred revenues--product and services................... 4,311 4,311
Long-term obligations..................................... 973 973
Total stockholders' equity................................ 35,300 101,107
</TABLE>

See Note 8 to our Consolidated Financial Statements for an explanation of the
method used to determine the number of shares used to compute the loss per
share amounts.

The pro forma as adjusted information in the above table is adjusted to
reflect the sale of 6,000,000 shares of common stock offered by Netcentives at
the initial public offering price of $12.00 per share after deduction of the
estimated underwriting discounts and commissions and estimated offering
expenses.

Netcentives was incorporated in California in June 1996 and reincorporated
into Delaware in August 1999. Our principal executive offices are located at
690 Fifth Street, San Francisco, California 94107, and our telephone number is
(415) 538-1888.

4
<PAGE>

RISK FACTORS

You should carefully consider the following risks before making an investment
decision. You should also refer to the other information set forth in this
prospectus, including the discussion set forth in Management's Discussion and
Analysis of Financial Condition and Results of Operations and Business, as well
as our consolidated financial statements and the related notes.

Business and Financial Risks

We have a history of losses and expect increasing future losses.

We incurred losses of $266,000 in 1996, $4.2 million in 1997, $14.1 million
in 1998 and $16.1 million in the first six months of 1999. Our net loss was
46,444%, 2,181% and 535% of our revenues for the periods ended December 31,
1997 and 1998 and June 30, 1999, respectively. As of June 30, 1999 we had an
accumulated deficit of $34.7 million. We currently expect that we will continue
to incur losses for the foreseeable future and that the magnitude of these
losses will increase substantially. We cannot assure you of when or if we will
become profitable. We believe that our ability to become profitable will be
based on a number of factors, including the other risk factors listed in this
section.

Because we have a limited operating history, it is difficult to evaluate
our business and prospects.

We were incorporated in June 1996 and launched our first product in March
1998. Therefore, we have a limited operating history on which you can base an
investment decision. Furthermore, the Internet promotion and direct marketing
industry is a new industry. As such, our business is subject to certain
challenges that a more mature company or a company operating in a more mature
industry may not face, such as:

. we have an unproven business model;
. members may not redeem ClickMiles or our custom loyalty currencies in
regular patterns;
. redemptions may exceed our available cash resources and cause
fluctuations in our operating results;
. we are dependent upon the expansion of the Internet and the growth of e-
commerce;
. we expect competition to intensify as new competitors emerge and existing
competitors offer new products and services;
. we may be unsuccessful in establishing or maintaining our brand;
. we depend on the promotional efforts of our merchants and other third
parties; and
. our sales cycles are unpredictable and may result in quarterly
fluctuations in our operating results which could lower our stock price.

If the market for e-commerce fails to grow, our revenues will not grow.

Our success will depend in large part on the continued growth in the use of
the Internet for commerce. We do not have direct control over the expansion of
e-commerce, and to the extent that the market for e-commerce does not increase,
our customer base and revenues will not grow.

In addition, critical and unresolved issues concerning the commercial use of
the Internet may affect the development of the market for our products and
services, including:

. the ability of consumers, sellers and other intermediaries to conduct e-
commerce on a secure basis;
. the reliability of the Internet for e-commerce, including the regular
availability of e-commerce sites;
. the availability of low-cost access to the Internet for consumers; and
. availability of sufficient telecommunications bandwidth to consumers to
enhance their ability to interact in the e-commerce shopping process.

If our supplier relationships become non-exclusive or are terminated, our
competitive position will be harmed.

We believe that our relationships with major airlines and their frequent
flyer programs are a source of competitive advantage, particularly to the
extent that they remain exclusive in the area of points-based Internet

5
<PAGE>

promotions networks. While we believe that we have established a broad scope
of exclusivity within our agreements with airlines, our competitors could
circumvent the terms of these agreements. Furthermore, in some cases, airlines
may terminate the exclusivity provisions contained in these agreements
following notice periods ranging from 45 to 90 days. If the ClickRewards
Network ceases to be the sole points-based Internet promotions network
provider of frequent flyer miles for multiple airlines, our business would be
harmed. Additionally, some of our airline agreements may be terminated in
their entirety following notice periods ranging from 90 to 180 days without
any termination fee. To the extent that the ClickRewards program can no longer
offer frequent flyer miles from one or more of our current rewards suppliers,
our business would be harmed.

If our merchants terminate their relationships with us, our competitive
position and financial results may suffer.

Our merchants may generally terminate their relationships with us on 30 days
prior notice if changes we implement to the ClickRewards Network materially
impact the merchant's ability to participate in the program. Any termination
of merchant relationships could harm our business and financial results either
directly through the loss of revenues we generate through these merchants or,
more generally, through a perception of decreased value by our members or
other merchants participating in the ClickRewards Network.

We are subject to intense competition, and we expect to face increased
competition in the future.

As a provider of loyalty, direct marketing and promotion products and
services, we generally compete with advertising and other promotional programs
for a portion of a customer's total marketing budget. In addition, within the
promotions market, we compete with a variety of businesses in connection with
each of our three programs. We believe that the Internet loyalty, direct
marketing and promotion product and services industry includes over 45
companies. For the ClickRewards Network our primary competition can be
categorized as follows:

. loyalty programs operated by and/or for portals and other large e-
commerce sites, such as AOL Rewards;
. Custom Loyalty Networks we operate on behalf of third parties; and
. stand-alone loyalty programs and promotional tools developed by and/or
for e-commerce sites, such as Autobytel.com Mobalist Rewards, CDnow Fast
Forward Rewards, CBS SportsLine Rewards, Cybergold and MyPoints.com.

We believe that we face substantial obstacles competing against internally
developed products created by our existing and potential customers.
Additionally, Custom Loyalty Networks that we develop for third parties may
compete directly with the ClickRewards Network for merchants and members in
electronic commerce.

Our Enterprise Incentive Solutions products and services compete with
existing, offline incentive products provided by parties such as Maritz
Marketing Research, Carlson Marketing Group, Loyalty Group, a division of
Alliance Data Systems and BI Performance Services. Our Custom Loyalty Network
and Enterprise Incentive Solution products and services also compete with
products offered by third parties, such as MyPoints.com.

For each of our programs, we expect competition to intensify as more
competitors enter our market. We believe that such future competition could
come from newly formed companies and, more importantly, from traditional
offline promotions and loyalty companies such as Carlson Marketing Group,
Brierley & Partners and Signature Group, a division of GE Capital. In order to
compete in our market, companies will need to develop the necessary Internet-
based technology infrastructure, enter into relationships with key suppliers
and obtain access to appropriate business processes. We believe that large
offline promotions and loyalty companies have the necessary resources and
expertise to do so. While we currently have contractual relationships with
many rewards suppliers, such as airline frequent flyer programs, any of these
suppliers could themselves enter our markets and provide us with substantial
competition.

Many of our potential competitors have greater resources than we do, which
may impair our ability to compete.

6
<PAGE>

marketing and other resources than we do. In addition, these companies may have
existing relationships with our potential customers and may be able to respond
to changes in market dynamics and technology faster than we can. We cannot
assure you that we will be able to compete successfully against any potential
competitors. If we are unable to compete successfully against any potential
competitors, our business would suffer.

Because our business model is unproven, we cannot assure you that our
revenue will grow or that we will become profitable.

Our business model depends upon our ability to leverage and to expand our
network of ClickRewards Network merchants, Custom Loyalty Network customers,
Enterprise Incentive Solutions customers, rewards suppliers and members to
generate multiple revenue streams. The potential profitability of this business
model is unproven, and to be successful we must, among other things, develop
and market additional products and services to existing customers effectively.
Finally, we may be forced by competitive pressures, industry consolidation or
otherwise, to change our business model for certain or all of our customers, in
which case our financial results could be harmed. Our business model may not be
successful and we may not sustain revenue growth or achieve or sustain
profitability.

Recent changes to our ClickMiles terms and conditions for our merchants may
cause revenues to decline.

We recently changed the terms and conditions on which our merchants can
purchase ClickMiles. Beginning in the third quarter of 1999, new merchants are
required to purchase a minimum of 450,000 ClickMiles. On an ongoing basis, each
merchant is required to purchase ClickMiles in quantities equal to its expected
monthly usage and to maintain a minimum balance generally equal to its expected
bi-weekly usage. We determine each merchant's expected usage based on past
trends and forecasted requirements in active promotions. These ClickMiles are
non-refundable and expire if not awarded by the merchant within a six-month
period. Since these changes were recently implemented, we have not observed any
material impact on our business; however, we cannot provide any assurances that
our current participating customers will accept these policies and remain in
our programs or that we will be able to attract new customers to our programs.
Moreover, we cannot provide any assurances that we will not have to change our
pricing policies again in the future to retain and attract new customers.

Consumers may not redeem loyalty currencies in regular patterns. If
redemptions are higher than we anticipate, our available cash resources
could be depleted and our operating results could fluctuate.

A significant element of our business model is based on the effective
management of the potential financial liabilities associated with our points-
based loyalty products. We typically receive cash from a merchant for a given
ClickMile months before the consumer earns and subsequently redeems the
ClickMile. However, we typically do not pay for the redemption reward until the
consumer redeems the ClickMile. Therefore, we do not control when we will incur
this cash expenditure. As a result, over time, as the number of ClickMiles or
custom currency points in circulation increases, we will have increasing
liabilities for the potential eventual redemption of these points, and
consequently we will need to maintain adequate cash balances for any such
future redemptions. Because we have very limited historical data with respect
to our members' redemption behavior, we cannot assure you that members will
redeem their points in predictable patterns. If redemption requests are
inconsistent with our expectations or exceed our available cash resources, our
financial condition could be harmed. We do not currently have unused and
available credit facilities or similar sources of external financing.
Therefore, if we do not maintain adequate cash reserves we will be obligated to
raise additional funds. In addition, because we recognize a portion of our
revenues upon redemption by the consumer, unexpected redemptions could cause
fluctuations in our operating results and cause our stock price to fluctuate.

If the market for Internet-based promotion and direct marketing products
and services does not evolve as we anticipate, our business will be harmed.

The market for Internet-based promotion and direct marketing products and
services has only recently developed and is rapidly changing. As is typical for
a new and rapidly evolving industry, demand and market

7
<PAGE>

acceptance is uncertain, and few proven offerings exist. Moreover, since the
market for our promotion products and services is new and evolving, it is
difficult to predict the size of this market or its future growth rate, if any.
We cannot assure you that a sufficient volume of merchants will accept online
loyalty programs and promotions as a consumer attraction and retention device.
If the market for Internet-based promotion and direct marketing fails to
develop, develops more slowly than expected, or becomes saturated with
competitors, or if our products fail to achieve market acceptance, our business
would be harmed.

If factors outside of our control, or our member policies, cause ClickMiles
or frequent flyer miles to become less valuable, we may lose merchants and
members.

We have based the ClickRewards Network, in part, on the assumption that
frequent flyer miles of major airlines and similar rewards from other suppliers
have a high perceived value for e-commerce shoppers. Furthermore, we have
established ClickMiles as being redeemable one-for-one for the frequent flyer
miles of several major airlines. To the extent that the airlines who provide us
with frequent flyer miles reduce the value of such miles by increasing the
number of miles required to achieve free travel, or by reducing the number of
seats available for free travel, the perceived value of ClickMiles to consumers
and, consequently, to merchants would be correspondingly reduced, which could
harm our business. We have no control over the policies of these airlines. In
addition, while we believe that e-commerce Web sites and shoppers currently
have a high perceived value for frequent flyer miles and the other awards that
we offer, if our belief is false, or if the perceptions of consumers shift over
time, our business could be adversely affected. Finally, to the extent that we
change the terms on which we offer or redeem ClickMiles, this may result in
dissatisfaction with the ClickRewards Network or in lawsuits, either of which
would harm our business or result in management distraction. For example, we
have recently added an expiration provision to our ClickMiles rewards currency,
such that consumers must redeem ClickMiles within 24 to 36 months of their
award. We cannot assure you that this or other changes to our ClickRewards
policies will not result in member or merchant dissatisfaction with, or reduced
acceptance of, our products and services.

We depend on the ClickRewards Network and Netcentives Professional Services
for most of our revenue; if we cannot develop revenues from new products,
our financial results will be harmed.

Substantially all of our revenues to date have come from the ClickRewards
Network and Netcentives Professional Services. Until we are able to develop
revenues from additional products, any reduction in revenues from ClickRewards
or any material unanticipated change in professional service-related revenues
would harm our results of operations. While we hope that our Custom Loyalty
Networks and Enterprise Incentive Solutions programs will account for a
significant portion of our future revenues, we have had only limited experience
with these programs. Therefore, we cannot assure you that we will be successful
in establishing these products as sources of revenue or profitability, or that
these are the appropriate programs on which we should be focusing our efforts.
For the six months ended June 30, 1999, technical consulting services and
currency related revenues were 79% and 21% of total revenues, respectively.

If we do not successfully establish or maintain our brands, our results of
operations will suffer.

We believe that establishing and maintaining the Netcentives and ClickRewards
brands are critical aspects of our efforts to attract, retain and expand our
merchant and member base and traffic, and to increase ClickMiles revenues. As a
result, we incurred $3.7 million and $3.5 million in advertising expenses for
the year ended December 31, 1998 and the six months ended June 30, 1999,
respectively. We also believe that the importance of brand recognition will
increase as the number of Internet marketing and promotions companies
increases. In order to attract and retain merchants and members, we continue to
increase our financial commitment to creating and maintaining brand loyalty. We
are doing this using Internet-specific means, as well as more traditional
means, such as media advertising campaigns via print, radio and billboards. If
we do not generate a corresponding increase in revenues as a result of our
branding efforts or otherwise fail to promote our brand successfully, or if we
incur excessive expenses in an attempt to promote and maintain our brand, our
results of operations will suffer.

8
<PAGE>

If our merchants fail to promote the ClickRewards Network effectively, our
revenues could suffer.

Our business model is substantially dependent upon the promotional efforts of
our merchants. For example, if our merchants do not prominently display
ClickRewards offers or do not work with us to create promotional offers that
are attractive and understandable to consumers, their ClickRewards promotions
may not be successful, and as a result, we may not be successful. We cannot
assure you that our merchants will continue to allocate sufficient technical
resources and promotional budgets and efforts to make their ClickRewards
promotions successful. If our merchants' promotional programs are not
successful, our revenues could suffer.

Any delays in our normally lengthy sales cycles could result in significant
fluctuations in our operating results.

The typical cycle to attract a new merchant to the ClickRewards Network is
between three to six months and the cycle for attracting Custom Loyalty Network
customers extends up to one year. Our sales are also unpredictable and involve
significant strategic marketing decisions by prospective customers. Our sales
process often requires us to educate potential customers about the uses and
benefits of our products and services and promotion tools more generally. In
particular, our Custom Loyalty Networks require customers to reconsider their
business in fundamental ways and often involve large financial commitments.
Finally, our prospective customers typically do not have personnel dedicated to
the implementation of promotion products such as ours either at a technical or
operational level. As a result, our customers typically spend substantial time
before purchasing our programs in performing internal reviews and obtaining
corporate approvals. We cannot be certain that this cycle will not lengthen in
the future. Any delay in sales of our programs could cause our operating
results to be significantly impaired.

Our future revenues are unpredictable, and our quarterly financial results
may fluctuate significantly.

We expect that our revenues will vary substantially from quarter to quarter
as a result of a variety of factors outside of our control. For example,
because the majority of our products and services are related to e-commerce, we
expect that ClickRewards merchants and Custom Loyalty Network customers will
award more ClickMiles and custom loyalty currencies during the holiday shopping
season. Similarly, at any given time, a limited number of customers conducting
particularly large issuance or redemption promotions may account for a large
fraction of our revenues. We will recognize the associated product and service
revenues from these transactions over a period of up to 36 months. To the
extent a large promotion ends or begins, or to the extent we begin or end
recognizing revenue associated with the holiday season in a given quarter, our
results for that quarter could be disproportionately affected. In addition we
expect other factors outside of our control to affect our quarterly results,
such as:

. fluctuations in the growth rate of e-commerce;
. changes in currency redemption and expiration patterns; and
. the concentration of our Custom Loyalty and Enterprise Incentive products
and services among a limited number of customers.

Salaries, wages, and facilities-related expenses, which are relatively fixed
in the short term, comprised 34% of our total operating costs and expenses in
the three months ended June 30, 1999. We expect such costs to continue to be a
significant percentage of total expenses in future periods. In addition, other
expenses, such as advertising and promotion, are incurred in advance of the
associated expected revenues. As a result, fluctuations in revenues may have a
disproportionate effect on our quarterly results of operations and consequently
our stock price.

We do not currently have any unused credit or other external financing
facilities. If we are unable to raise additional capital, our business and
financial condition would suffer.

Since our inception, we have experienced negative cash flow from operations
and we expect to continue to experience significant negative cash flow from
operations for the foreseeable future. We believe that our current

9
<PAGE>

capital resources prior to this offering, will be sufficient to meet our
anticipated cash requirements for at least the next twelve months. After that
time, we may be required to raise additional capital, and there can be no
assurance that we will be able to raise these funds on reasonable terms, or at
all. If we are unable to raise additional capital on reasonable terms, our
current stockholders could suffer substantial dilution. In addition, we may be
unable to pursue our current strategy, respond to competitive pressures or
otherwise conduct our business in the manner in which we would like. Any of
these events would harm our business and financial condition.

If we are unable to recover the amounts relating to intangible assets that we
have recorded, our financial results would be harmed.

We recorded a $3.5 million asset relating to the value of consulting
relationships acquired in connection with our acquisition of Panttaja
Consulting Group, Inc. We are amortizing this amount over the two-year period
beginning in December 1998, and our June 30, 1999 balance sheet includes $2.6
million relating to this intangible asset. We cannot assure you that the
business associated with those relationships will not deteriorate or that this
business will not be terminated. If this business or these relationships are
terminated, we would be forced to write down the value of this intangible
asset, which would harm our financial results.

We recently sold shares of convertible preferred stock at a substantial
discount to the initial public offering price and it is uncertain whether the
initial public offering price will prevail in the market.

In March, April and June 1999, we sold an aggregate of 5,278,283 shares of
Series E preferred stock, which will convert into common stock at a 1 to 1
ratio upon the closing of this offering, at $6.82 per share, a price well below
the initial public offering price of $12.00 per share for our common stock. No
current public market existed for our stock and therefore the initial public
offering price for the shares of common stock were determined by negotiations
between us and the representatives of the underwriters. We cannot assure you
that the price that prevails in the market will not be less than the initial
public offering price, particularly in light of our recent sales of securities
at a lower price.

You will experience immediate and substantial dilution.

If you purchase shares of common stock in this offering, you will experience
immediate and substantial dilution in that the price you pay will be
substantially greater than the net tangible book value per share of the shares
you acquire. In particular, based on the initial public offering price of
$12.00 per share, you will suffer immediate dilution of $8.91 per share. This
dilution is largely because our earlier investors paid substantially less than
the initial public offering price of $12.00 when they purchased their shares of
common stock. You will experience additional dilution upon the exercise of
outstanding stock options or warrants to purchase common stock.

We do not intend to pay dividends.

We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and therefore
do not expect to pay any cash dividends in the foreseeable future.

Technical Risks

If our systems do not prevent fraudulent transactions, our business and
financial condition could suffer.

Even though we have implemented network security measures, our servers are
vulnerable to computer viruses, break-ins and similar disruptions from
unauthorized tampering. If a third party is able to conduct fraudulent
transactions on our servers or tamper with transactions that occur between our
servers and our suppliers, members or merchants, we could be financially liable
for such transactions. In addition, our reputation and business could suffer.

10
<PAGE>

Our network infrastructure may be compromised or damaged, which could harm
our business and financial condition.

We utilize the services of Exodus Communications to host our production
servers and provide us with telecommunications links. The successful delivery
of our services is substantially dependent on our ability and the ability of
Exodus to protect our server and network infrastructure against damage from:

. human error;
. fire;
. flood;
. power loss;
. telecommunications failure;
. on-line or physical sabotage; and
. intentional acts of vandalism.

In addition, our primary server and network infrastructure is located in a
single location in Northern California, an area susceptible to earthquakes,
which could cause system outages or failures if one should occur. Although we
have redundant systems for our server and network infrastructure, they are all
located at a single site. Despite precautions taken by Exodus and us, the
occurrence of other natural disasters or other unanticipated problems at our
respective facilities could result in interruption in the services we provide
or significant damage to our server and network infrastructure. If any of these
events occur, interruptions, delays, or the loss or corruption of critical data
or cessations in service may result, which could harm our business and
financial condition. In addition, our reputation and the Netcentives and
ClickRewards brands could suffer.

The failure of our computing systems could result in financial losses or
impair our reputation.

The performance of our hardware and software is critical to our business,
reputation and ability to attract members, merchants and rewards suppliers to
the ClickRewards Network and our Custom Loyalty Networks. Although we have
designed our system to continue operating despite software or physical
failures, system failures that cause an interruption in service or a decrease
in responsiveness of our transaction processing or data storage capabilities
could impair our reputation and the attractiveness of our brands. We rely on
Exodus for a significant portion of our Internet connectivity as well as
monitoring and managing of power and operating environment for our server and
networking equipment. Periodically, we experience unscheduled downtime which
results in our members and merchants being unable to check their statements or
request redemptions. For example, a power failure at Exodus in March 1999
caused approximately eight hours of interruption in our network. To date, these
interruptions have not had a material impact on our financial results. However,
any future interruptions in service could result in financial losses or impair
our reputation.

Delays in integrating our services with customer systems could result in
fluctuations in financial results or the loss of potential customers.

In order for ClickRewards merchants or Enterprise Incentive Solutions
customers to participate in the ClickRewards Network, they usually must install
our software on their computer systems and implement promotions on their Web
sites. For customers implementing Custom Loyalty Networks, substantially more
systems integration may be required. Our software is not designed for every
available platform and system. Many of our potential customers have older
computer systems and manual processes that were not designed with promotion
products in mind. Therefore, the integration process may become so complex as
to delay a customer's implementation of a program and potentially prevent the
sale of a promotion product altogether. In addition, many of our potential
customers have limited technical resources and promotion budgets. They may not
have the capacity to install and maintain our software in order to use our
products effectively or implement them at all. To the extent that the software
component of our products cannot be integrated with the computer platforms and
software currently used by our potential customers, or these customers do not
have the technical or financial resources to implement our software
effectively, our potential customer base and revenues would be reduced.

11
<PAGE>

System capacity constraints may result in a loss of revenues.

An increase in the use of our products could strain the capacity of our
systems, which could lead to slower response time or system failures. System
failures or slowdowns adversely affect the speed and responsiveness of our
rewards transaction processing. These would diminish the experience for our
members and reduce the number of transactions, and, thus, could reduce our
revenue. Although we have designed and tested our system to handle at least 100
times the highest daily transaction volume we have experienced to date, the
ability of our systems to manage this volume of transactions in a production
environment is unknown. As a result, we face risks related to our ability to
scale up to our expected transaction levels while maintaining satisfactory
performance. If our usage of telecommunications bandwidth increases, we will
need to purchase additional servers and networking equipment and rely more
heavily on Exodus and its services to maintain adequate data transmission
speeds. The availability of these products or services may be limited or their
cost may be significant.

Software defects or errors could damage our reputation or result in a loss
of revenues.

The software that we have developed to run the ClickRewards Network, Custom
Loyalty Networks and Enterprise Incentive Solutions is complex and may contain
undetected errors or defects, especially when newer versions are released. Any
errors or defects that are discovered after commercial release or that delay a
commercial release could result in lost revenues, errors in member account
information, delays in the introduction of new products or services, delays in
implementation of promotions, customer or member dissatisfaction and damage to
our reputation.

We face Year 2000 risks that could harm our business and financial
condition.

Many computer systems currently in use are not capable of distinguishing
twenty-first century dates from twentieth century dates. As a result, beginning
on January 1, 2000, computer systems and software used by many companies and
organizations in a wide variety of industries, including e-commerce, will
produce erroneous results or fail unless they have been modified or upgraded to
process date information correctly. Although we believe that the current
versions of our software are Year 2000 compliant, we may face claims based on
Year 2000 issues arising from the integration of our software into the systems
of third parties. In addition, we have not developed a contingency plan in the
event that our software is not Year 2000 compliant. Exodus, which hosts our
production servers and provides us telecommunications links, has published
statements that their facilities are Year 2000 compliant.

We may experience reduced sales of our products and services as a result of
the unavailability of technical and other personnel required to implement our
products who are otherwise focused on Year 2000 issues. Use of our software can
be dependent on the successful operation of the systems of our existing
merchants and rewards suppliers, and we have no information regarding the Year
2000 compliance of our merchants or the rewards supplier systems with which we
do not directly interface. Our customers or rewards suppliers could experience
Year 2000 issues that cause their systems, and consequently our services, to
fail. Any such claims, or reduction in sales, could harm our business and
financial condition. We are currently assessing the compliance of our internal
systems for Year 2000 issues. If our internal systems fail to be Year 2000
compliant, our operations could be disrupted or suspended, causing us to lose
revenue or business opportunities, or result in management distraction.

Legal Risks

We could become involved in disputes regarding the validity of our patent
which would result in unexpected expenses and management distraction.

The Internet, and specifically the market for e-commerce and online
advertising, direct marketing and promotions, is characterized by a rapidly
evolving legal landscape. A variety of patents relating to this market have
been issued in the recent past, including our own patent which relates
generally to online incentive award programs. One aspect of our patent is
directed to a computer system for implementing an incentive award program, with
the computer system including an online product catalog, an online awards
catalog and a

12
<PAGE>

database for storing account information for each user of the incentive award
program. Our patent protects the architecture on which all of our online
loyalty products and services are based. We also believe that many current and
potential competitive products may use the architecture covered by our patent.
Therefore, we believe this patent is important to our business. We believe that
several additional, related patents are currently pending. We believe that
there will continue to be substantial activity in this area and that litigation
may arise due to our attempts or a third party's efforts to enforce their
respective patent rights.

We may incur substantial expenses and management attention may be diverted if
litigation occurs. In addition, whether or not any claims against us are
meritorious, we may be required to enter into license agreements or be subject
to injunctive or other equitable relief, any of which would result in
unexpected expenses and management distraction.

We may be subject to claims as a result of our database marketing efforts
which could result in a loss of members and revenues.

A component of our strategy is leveraging our database marketing
technologies. We have designed our technology infrastructure and services to
allow us to aggregate data regarding specific member behavior throughout the
network. We have a strict privacy policy that governs how we use information
about our members. We currently do not sell this information to third parties
and have no plans to do so in the future. Furthermore, our communications are
not sent to members who have declined to be contacted. However, we cannot
assure you that certain persons who receive promotional materials from us will
not be dissatisfied with being contacted. In addition, while we strictly
protect the identity of individual members on our networks, we do provide
merchants and rewards suppliers with aggregate information regarding network
participation, and we cannot ensure that such aggregated information will not
be the cause of dissatisfaction among our members. There has been substantial
publicity regarding privacy issues surrounding the Internet, and to the extent
that our database marketing efforts conflict with any privacy protection
initiatives, or if any private information is inadvertently made public, we may
be subject to legal claims. If members of our networks become dissatisfied as a
result of our database marketing efforts, or if we become the subject of legal
proceedings in this regard, our business and results of operations would
suffer.

Federal, state and local governments may further regulate e-commerce and
travel awards which could reduce our ability to become profitable.

The frequent flyer miles and other travel awards that we currently award are
the subject of substantial government regulation, including excise taxes. In
addition, our rewards are frequently used as prizes in sweepstakes operated by
our customers, which are subject to substantial regulation. Finally, as a
result of the increasing popularity of the Internet and e-commerce, a number of
legislative and regulatory proposals that affect e-commerce are under
consideration by federal, state, local and foreign governmental organizations.
Thus it is possible that a number of laws or regulations may be adopted with
respect to the Internet, e-commerce and online database marketing. In the event
that our rewards, the promotions operated by our merchants or e-commerce
generally becomes the subject of further regulation or taxation, including the
taxation of frequent flyer miles received by consumers, this regulation or
taxation could have a negative effect on our financial results or our ability
to sell our products.

If we are unable to protect our proprietary rights adequately, our
competitive position would suffer.

13
<PAGE>

sales and promotional literature. Despite our efforts to protect our
proprietary rights, unauthorized parties may use aspects of our business model
and products and obtain and use information we regard as proprietary. In
addition, other parties may breach confidentiality agreements or other
protective contracts with us, and we may not be able to enforce our rights in
the event of such breaches. We believe that each of these proprietary rights is
important to our business in our effort to prevent unauthorized use of our
technology and processes and protect our investment in establishing and
maintaining our brand. Furthermore, we may expand internationally, and many
countries do not protect intellectual property rights to the same extent as the
laws of the United States. In the event that we are unable to protect our
proprietary rights, our business, financial condition and results of operations
could be materially adversely affected.

Our competitors may independently develop technologies or business models
that are substantially equivalent or superior to ours. We have licensed our
patent to MyPoints.com, a competitor of ours, who uses this license to compete
with us using our business process. We may decide to license our patent to
other competitors. Licensees of our patent will be able to compete with us
using our business process. The royalties we receive from these licenses, if
any, may not be sufficient to offset the competitive damage caused by the
competitors we enable. If these competitors are more effective at exploiting
our patent than we are, our business, financial condition and results of
operations would suffer.

Our officers and directors control a large percentage of our voting stock
and will be able to control matters requiring stockholder approval.

After this offering, our executive officers and directors, and the venture
capital funds that some of our directors represent, will beneficially own
approximately 45.5% of our outstanding common stock in the aggregate. As a
result, these stockholders will be able to exercise effective control over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate matters, such as mergers and acquisitions and
amendments to our Certificate of Incorporation. This concentration of ownership
may delay, deter or prevent transactions that would result in the change of
control of Netcentives, which in turn could reduce the market price of our
common stock.

Our Certificate of Incorporation and Bylaws and Delaware law contain
provisions that could discourage a takeover.

Certain provisions of our Certificate of Incorporation and Bylaws and
Delaware law may delay, deter or prevent a merger or acquisition that a
stockholder may consider favorable. These provisions include:

. authorizing the board to issue additional preferred stock;
. prohibiting cumulative voting in the election of directors;
. limiting the persons who may call special meetings of stockholders;
. establishing a staggered board of directors;
. prohibiting stockholder action by written consent; and
. establishing advance notice requirements for nominations for election of
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.

Management Risks

We may not be successful in integrating any businesses or technologies we
may acquire in the future, which could harm our financial position or
result in management distraction.

We may acquire or make investments in complementary businesses, products,
services or technologies. From time to time we have had discussions with
companies regarding acquiring or investing in their businesses, products,
services or technologies. We cannot assure you that we will be able to identify
suitable acquisition or investment candidates. Even if we do identify suitable
candidates, we cannot assure you that we will be able to make acquisitions or
investments on commercially acceptable terms. We may have difficulty
assimilating the products, services or technologies of companies we may acquire
into our operations. These difficulties could disrupt our ongoing business,
distract our management and employees, increase our expenses and harm our
results of operations due to accounting requirements such as goodwill.
Furthermore, we may incur debt or issue

14
<PAGE>

equity securities to pay for any future acquisitions. The issuance of equity
securities could be dilutive to our existing stockholders.

Expanding internationally will create management and financial
difficulties.

We intend to enter new international markets, including Canada and Europe.
This expansion will require significant management attention and financial
resources. International operations are subject to a number of risks and
uncertainties, including:

. the difficulties and costs of staffing and managing international
operations;
. the need to establish relationships with distributors and the performance
of these distributors;
. the difficulties and costs of localizing products for international
markets;
. unexpected changes in regulatory requirements;
. legal uncertainties regarding liability, Internet commerce restrictions,
tariffs, the offering of purchase incentives and trade barriers;
. inadequate protection of intellectual property in some countries;
. increased difficulty in collecting delinquent or unpaid accounts;
. fluctuations in the value of the U.S. dollar relative to other
currencies;
. potentially adverse tax consequences; and
. political and economic instability.

Any of these factors could impair our ability to expand into international
markets. Similarly, we cannot accurately predict the impact that future
fluctuations in currency exchange rates may have on our business, operating
results or financial condition.

We have broad discretion to use the proceeds of this offering.

We have not designated any specific use for the net proceeds of this
offering. We expect to use the proceeds primarily for working capital and
general corporate purposes. We currently estimate that we will incur
approximately $50.0 million in cash expenses during the next twelve months on
marketing and sales, research and development, other operating expenses and
capital expenditures, as a whole. We expect to finance these expenditures
through our current cash balances of $36.2 million at June 30, 1999, and
expected cash receipts from sales of loyalty currencies and services as well as
professional services revenues. If our currency related receipts or our
professional service revenues are less than anticipated, we will be required to
utilize a portion of the $65.8 million in proceeds from this offering to fund
these expenses. We may also use a portion of the net proceeds to acquire or
make investments in additional businesses, products and technologies or to
establish joint ventures that we believe will complement our current or future
business. However, we have no specific agreements or commitments to do so. As a
result, our management and board of directors will have broad discretion in
spending the proceeds of this offering.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under Prospectus Summary, Risk Factors, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Business and elsewhere in this prospectus are forward-looking statements. In
some cases, you can identify forward-looking statements by terminology such as
"may," "will," "should," "could," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of such terms. These statements involve known and unknown risks, uncertainties
and other factors that may cause our or our industry's actual results, levels
of activity, performance or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under Risk Factors and elsewhere in this prospectus.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. We are under no duty to update any of
the forward-looking statements after the date of this prospectus to conform
these statements to actual results, unless required by securities laws.

15
<PAGE>

USE OF PROCEEDS

We estimate that we will receive approximately $65.8 million in net proceeds
from the sale of the 6,000,000 shares of common stock in this offering. We base
this estimate on the initial public offering price of $12.00 per share and
after the deduction of underwriting discounts and commissions and estimated
offering expenses totaling approximately $6.2 million.

We intend to use the net proceeds of this offering primarily for additional
working capital and other general corporate purposes to meet the needs of our
business. We expect increasing future losses as a result of increased marketing
and sales, research and development and other expenditures, as well as capital
expenditures made in the ordinary course of business. We believe we have
sufficient cash balances prior to this offering to fund our operations for at
least twelve months following the offering, and we have not completed our
budgeting process for any future periods. As a result, we do not have a
specific plan for the use of proceeds of this offering. However, we currently
estimate that we will incur approximately $50.0 million in cash expenses during
the next twelve months on marketing and sales, research and development, other
operating expenses and capital expenditures, as a whole. We expect to finance
these expenditures through our current cash balances of $36.2 million at June
30, 1999, and expected cash receipts from sales of loyalty currencies and
services as well as professional services revenues. If our currency related
receipts or our professional service revenues are less than anticipated, we
will be required to utilize a portion of the $65.8 million in proceeds from
this offering to fund these expenses. The amounts that we actually spend for
working capital purposes will vary significantly depending on a number of
factors, including future revenue growth, if any, and the amount of cash we use
in our operations.

If we identify other companies who are strategic to our business, we may
elect to invest in or acquire these businesses. We may use a portion of the net
proceeds to acquire or make investments in these additional businesses,
products or technologies or to establish joint ventures that we believe will
complement our current or future business. We have no current agreements
relating to any such acquisitions or investments. No estimate of these amounts
can accurately be made, and therefore no amounts related to acquisition
investments or joint ventures have been included in our estimate of expenses
for the next twelve months.

We will retain broad discretion in allocating the net proceeds of this
offering. Pending the use of the net proceeds, we will invest them in short-
term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have never paid cash dividends on our common stock. We currently intend to
retain any future earnings to fund the development and growth of our business.
Therefore, we do not currently anticipate paying any cash dividends in the
foreseeable future.

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<PAGE>

CAPITALIZATION

The table below sets forth the following information:

. our capitalization as of June 30, 1999 on an actual basis;

. our pro forma capitalization which gives effect to the exercise of
warrants to purchase 46,891 shares of Series B preferred stock which will
expire if unexercised prior to the offering, and the conversion of
20,569,126 shares of preferred stock into shares of common stock; and

. our pro forma as adjusted capitalization which gives effect to the sale
by us of the 6,000,000 shares of common stock being offered at the
initial public offering price of $12.00 per share less the estimated
underwriting discounts and commissions and estimated offering expenses.

<TABLE>
<CAPTION>
June 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands except share
data)
<S> <C> <C> <C>
Long-term obligations.......................... $ 973 $ 973 $ 973
-------- -------- --------
Stockholders' equity:
Convertible preferred stock, $.001 par value;
shares authorized: 21,329,221 actual; and
5,000,000 pro forma and pro forma as adjusted;
shares outstanding: 20,522,235 actual, none
pro forma and pro forma as adjusted........... 21 -- --
Common Stock, $.001 par value; 33,240,000
shares authorized; shares outstanding:
5,224,291 actual; 25,793,417 pro forma and
31,793,417 pro forma as adjusted.............. 5 26 32
Paid-in capital................................ 77,829 77,876 143,630
Deferred stock expense......................... (7,399) (7,399) (7,399)
Receivables from sales of stock................ (450) (450) (450)
Accumulated deficit............................ (34,706) (34,706) (34,706)
-------- -------- --------
Total stockholders' equity................... 35,300 35,347 101,107
-------- -------- --------
Total capitalization......................... $ 36,273 $ 36,320 $102,080
======== ======== ========
</TABLE>

The information in the above table excludes:

. 4,816,475 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $2.05 per share as of June 30, 1999;

. 615,448 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $1.13 per share as of June 30, 1999;
and

. an aggregate of 2,318,014 shares available for future issuance under our
employee benefit plans as of June 30, 1999.

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<PAGE>

DILUTION

As of June 30, 1999, our pro forma net tangible book value was approximately
$31.7 million, or $1.23 per share of common stock. Pro forma net tangible book
value represents the total amount of our pro forma stockholders' equity less
intangible assets and deferred offering costs divided by the pro forma number
of shares of common stock outstanding. If we do not take into account any
changes in pro forma net tangible book value after June 30, 1999, except our
receipt of the estimated net proceeds from this offering based upon the initial
public offering price of $12.00 per share after deducting estimated
underwriting discounts and commissions and estimated offering expenses, our pro
forma as adjusted net tangible book value at June 30, 1999 would have been
approximately $98.4 million, or $3.09 per share. This represents an immediate
increase in net tangible book value of $1.86 per share to existing stockholders
and an immediate dilution of $8.91 per share to new investors purchasing shares
in this offering. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share....................... $12.00
Pro forma net tangible book value per share as of June 30,
1999....................................................... $1.23
Increase per share attributable to new investors............ 1.86
-----
Pro forma, as adjusted, net tangible book value per share
after this offering.......................................... 3.09
------
Dilution per share to new investors........................... $ 8.91
======
</TABLE>

The following table summarizes, as of June 30, 1999, the pro forma number of
shares of common stock purchased from us, the total consideration paid to us
and the average price per share paid by existing stockholders and new
investors:

<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 25,793,417 81.1% $ 65,380,000 47.6% $ 2.54
New investors.............. 6,000,000 18.9 72,000,000 52.4 12.00
---------- ----- ------------ -----
Total.................... 31,793,417 100.0% $137,380,000 100.0%
========== ===== ============ =====
</TABLE>

The information in the above tables excludes:

. 4,816,475 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $2.05 per share as of June 30, 1999;
. 615,448 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $1.13 per share as of June 30, 1999;
. an aggregate of 2,318,014 shares available for future issuance under our
employee benefit plans as of June 30, 1999; and
. the underwriting discounts and commissions and estimated offering
expenses.

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<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

This section presents historical and pro forma financial data of Netcentives
Inc. You should read the following selected consolidated financial data in
conjunction with our Consolidated Financial Statements and the related Notes
and with Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this prospectus. The selected data
in this section is not intended to replace the financial statements.

The consolidated statements of operations data for the period from June 21,
1996 (inception) to December 31, 1996 and for the years ended December 31, 1997
and 1998 and consolidated balance sheets data as of December 31, 1997 and 1998
are derived from our Consolidated Financial Statements included elsewhere in
this prospectus, which have been audited by Deloitte & Touche LLP. The pro
forma consolidated statement of operations data for the year ended December 31,
1998 are derived from the unaudited pro forma consolidated statement of
operations that give effect to our acquisition of the Panttaja Consulting
Group, Inc. in December 1998 and are included elsewhere in this prospectus. The
consolidated statements of operations data for the six months ended June 30,
1998 and 1999 and the consolidated balance sheet data as of June 30, 1999 are
derived from our unaudited consolidated financial statements which, in the
opinion of management, have been prepared on the same basis as the audited
consolidated financial statements and reflect all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of our
results of operations and financial position. The historical results presented
below are not necessarily indicative of the results to be expected for any
future fiscal year.

<TABLE>
<CAPTION>
Six Months
Inception Ended
(June 21, 1996) Years Ended December 31, June 30,
to December 31, ------------------------------- -----------------
1996 1997 1998 1998 1998 1999
--------------- ------- -------- ------------ ------- --------
(pro forma
for Panttaja
acquisition)
Consolidated Statements
of Operations Data: (in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product................ $ -- $ -- $ 64 $ 64 $ 10 $ 216
Program-related
services.............. -- 9 583 583 117 428
Technical consulting
services.............. -- -- -- 3,432 -- 2,377
------ ------- -------- -------- ------- --------
Total revenues......... -- 9 647 4,079 127 3,021
------ ------- -------- -------- ------- --------
Costs and expenses:
Cost of product
revenues.............. -- -- 59 59 9 185
Program-related
services, marketing
and support costs..... 102 1,496 7,293 7,293 2,439 9,566
Cost of technical
consulting services
revenues.............. -- -- -- 2,153 -- 1,496
Research and
development........... 63 1,505 3,383 3,135 1,401 1,869
Selling, general and
administrative........ 108 1,210 3,134 4,758 1,319 3,596
Amortization of
deferred stock
compensation,
supplier stock awards
and intangibles....... -- 63 1,186 3,151 164 2,905
------ ------- -------- -------- ------- --------
Total costs and
expenses.............. 273 4,274 15,055 20,549 5,332 19,617
------ ------- -------- -------- ------- --------
Loss from operations.... (273) (4,265) (14,408) (16,470) (5,205) (16,596)
Interest income, net.... 7 85 297 252 74 447
------ ------- -------- -------- ------- --------
Net loss................ $ (266) $(4,180) $(14,111) $(16,218) $(5,131) $(16,149)
====== ======= ======== ======== ======= ========
Net loss per share--
basic and diluted...... $(0.97) $ (5.70) $ (8.58) $ (7.12) $ (3.68) $ (5.10)
====== ======= ======== ======== ======= ========
Shares used in computing
per share amounts--
basic and diluted...... 273 734 1,644 2,278 1,396 3,167
====== ======= ======== ======== ======= ========
Pro forma net loss per
share on a converted
basis--basic and
diluted(1)............. $ (1.05) $ (0.78)
======== ========

Shares used in computing
pro forma per share
amounts on a converted
basis(1)............... 13,422 20,807
======== ========
</TABLE>

- --------
(1) Gives retroactive effect to the conversion of all outstanding shares of
preferred stock into common stock which will occur upon completion of this
offering.

19
<PAGE>

<TABLE>
<CAPTION>
As of December 31, As of
---------------------- June 30,
1996 1997 1998 1999
------ ------ ------- --------
Consolidated Balance Sheets Data: (in thousands)
<S> <C> <C> <C> <C> <C>
Cash and equivalents................ $1,118 $6,608 $13,651 $ 36,152
Working capital..................... 1,027 6,348 9,923 27,635
Total assets........................ 1,255 8,549 21,935 47,251
Deferred revenues--product and
services........................... -- 59 1,906 4,311
Long-term obligations............... -- 196 1,233 973
Total stockholders' equity.......... 1,146 7,128 14,334 35,300
<CAPTION>
Years Ended Six Months
December 31, Ended June 30,
--------------- -----------------
1997 1998 1998 1999
Additional Operating Data: ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Loyalty currencies activities
(number of points): (in thousands)
Beginning balance.................. -- 2,130 2,130 62,495
Awarded by merchants............... 236 48,554 10,065 67,939
Redeemed by members................ (3) (3,184) (537) (10,788)
Sold to merchants not yet awarded,
net (1)........................... 1,897 24,895 14,004 33,542
Expired (2)........................ -- (9,900) -- --
------ ------- ------- --------
Ending balance..................... 2,130 62,495 25,662 153,188
====== ======= ======= ========
In circulation (3)................. 233 45,603 9,761 102,754
====== ======= ======= ========
Deferred revenues--product:
Beginning balance.................. $ -- $ 43 $ 43 $ 1,250
Awarded by merchants............... 5 971 201 1,359
Redeemed by members................ -- (64) (10) (216)
Sold to merchants not yet awarded,
net (1)........................... 38 498 279 570
Expired (2)........................ -- (198) -- --
------ ------- ------- --------
Ending balance..................... $ 43 $ 1,250 $ 513 $ 2,963
====== ======= ======= ========
Non-revenue points awarded by
Netcentives (4):
Points outstanding at end of
period............................ -- 27,508 5,600 100,323
====== ======= ======= ========
Accrued redemption costs........... $ -- $ 509 $ 104 $ 1,856
====== ======= ======= ========
</TABLE>
- --------
(1) Merchants are required to purchase points in advance before awarding them
to consumers. This represents the buying activity, net of awards to
members, of our merchants.

(2) Some points purchased by merchants must be awarded within specified periods
and cannot be refunded. This represents the number of points which expired
unawarded and the amounts recorded as revenue at that time.

(3) In circulation represents that portion of the outstanding loyalty currency
points awarded by merchants and still held by members. Upon redemption of
these points, Netcentives will recognize the related product revenue
component.

(4) In addition to points purchased and awarded by merchants, Netcentives has
issued points to its merchants and directly to its members in connection
with promotional campaigns and in lieu of cash for other expenses. These
points are accounted for as an expense and an accrued obligation at the
time of award. This represents the number of points outstanding at the end
of each period and the amount of the related liability.

20
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We were incorporated in June 1996. From inception until March 1998, our
operations consisted primarily of various start-up activities, such as research
and development, personnel recruiting, capital raising and trial sales of our
products with initial customers. We launched the ClickRewards program in March
1998 and began recognizing revenue from non-trial program sales in April 1998.
In December 1998, we acquired the Panttaja Consulting Group, Inc., a provider
of technical consulting services to e-commerce merchants and other businesses.
We launched our first Enterprise Incentive Solutions program in January 1999
and our first Custom Loyalty Network in July 1999.

How our Programs Work

We sell rewards currencies to electronic retailers and other Internet sites.
Our primary rewards currency is ClickMiles, which we sell to merchants who
become part of the ClickRewards Network. These merchants, in turn, award these
ClickMiles to consumers as purchase, loyalty and other incentives. ClickMiles
are redeemable for, among other things, frequent flyer miles on major airlines
at a ratio of one frequent flyer mile for each ClickMile. We have also
developed and continue to develop additional loyalty and rewards currencies for
large Internet merchants, portals, community sites and other business
customers. We sell these custom currencies to our customers, who then
distribute them under their own brands. The custom loyalty currencies are
redeemable for items specific to the customer for whom the currency has been
developed and, in certain cases, are exchangeable for ClickMiles.

Merchants who participate in the ClickRewards Network receive the benefit of
our promotion of the ClickRewards brand and network, which includes direct
links to the merchants' sites from our ClickRewards web page. We also provide
merchants who participate in the ClickRewards Network with a variety of related
marketing and promotional services. These services include promotional
consulting, direct marketing services to our member base and integration and
maintenance of our enabling software. Depending on the specific relationship we
have with the merchant, we may either include some of these services in our
ClickMiles pricing or we may price them separately. To the extent that services
are bundled with ClickMiles, we increase the price of the ClickMiles package to
reflect the value of these services. We also offer similar marketing services
to our Custom Loyalty and Enterprise Incentive customers on both a bundled and
separately-priced basis.

We provide services to members, such as allowing them to manage and track
balances as they earn currencies in their personal, online accounts at the
designated Web site for that program and redeem the currency for merchandise
and other awards. We purchase the relevant awards and either have the
merchandise delivered to the consumer through a third-party fulfillment house,
or in the case of frequent flyer miles, electronically credit their chosen
frequent flyer account. We also provide our members with ongoing support to
assist them in managing and redeeming their currency.

How We Recognize Revenues

Currency-related revenues; product and program-related services

The revenues we receive from the sale of currencies are made up of two
components: product revenues and program-related services revenues. Product
revenues reflect the value of the reward our members will ultimately receive
upon redemption of the promotion currency. Program-related services revenues
reflect the value of services that we perform for our merchants and members. As
a result, our revenues related to sale of currencies are recognized at various
times.

A merchant typically purchases currencies from us before awarding them to
consumers. Upon the sale of our loyalty currencies, we allocate these revenues
between the product component, and the program-related

21
<PAGE>

services components. The product component of revenues is deferred until the
member redeems the currency for his or her selected reward. At the time of
redemption, we recognize the product component of revenues and the associated
cost of revenue based on the actual cost of the redemption reward. The revenue
related to the services component of the currency sale is deferred until the
sale of the currency becomes non-refundable, which historically has been upon
award of the currency to a consumer by the merchant. Services revenues relating
to separately-priced services are recognized when these services are delivered.
The remaining portion of services revenues is recognized ratably over the
period during which these services are provided. For all ClickMiles sold
through June 30, 1999, this service period has been initially calculated for
the maximum life of the ClickMile based on its expiration date. To the extent
ClickMiles are redeemed prior to expiration, the remaining unamortized amount
of deferred services revenues is recognized at the time of redemption.

If loyalty currency points expire or are forfeited, we recognize the
remaining amount of deferred product and program-related services revenues at
the time of expiration or forfeiture. Since we do not have sufficient
experience concerning the redemption or forfeiture of currency points, we
cannot currently predict in which periods we will recognize these revenues.

Currently, ClickRewards merchants buy ClickMiles in advance based on their
anticipated needs. Beginning in the third quarter of 1999, new merchants will
be required to purchase a minimum of 450,000 ClickMiles. On an ongoing basis,
each merchant is required to purchase ClickMiles in quantities at least equal
to its expected monthly usage and to maintain a minimum balance generally equal
to its expected bi-weekly usage. We determine each merchant's expected usage
based on past trends and forecasted requirements in active promotions. These
ClickMiles are non-refundable and will expire if not awarded by the merchant
within a six-month period. The merchant services portion of revenues of any
ClickMiles sold under these arrangements will be amortized over the maximum
period during which the merchant may use the ClickMiles, resulting in a shorter
amortization period than has historically been used. The member services
component of revenues will continue to be amortized over the expected life of
the ClickMile.

We typically sell our loyalty currency products and related services to
merchants or custom loyalty program customers for cash. However, from time to
time, in connection with promoting the ClickRewards Network, we also sell
ClickMiles to our merchants for non-cash consideration, such as advertising and
merchandise. The revenue from the sale of these ClickMiles is accounted for on
the same basis as cash sales and the value of the advertising or merchandise is
recorded as an expense or a prepaid asset as appropriate. In 1998,
approximately $956,000 of advertising expense was recorded under these
arrangements, of which 74% was transacted with two merchants. In the six months
ended June 30, 1999, approximately $608,000 of advertising expense was recorded
under these arrangements, of which 92% was transacted with two merchants.

We also derive program-related service revenues from advertising and other
direct marketing services provided to third parties.

Technical consulting services revenues

We provide systems integration and technical consulting services to a variety
of clients, including ClickRewards merchants and Custom Loyalty and Enterprise
Incentive customers, to help them deploy our programs. These revenues are
recognized as the services are provided.

Results of Operations

Years Ended December 31, 1996, 1997 and 1998

Revenues

We had no revenues during 1996. We began test marketing the ClickRewards
Network during December 1997. Total revenues increased from $9,000 in 1997 to
$647,000 in 1998. Total 1998 revenues were composed of $64,000 of product
revenues, and $583,000 of program-related service revenues. Our 1998 revenues
increased principally because of our commercial launch of the ClickRewards
Network at the end of

22
<PAGE>

March 1998 and the associated purchase and issuance of ClickMiles by merchants
in the ClickRewards Network. Merchants awarded 236,000 ClickMiles in 1997 and
48.6 million ClickMiles in 1998 which was principally attributable to increases
in the number of merchants participating in the ClickRewards Network. Product
revenues reflect the redemption of ClickMiles for awards during the year.
Program-related service revenues in 1998 included $296,000 relating to the
expiration of ClickMiles owned by a merchant which were not distributed to
consumers as well as $84,000 of consulting services revenues attributable to a
non-recurring consulting contract with Visa International. Pro forma 1998
revenues include the technical consulting service revenues of Panttaja
Consulting Group, which was acquired in December 1998.

Cost of Product Revenues

Cost of product revenues represents the actual cost of awards selected by
members in exchange for ClickMiles. There were no redemptions during 1996 and
1997 and therefore no cost of product revenues during those years. Cost of
product revenues were $59,000 for 1998, which represented 92% of product
revenues.

Program-Related Services, Marketing and Support Costs

Program-related services, marketing and support costs represents the cost of
marketing services provided for the ClickRewards Network, as well as costs
incurred to support merchants and members in the Network. These costs consist
primarily of compensation and related costs for marketing and sales personnel,
advertising and marketing for the ClickRewards program, merchant account and
rewards supplier management, product management activities and ClickMiles
issued to acquire new members for the ClickRewards program. Program-related
marketing and support costs increased from $102,000 in 1996 to $1.5 million in
1997 and $7.3 million in 1998. The increase from period to period was primarily
the result of increased marketing and consumer support personnel expenses of
$623,000 from 1996 to 1997 and $1.2 million from 1997 to 1998, member
acquisition costs of $500,000 from 1997 to 1998, and advertising and promotions
expenses of $504,000 from 1996 to 1997 and $3.0 million from 1997 to 1998
associated with the launch of the ClickRewards Network. We expect to increase
substantially our marketing expenditures, particularly those related to
acquiring members for the ClickRewards Network, advertising and promoting our
brands and products, recruiting additional marketing personnel and managing
programs for our Custom Loyalty Networks and Enterprise Incentive Solutions
customers.

Cost of Technical Consulting Services Revenues

Cost of technical consulting services consists of the personnel and overhead
costs incurred in connection with providing technical consulting services.
There were no technical consulting services provided in 1996, 1997 and 1998 and
therefore no cost of technical consulting services revenues during those years.
The pro forma cost of technical consulting services consists of the personnel
and overhead costs incurred by the Panttaja Consulting Group.

Research and Development

Research and development expenses consist primarily of compensation and
related costs for research and development personnel, including independent
contractors and consultants, software licensing expenses and allocated
operating expenses such as site hosting, Web site production, facilities
expenses, and equipment costs. Research and development expenses increased from
$63,000 in 1996 to $1.5 million in 1997 and $3.4 million in 1998. These
increases from period to period were principally the result of an increase in
expenses in preparation for the launch of and enhancements to the ClickRewards
Network, as well as initial development efforts relating to our Custom Loyalty
Networks. The largest component of this increase was the growth in compensation
and related staff expenses as a result of increased staffing levels. These
expenses increased by $1.2 million from 1996 to 1997 and by an additional $1.2
million from 1997 to 1998 due to increased staffing. Site hosting expenses also
increased by $254,000 from 1997 to 1998. We expect to continue to increase
substantially research and development spending in absolute dollars as we
develop new products and expand our resources to maintain existing products.

23
<PAGE>

The American Institute of Certified Public Accountants issued Statement of
Position 98-1, Accounting for the Costs of Software Developed for Internal Use,
which will be effective for Netcentives beginning in 1999. The effects will be
to capitalize certain development costs that were previously expensed. The
amortization of these costs will be charged to research and development
expense.

Selling, General and Administrative

Selling, general and administrative expenses consist primarily of salaries
and related expenses, sales commissions, treasury expenses, accounting and
administrative expenses, professional fees, and other selling and corporate
expenses. Selling, general and administrative expenses increased from $108,000
in 1996 to $1.2 million in 1997 and $3.1 million in 1998. The increase from
period to period was primarily the result of increased sales efforts to enroll
merchants into the ClickRewards Network, increased business development efforts
for our Custom Loyalty Networks and increased general and administrative
personnel. The largest component in this increase was the growth in
compensation expense and related staff costs as a result of increased staffing
levels. These expenses increased by $661,000 from 1996 to 1997 and by $1.1
million from 1997 to 1998 due to increased staffing. Other significant
components of the increase include the increase in legal fees and facilities-
related expenses of $385,000 from 1996 to 1997 and of $192,000 from 1997 to
1998. We expect selling, general and administrative expenses to increase in
absolute dollars as we add personnel and incur additional costs related to the
anticipated growth of our ClickRewards and Custom Loyalty Networks, our
expansion into international markets and our operation as a public company.

Amortization of Deferred Stock Compensation, Supplier Stock Awards and
Intangibles

Amortization of deferred stock compensation represents the difference between
the purchase or exercise price of certain restricted stock and stock option
grants, and the deemed fair market value of our common stock at the time of
these grants. This difference is amortized over the vesting period for such
grants, which is typically four years. Amortization of deferred stock
compensation was $296,000 for 1998 and is estimated to be a total of
$2.1 million in 1999, $2.1 million in 2000, $2.0 million in 2001 and $1.7
million in 2002 as a result of certain stock option grants and stock awards
during 1998.

Amortization of supplier stock awards represents the cost of warrants granted
to certain airlines and other rewards suppliers in return for exclusivity.
Expenses related to contingent stock warrants granted to certain airlines and
other partners was $63,000 in 1997 and $811,000 in 1998. Because the vesting of
these awards is subject to maintaining the exclusivity of the arrangement with
these rewards suppliers, the valuation of the warrants is not finalized until
the vesting date. Accordingly, the amount of the expense recognized for these
warrants increased as the value of our stock increased. A substantial number of
these warrants had not yet vested as of December 31, 1998. As a result, we
expect that the charge relating to supplier stock awards to increase in 1999.

In December 1998, we acquired Panttaja Consulting Group in a transaction that
was accounted for as a purchase. The resulting intangibles of $3.5 million
recorded in the acquisition will be amortized over two years.

Interest Income, Net

Interest income, net was $7,000 in 1996, $85,000 in 1997 and $297,000 in
1998. The year over year increases reflected primarily increases in interest
income from $7,000 in 1996 to $121,000 in 1997, and $441,000 in 1998, offset in
part by an increase in interest expense from $36,000 in 1997 to $144,000 in
1998, relating to capital leases and other financing arrangements.

Income Taxes

We have incurred losses since inception, and anticipate losses for the
foreseeable future. We have therefore recorded no provision for income taxes in
1996, 1997 or 1998. We have provided a full valuation allowance against our net
operating loss tax carryforwards and deferred income tax assets at December 31,
1998. As of December 31, 1998, our federal and state net operating loss tax
carryforwards were $14.2 million and $14.1 million, respectively.

24
<PAGE>

Net Loss

Net loss increased from $266,000 in 1996 to $4.2 million in 1997 and
$14.1 million in 1998. These increases were principally due to operating costs
and expenses of $273,000 in 1996, $4.3 million in 1997 and $15.1 million in
1998.

Six Months Ended June 30, 1998 and 1999

Revenues

Revenues increased from $127,000 in the six months ended June 30, 1998 to
$3.0 million for the six months ended June 30, 1999. The increase in revenues
was primarily a result of the acquisition of Panttaja Consulting Group in
December 1998 and the growth of our ClickRewards Network launched in March
1998. Merchants awarded 67.9 million ClickMiles in the six months ended June
30, 1999. During the six months ended June 30, 1999, we began providing
technical consulting services through our Netcentives Professional Services
subsidiary.

Cost of Product Revenues

Cost of product revenues increased from $9,000 in the six months ended June
30, 1998 to $185,000 for the six months ended June 30, 1999 primarily as a
result of the increased redemption of ClickMiles by members. For the first two
weeks of July 1999, we offered our members the ability to redeem their
outstanding ClickMiles for frequent flyer miles on a two-for-one basis. As a
result of this offer, we incurred approximately $158,000 of additional product
costs which will affect our product margins in the third quarter of 1999.

Program-Related Services, Marketing and Support Costs

Program-related services, marketing and support costs increased from
$2.4 million in the six months ended June 30, 1998 to $9.6 million for the six
months ended June 30, 1999. The increase from period to period was primarily
the result of increased marketing and consumer support personnel expenses of
$1.9 million member acquisition costs of $1.3 million, and advertising and
promotions expenses of $3.7 million associated with the launch of the
ClickRewards Network.

Cost of Technical Consulting Services Revenues

Costs of technical consulting services revenues totaling $1.5 million were
incurred in the six months ended June 30, 1999 from the associated revenues
recognized during the same period, as a result of the acquisition of Panttaja
Consulting Group in December 1998.

Research and Development

Research and development expenses increased from $1.4 million in the six
months ended June 30, 1998 to $1.9 million for the six months ended June 30,
1999. The increase was primarily the result of an increase in these expenses
for enhancements to the ClickRewards Network, as well as initial development
efforts relating to our Custom Loyalty Networks. The largest component of the
increase was the growth in compensation and related staff expenses of $498,000.

Selling General and Administrative

Selling, general and administrative expenses increased from $1.3 million in
the six months ended June 30, 1998 to $3.6 million for the six months ended
June 30, 1999. The increase from period to period was primarily the result of
increased sales efforts to enroll merchants into the ClickRewards Network,
increased business development efforts for our Custom Loyalty Networks and
increased general and administrative personnel. The largest component of the
increase was the growth in compensation expense and related staff costs of
$1.2 million. Other significant components of the increase include $413,000 of
legal fees and facility related and employee relocation expenses.

25
<PAGE>

Amortization of Deferred Stock Compensation, Supplier Stock Awards and
Intangibles

Amortization of deferred stock compensation, supplier stock awards and
intangibles increased from $164,000 in the six months ended June 30, 1998 to
$2.9 million for the six months ended June 30, 1999. The increase in
amortization resulted from amortization of deferred stock compensation related
to stock options and common stock granted in 1998, the cost of warrants granted
to certain airlines and other rewards suppliers and intangibles recorded at the
time of the acquisition of Panttaja Consulting Group in December 1998.

Interest Income, Net

Interest income, net increased from $74,000 for the six months ended June 30,
1998 to $447,000 for the six months ended June 30, 1999. The increase was a
result of increased interest income from $116,000 for the six months ended June
30, 1998 to $553,000 for the six months ended June 30, 1999, offset in part by
an increase in interest expense from $42,000 to $106,000 for the comparable
period.

Income Taxes

We have recorded losses since inception, and anticipate losses for the
foreseeable future. We have therefore recorded no provision for income taxes
for the six months ended June 30, 1998 and 1999.

Net Loss

Net loss increased from $5.1 million in the six months ended June 30, 1998 to
$16.1 million in the six months ended June 30, 1999. The increase in net loss
was primarily due to an increase of operating costs and expenses from $5.3
million in the six months ended June 30, 1998 to $19.6 million in the six
months ended June 30, 1999.

26
<PAGE>

Quarterly Results of Operations

The following table sets forth certain unaudited consolidated statements of
operations data for the six months ended June 30, 1999. This data has been
derived from unaudited consolidated financial statements that, in the opinion
of our management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information when read in
conjunction with our annual audited consolidated financial statements and notes
to those statements. Our operating results for any quarter are not necessarily
indicative of results for any future period.

<TABLE>
<CAPTION>
Quarters Ended
--------------------------------------------------------
Mar. June
31, 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1998 1998 1998 1998 1999 1999
------- ------- --------- -------- -------- --------
(in thousands, except per share amounts)
Consolidated Statements of
Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product................. $ 2 $ 8 $ 15 $ 39 $ 103 $ 113
Program-related
services............... 13 104 349 117 117 311
Technical consulting
services............... -- -- -- -- 1,436 941
------- ------- ------- ------- ------- --------
Total revenues........ 15 112 364 156 1,656 1,365
------- ------- ------- ------- ------- --------
Costs and expenses:
Costs of product
revenues............... 2 7 14 36 92 93
Program-related
services, marketing and
support costs.......... 684 1,755 1,640 3,214 4,583 4,983
Cost of technical
consulting services
revenues............... -- -- -- -- 817 679
Research and
development............ 685 716 804 1,178 1,025 844
Selling, general and
administrative......... 704 615 715 1,100 1,335 2,261
Amortization of deferred
stock compensation,
supplier stock awards,
and intangibles........ 73 91 290 732 1,508 1,397
------- ------- ------- ------- ------- --------
Total costs and
expenses............. 2,148 3,184 3,463 6,260 9,360 10,257
------- ------- ------- ------- ------- --------
Loss from operations...... (2,133) (3,072) (3,099) (6,104) (7,704) (8,892)
Interest income, net...... 53 21 82 141 96 351
------- ------- ------- ------- ------- --------
Net loss.................. $(2,080) $(3,051) $(3,017) $(5,963) $(7,608) $ (8,541)
======= ======= ======= ======= ======= ========
Net loss per share--basic
and diluted.............. $ (1.63) $ (2.01) $ (1.71) $ (2.85) $ (2.53) $ (2.56)
======= ======= ======= ======= ======= ========
Shares used in computing
per share amounts--basic
and diluted.............. 1,276 1,516 1,760 2,095 3,004 3,330
======= ======= ======= ======= ======= ========
</TABLE>

Total revenues increased during the first three quarters of 1998. In the
third quarter, $296,000 of ClickMiles owned by a customer expired without being
distributed to consumers, and the associated deferred revenue was recognized as
revenue. While total revenues for the fourth quarter declined relative to the
third quarter, fourth quarter total revenues would have been higher than third
quarter total revenues if revenue recognized as a result of the expiration of
ClickMiles was excluded. Total revenues increased substantially in the first
six months of 1999 as a result of the acquisition of Panttaja Consulting Group
in December 1998. The decrease in technical consulting services revenues from
the quarter ended March 31, 1999 to the quarter ended June 30, 1999 is
consistent with the historical pattern of Panttaja's prior years operations.

The program-related services, marketing and support costs increased from
$684,000 to $5.0 million from the first quarter of 1998 to the second quarter
of 1999. The increases over the six quarters were primarily the result of
increased marketing personnel, member acquisition costs and advertising and
promotions expenses

27
<PAGE>

associated with the launch of the ClickRewards Network. These costs were
particularly high in the second quarter of 1998 as a result of increased
advertising and promotions costs in the periods immediately preceding and
following the commercial launch of the ClickRewards Network.

Cost of technical consulting services revenues totaling $1.5 million were
incurred in the first six months of 1999 as a result of the associated revenues
recognized during the same six months following the acquisition of Panttaja
Consulting Group in December 1998.

Research and development, marketing, consumer support, and sales and general
and administrative costs have generally increased on a quarterly basis as we
have expanded our operations in connection with the introduction and expansion
of the ClickRewards Network. We expect this trend to continue. Selling, general
and administrative costs increased from the quarter ended March 31, 1999 to
June 30, 1999 primarily due to increased staffing in the sales, general and
administration departments.

Amortization of deferred stock compensation, supplier stock awards, and
intangibles has increased on a quarterly basis. This reflects the impact of
additional stock option grants made during the year, which will continue to be
amortized over the vesting life of the options, typically four years, as well
as the accounting for our contingent stock warrants with certain suppliers,
whose value and related expense must be adjusted each period as our stock value
changes prior to their vesting. The amount decreased from the quarter ended
March 31, 1999 to the quarter ended June 30, 1999 due to the accounting for our
contingent stock warrants, whose value was adjusted in the periods for the
change in our stock value.

Shares used in computing per share amounts increased significantly in the
first quarter of 1999 relative to the preceding quarters of 1998 as a result of
the shares issued in connection with the acquisition of Panttaja Consulting
Group in December 1998.

We intend to increase our marketing, sales, research, development and
administrative activities and to increase other operating expenses as required
to expand our operations and launch Custom Loyalty Networks. We have
experienced significant losses to date and we anticipate that our expenses will
continue to exceed significantly the revenues generated by this increased
spending such that we will continue to incur losses for the foreseeable future.
In addition, we expect the magnitude of these losses to increase substantially
from current levels. If we do not experience significantly increased revenues
from these efforts, our results of operations would be impaired. In addition,
our operating expense levels are based in part on our expectations concerning
future revenues, and are relatively fixed in the short term. Consequently, if
our revenues are below expectations in any period, we may not be able to adjust
our spending levels in a timely manner.

Liquidity and Capital Resources

We have funded our operations since inception primarily through the private
placement of preferred equity securities, through which we had raised net
proceeds of $63.8 million through June 30, 1999. We have also financed our
operations through equipment lease financing and bank borrowings. As of June
30, 1999, we had outstanding equipment lease financing and bank borrowings
totaling $1.1 million. On July 1, 1999 we borrowed an additional $1.2 million
under a note payable secured by equipment. We have no other available lines of
credit or credit available under existing arrangements.

Cash used in operations was $170,000 in 1996, $4.1 million in 1997, $9.5
million in 1998 and $7.0 million for the six months ended June 30, 1999. The
cash used in 1996 and 1997 was primarily the result of our operating losses in
those years. Subsequent to 1997, cash used in operations primarily reflected
cash received from customers of $1.3 million in 1998 and $4.9 million in the
six months ended June 30, 1999, offset by cash paid to suppliers and employees
of $11.2 million and $12.4 million in the same periods.

We initially defer recording revenue at the time we sell our loyalty
currencies, even though we have received cash from our customers for these
sales. A significant portion of revenue is not recognized until the currency is
redeemed by the consumer. The remaining revenue is recognized on a ratable
basis over the periods in which marketing and support services are provided to
merchants and members. As a result of this accounting method, the cash received
from customers is substantially greater than the amount of revenues reported
for

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<PAGE>

these periods. The difference in these amounts is reflected primarily as an
increase in the amount of deferred revenues for products and services shown on
our consolidated balance sheet. Total deferred revenues increased on a net
basis from cash transactions by $848,000 during 1998 and $1.8 million during
the six months ended June 30, 1999. The growth in deferred revenues in 1998 was
offset in part by an increase in accounts receivable of $201,000.

Cash paid to suppliers and employees was significantly less than costs and
expenses reported for these same periods. This resulted from non-cash charges
relating to depreciation, the amortization of deferred stock compensation,
supplier stock awards and intangible assets arising from the Panttaja
Consulting Group acquisition, and the use of ClickMiles in lieu of cash to pay
for certain expenses. Non-cash amortization charges totaled $1.8 million in
1998 and $4.1 million in the six months ended June 30, 1999. The use of
ClickMiles in lieu of cash to pay for certain expenses resulted in the deferral
of cash payments of $1.5 million during 1998 and $2.1 million during the six
months ended June 30, 1999.

Investments in property and equipment were $124,000 in 1996, $1.0 million in
1997, $1.2 million in 1998 and $3.6 million in the six months ended June 30,
1999.

Cash provided from financing activities was $1.4 million in 1996, $10.5
million in 1997, $17.9 million in 1998 and $33.6 million in the six months
ended June 30, 1999. Cash was provided primarily from sales of preferred stock
of $1.4 million in 1996, $10.1 million in 1997, $17.2 million in 1998 and $35.1
million in the six months ended June 30, 1999.

At June 30, 1999, we had 153 million loyalty currency points outstanding
which had been sold to merchants (of which 103 million had been awarded to
members and are in circulation). The June 30, 1999 balance sheet includes
approximately $3.0 million of deferred revenues relating to the product
component of these currencies, which will be recognized as revenue at the time
of redemption. Other than barter exchanges, we have already received cash from
our merchants relating to these points, which is unrestricted and which we can
use for any corporate purpose. In addition, an additional 100 million points
were outstanding which had been issued by us to pay for expenses in lieu of
cash. As of June 30, 1999, we have an accrued liability of approximately $1.9
million for the estimated cost of redemption of these points. All of these
points expire if not redeemed by December 31, 2001. Although we have purchased
some frequent flyer miles in advance, most of the funding to pay for the costs
associated with these product redemption liabilities must come from available
cash resources at the time of redemption. Although these liabilities are
reflected as current liabilities in our balance sheet, the timing of the
related liability is controlled by the actual redemptions, which could occur in
irregular patterns over the next 2 1/2 years until expiration. Because we
cannot control the timing of our members' decision to redeem points, should the
rate of redemption of points exceed our estimates, it could be necessary for us
to obtain additional working capital and our results of operations could be
materially and adversely affected.

At June 30, 1999, we had cash and equivalents totaling $36.2 million. We
anticipate that our available cash resources will be sufficient to meet our
presently anticipated working capital and capital expenditure needs for at
least the next twelve months.

Our future liquidity and capital requirements will depend on numerous
factors. For example, our pace of expansion will affect our future capital
requirements, as may our decision to acquire or invest in complementary
businesses and technologies. Therefore, we may be required to raise additional
funds in the future through the issuance of debt or equity securities. If
additional funds are raised through the issuance of equity securities, our
existing stockholders may experience significant dilution. Furthermore,
additional financing may not be available when needed or, if available, such
financing may not be on terms favorable to us or our stockholders. If financing
is not available when required or is not available on acceptable terms, we may
be unable to develop or enhance our programs or other services. In addition, we
may be unable to take advantage of business opportunities or to respond to
competitive pressures. Any of these events could harm our business and
financial condition.

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<PAGE>

Year 2000 Compliance

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.

We have defined Year 2000 Compliant as the ability to:

. handle correctly date information needed for the December 31, 1999 to
January 1, 2000 date change;
. function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
. respond to two-digit date input where appropriate in a way that resolves
the ambiguity as to century in a disclosed, defined, and predetermined
manner;
. store and provide output of date information if the date elements in
interfaces and data storage specify the century in ways that are
unambiguous as to century; and
. recognize Year 2000 as a leap year.

All software developed by Netcentives utilizes the JavaSoft implementation of
date object and calendar classes for expression and manipulation of dates. When
dates are saved in persistent storage, the values are either serialized objects
or date fields in a relational database; in both cases, the full 4-digit year
is maintained. Our products do not perform any kind of truncation of century
values or any string operations that jeopardize the integrity of the date
values. We have also tested all of the third-party software incorporated in our
products to ensure their proper processing of twenty-first century dates. As a
result, we believe that all versions of our products including the production
systems that manage our promotional networks are Year 2000 Compliant, provided
that the underlying operating system of the host machine and any other software
used with or on the host machine or our products are also Year 2000 Compliant.
Statements published by the providers of this software, hardware and these
operating systems indicate that they are or will be Year 2000 Compliant by
December 1999. Our internal analysis of this software, hardware and these
operating systems indicates that they are all currently Year 2000 Compliant.

We have evaluated the data feeds from each of our rewards suppliers to
determine if they are Year 2000 Compliant. Data feeds from approximately 13% of
our active rewards suppliers may not be Year 2000 Compliant and we have
informed these suppliers of the potential deficiencies we have identified.
These suppliers have orally assured us that any such problems will be corrected
prior to October 1999. We do not have any information regarding the Year 2000
Compliance of the systems of any of our rewards suppliers with which we do not
directly interface. To the extent that our rewards suppliers are unable to
transmit data to or receive data from Netcentives as a result of their failure
to be Year 2000 Compliant, or they inaccurately maintain balances of frequent
flyer miles for member accounts, general member dissatisfaction with frequent
flyer programs may result and have an adverse effect on our business.

We do not currently have any information concerning the Year 2000 Compliance
status of any of our merchant customers. We plan to notify merchants to remind
them of the Year 2000 problem and its potential effects on their systems.
However, to the extent that our merchants are no longer able to process
e-commerce transactions, process them incorrectly, or transmit incorrect data
to our systems, our business could be adversely affected. If our current or
future merchants fail to achieve Year 2000 compliance or if they divert
technology expenditures, especially technology expenditures that were reserved
for promotional products, to address Year 2000 Compliance problems, our
business, results of operations, or financial condition could be materially
adversely affected.

We have initiated an assessment of our material internal information
technology systems and our non-information technology systems. Our material
internal information technology systems are primarily comprised of a local area
network, telecommunications network, computer hardware, operating systems and
applications

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<PAGE>

software. Our material non-information technology systems are primarily
comprised of facilities-related systems, such as heating and cooling and
security. We expect to complete our assessment and any associated remediation
of our information technology systems by October 1999. To date, we have
identified one deficiency in the software operating system for our local area
network server for which an upgrade is publicly available. We expect to install
this upgrade by October 1999. To the extent that we are not able to test the
technology provided by third-party vendors, we are seeking assurances from
vendors that their systems are Year 2000 Compliant. We are not currently aware
of any material operational issues or costs associated with preparing our
internal systems for the Year 2000. However, we may experience material
unanticipated problems and costs caused by undetected errors or defects in the
technology used in our internal systems.

We have funded our Year 2000 plan from available cash and have not separately
accounted for these costs in the past. To date, these costs have not been
material, and we do not expect these costs to exceed $100,000. In addition, we
may experience material problems and costs with Year 2000 compliance that could
adversely affect our business, results of operations, and financial condition.

We have not developed a contingency plan to address situations that may
result if our products are not Year 2000 Compliant, or if our suppliers or
customers suffer major Year 2000 related problems or our internal systems fail
as a result of Year 2000 issues. We expect to develop such a plan, along with
an analysis of the worst case scenario that might result from Year 2000 issues,
by the fourth quarter of 1999. We are also subject to external forces that
might generally affect e-commerce, such as retailing and distribution company
Year 2000 compliance failures and related service interruptions.

Quantitative and Qualitative Disclosures About Market Risk

We had no holdings of derivative financial or commodity instruments at June
30, 1999. However, we are exposed to financial market risks associated with
fluctuations in interest rates. Because all of the amounts in our portfolio
have expected maturities of three months or less, we believe that the fair
value of our investment portfolio or related income would not be significantly
impacted by increases or decreases in interest rates due mainly to the short-
term nature of our investment portfolio. If market rates were to increase
immediately by 10 percent from levels on June 30, 1999, the fair value of this
investment portfolio would decline by an immaterial amount. A sharp decline in
interest rates could reduce future interest earnings of our investment
portfolio. If market rates were to decrease immediately by 10 percent from
levels on June 30, 1999, the resultant decrease in interest earnings of our
investment portfolio would not have a material impact on our earnings as a
whole.

The table below presents principal amounts (in thousands) and related
weighted average fixed interest rates for our investment portfolio.

<TABLE>
<CAPTION>
Expected Maturity Estimated Fair Value
1999 at June 30, 1999
----------------- --------------------
<S> <C> <C>
Federal instruments................. $10,500 $10,500
Weighted average fixed interest
rate............................... 4.84%
Commercial paper & short-term
obligations........................ $25,652 $25,652
Weighted average fixed interest
rate............................... 4.68%
Total portfolio..................... $36,152 $36,152
</TABLE>

As of June 30, 1999, we had $36.2 million of cash and cash equivalents
earning a weighted average variable interest rate of 4.72%.

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<PAGE>

BUSINESS

Overview

Netcentives believes that it is a leading provider of Internet loyalty,
direct marketing and promotion products and services to drive consumer
behavior. We believe that the Internet loyalty, direct marketing and promotion
products and services industry includes over 45 companies of which we are one
of the leaders. Netcentives' flagship program, the ClickRewards Network, is a
powerful online promotion and loyalty program that allows e-commerce sites to
reward consumers with ClickMiles, a digital promotion currency, for making
online purchases. The ClickRewards Network was launched in March 1998 and as of
September 23, 1999, included over 2.0 million members who have earned, in the
aggregate, over 310 million ClickMiles. The ClickRewards Network includes e-
commerce companies from a broad range of industries. These e-commerce companies
purchase ClickMiles from us and award them to consumers in order to convert
browsers to buyers, increase average purchase size, drive repeat purchases, and
build loyalty to their sites. Representative companies in the ClickRewards
Network include large, established Web sites who have been a part of the
ClickRewards Network for an extended period of time and are ranked by Media
Metrix as being among the top 500 advertising supported Web sites, such as
barnesandnoble.com, E*TRADE, macys.com and OfficeMax.com, as well as smaller,
newer Web sites have joined the ClickRewards Network more recently, such as
Cooking.com, eBags, eNutrition, PlanetRx and ShopSports. We also offer online
advertising and sponsorship, joint marketing programs, sponsored e-mail offers,
and technical and marketing consulting services.

As of June 30, 1999, we had derived substantially all of our revenues from
the ClickRewards Network and Netcentives Professional Services. Utilizing the
technology platform we have developed for the ClickRewards Network we have
expanded our product offering to provide Custom Loyalty Networks to portals,
companies with major brands and other Web sites with substantial membership. We
launched our first Custom Loyalty Network for Looksmart in July 1999 and have
signed contracts to develop additional Custom Loyalty Networks for the GO
Network and Lycos that we expect to launch in the fourth quarter of 1999. We
have also launched Enterprise Incentive Solutions programs with four corporate
customers. In addition to the technical consulting and development services we
have historically offered through our Netcentives Professional Services
organization, we have also begun to offer marketing and promotions services.

Industry Background

Growth of the Internet and Online Advertising

The Internet has emerged as a unique global communications medium, enabling
millions of people to interact and conduct business electronically.
International Data Corporation, or IDC, estimates that there were approximately
97 million Internet users at the end of 1998, and that this number will grow to
320 million by the end of 2002. IDC further estimates that the total value of
commerce over the Internet will increase from approximately $32 billion in 1998
to $425 billion in 2002. Similarly, Forrester Research estimates that U.S.
business e-commerce revenue will grow from $109 billion in 1999 to $1.3
trillion in 2003. Internet commerce transactions are often faster, less
expensive and more convenient for both buyers and sellers, and the opportunity
to take advantage of these business efficiencies has attracted a broad group of
participants.

During the early stages of development of e-commerce, merchants were focused
on building general brand awareness and acquiring customers. Consequently, the
rapidly growing market for Internet marketing was heavily

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dominated by banner advertising. However, the low barriers to entry for new
competitors, the emergence of below-cost online retailers and the ease with
which consumers can switch between Internet retailers have intensified online
commerce competition. As a result, several industry reports have concluded that
banner advertising alone is either insufficient or ineffective. For example,
Net Ratings, an online market research firm, found that the consumer response
rate for banner advertising declined from 2% to 0.5% in December 1998.

The Market for Loyalty, Direct Marketing and Promotion Products

According to the Direct Marketing Association, offline expenditures on direct
marketing, including promotions, reached $163 billion in 1998. Jupiter
Communications estimates that online spending for Internet-based advertising
alone will total $7.7 billion in the U.S. by 2002. As e-commerce Web sites
increasingly focus on customer retention and loyalty, we believe that spending
for online marketing will shift toward promotions and direct marketing. For
example, Forrester Research predicts that by 2003, 50 to 70% of all Internet
marketing budgets will be spent on promotional marketing as opposed to
advertising, with the largest growth coming from membership, rewards and
loyalty programs.

As Internet retailers, portals and offline rewards providers increase their
online promotional activities, we believe they face a number of challenges that
require additional capabilities and skills outside of their traditional
competencies. Specifically, any of the following operational requirements could
pose problems for these entities:

. integration of point of purchase promotional capabilities;
. attraction and retention of consumers with an attractive demographic
profile, such as frequent flyer program members;
. establishment of a network of earning and award opportunities that is
significant enough to make promotions appealing to consumers;
. creation of a transaction processing system designed for use on the
Internet;
. development of Web site enhancements necessary to track consumer
participation in and satisfaction with online promotional programs;
. investment necessary to develop online promotions capabilities;
. possession of the expertise required to develop and administer promotion
programs and the associated financial liabilities; and
. integration of new online promotions with existing offline promotion
programs.

We believe that Internet retailers, portals and offline rewards providers
recognize the benefits of deploying online promotion programs, but have not
been able to justify the resources required to build and maintain their own
programs independently.

The Netcentives Solution

Netcentives believes that it is a leading provider of Internet loyalty,
direct marketing and promotion products and services used by Web sites to drive
consumer behavior. We believe that the Internet loyalty, direct marketing and
promotions product and services industry includes over 45 companies, of which
we are one of the leaders. Leveraging our advanced technology infrastructure,
experience and knowledge of promotions, we have developed three products to
serve the online promotions market: the ClickRewards Network, Custom Loyalty
Networks and Enterprise Incentive Solutions.

ClickRewards Network. The ClickRewards Network is a loyalty program that
gives online merchants the capability to reward consumers for making purchases
at their Web sites. Web merchants ranked by Media Metrix as being among the top
500 digital media properties that are also a part of the network include
barnesandnoble.com, E*TRADE, macys.com and OfficeMax.com. Other Web sites
participating in the ClickRewards Network include Cook Express, Cooking.com,
eBags, eNutrition and PlanetRx. By shopping at participating Web sites,
consumers can earn ClickMiles, a digital currency that is exchangeable one-for-
one for

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<PAGE>

frequent flyer miles on eight major airlines and for other valuable rewards.
Our customers reward consumers with ClickMiles as an incentive to convert
browsers to buyers, drive repeat purchases, increase transaction size and build
loyalty within their online communities.

ClickRewards addresses the needs of the three major constituencies in
promotional programs: e-commerce merchants, rewards suppliers and members.

Merchants that participate in the ClickRewards Network benefit by:

. attracting and retaining a targeted and loyal customer base including
frequent flyer program members and online shoppers;
. participating in a growing network of high-quality merchants with well
known brands, the value of which increases with each additional merchant;
. increasing the attractiveness of their online community with a loyalty
program;
. increasing the effectiveness of their marketing expenditures through e-
mails to a targeted member base, Web site placements and joint marketing
activities;
. enhancing customer loyalty and retention with ClickMiles, which are
redeemable one-for-one for the frequent flyer miles of eight major
airlines and a wide range of valuable merchandise rewards, which may
include a merchant's own products; and
. having the ability to create and maintain ClickRewards promotions on the
merchant's Web site.

Rewards suppliers that provide us with frequent flyer miles and merchandise
benefit by:

. selling additional products through a growing online channel;
. broadening their online presence to reach more consumers with an
attractive demographic profile; and
. increasing the value of frequent flyer miles by expanding the markets in
which they are available.

Our members benefit by:

. increasing the value of their online purchases, by receiving a valuable
currency with their purchases;
. aggregating currency across a large network of high quality, well known
merchants to realize meaningful value more quickly;
. centralizing their earning and tracking of this currency in an online
personal account; and
. accumulating and holding a valuable currency that can be converted into
frequent flyer miles or other rewards at a later date.

Launched in March 1998, the ClickRewards Network has attracted 69 merchants
from many of the top e-commerce categories. We have also entered into exclusive
relationships to provide frequent flyer miles in points-based Internet
promotion networks with American Airlines, British Airways (USA),
Continental Airlines, Delta Air Lines, Northwest Airlines, TWA, United Airlines
and US Airways. The exclusivity provision in some of these agreements may be
terminated following notice periods of between 45 and 90 days, and some of
these agreements may be terminated in their entirety following notice periods
ranging from 90 to 180 days. Based on our strong reward supplier relationships
and network of merchants, as of September 23, 1999, membership in the
ClickRewards Network has grown to over 2.0 million members who have earned, in
the aggregate, over 310 million ClickMiles. On average, the current
ClickRewards membership has been awarded approximately 160 ClickMiles each.
Once a member has accumulated a sufficient number of ClickMiles, which is
currently 500 ClickMiles and will be reduced to 250 ClickMiles beginning in the
fourth quarter of 1999, he or she can redeem these ClickMiles by visiting the
ClickRewards Web site and selecting his or her chosen redemption option.
ClickMiles expire on the third December following the date they are earned.
This may cause increases in redemption activity in December of each year.

Custom Loyalty Networks. Our Custom Loyalty Network products enable portals,
companies with major brands and other Web sites with substantial membership and
scale to launch branded loyalty programs. We launched our first Custom Loyalty
Network for Looksmart in July 1999 and we have signed contracts to develop
Loyalty Networks for the GO Network and Lycos that we expect to launch in the
fourth quarter of

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<PAGE>

1999. We are in discussions with additional potential Custom Loyalty clients;
however, we currently have relationships with only these three entities. Using
their own branded promotional currency, our clients are able to deploy programs
that are designed to build community and drive customer acquisition and
retention. Custom Loyalty Network clients receive all the benefits of operating
a loyalty program like ClickRewards, such as increasing purchases, acquiring
consumers and members and establishing a direct marketing channel. In addition,
these clients are able to utilize our expertise and the power of our technology
platform to outsource functions such as consumer account management, reward
catalog development, transaction processing, reward redemption, customer
service, database marketing and financial management of currency and
liabilities.

Enterprise Incentive Solutions. We sell Enterprise Incentive Solutions
programs to corporations who use them to motivate and reward employees,
partners and stakeholders across their intranets and extranets. Corporations
can benefit from using our Enterprise Incentive Solutions by reducing the cost
of implementing and administering employee incentive programs and increasing
the effectiveness of these programs. Additionally, through the
ClickRewards@Work program, companies can launch an effective incentive program
that is linked to the broader consumer network of the ClickRewards Network. We
launched our first Enterprise Incentive Solutions program in late 1998 and are
currently operating programs for adauction.com, Cisco Systems, Event Source and
Exceptional People.

Netcentives Professional Services. All of our products are complemented by
Netcentives Professional Services, our team of consulting professionals who
offer significant expertise in relationship marketing, developing e-commerce
applications and implementing our promotion solutions. Since our acquisition of
Panttaja Consulting Group in December 1998, we have provided professional
services to 16 clients in a variety of areas, including those related to e-
commerce.

The Netcentives Strategy

Our objective is to be the leading provider of Internet loyalty, direct
marketing and promotion products used by Web sites to drive consumer behavior.
We intend to achieve this objective by establishing ClickRewards as the leading
Internet loyalty program and utilizing our technology and marketing expertise
to provide products and services to retailers, portals and employers who are
establishing their own loyalty networks. The key elements of our strategy are
to:

Expand the ClickRewards Network of Merchants, Rewards Suppliers and Members

The ClickRewards Network has grown rapidly and as of September 23, 1999
included 69 merchants, 2.0 million members, and 15 rewards suppliers. We plan
to continue to provide value-added products and services to our merchants in
order to drive acceptance and growth of our incentive and rewards products. We
use our capabilities to provide targeted offers from merchants to our member
base. We use e-mails to our member base and inserts in frequent flyer
newsletters and statements to increase the value of the ClickRewards currency
to our members and to drive consumers to our merchants. Furthermore, we believe
that we can increase the value of the ClickRewards Network to participating
merchants by increasing the number of consumers who are members. As the
ClickRewards Network grows, we believe that it will create the opportunity to
provide additional services to existing merchants, including enhanced direct
marketing and other professional services.

Establish ClickRewards as the Primary Loyalty Program for Leading Online
Merchants

We believe that our customers will increasingly use the ClickRewards Network
to address their particular business objectives, such as revenue growth and
consumer loyalty. The key features that allow us to address the needs of our
merchants include:

. enabling them to create and maintain their own ClickRewards promotions;
. featuring their own products in the ClickRewards rewards catalog;

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<PAGE>

. promoting their brand on the ClickRewards Web site;
. integrating ClickRewards functionality on their e-commerce Web site;
. launching joint marketing programs; and
. customizing ClickRewards e-mail communications for their consumers.

Maximize Lifetime Value of ClickRewards Members

We seek to maximize the frequency, size and number of purchases made by
ClickRewards members throughout the network. Capitalizing on the attractive
demographics and purchase behavior of our membership base, we intend to enhance
the lifetime value of our members to our merchants through database marketing,
a tiered loyalty program for top purchasers, additional site functionality and
other features targeted to active ClickRewards members.

Extend Network Loyalty Platform and Infrastructure to Support Additional
Products

We have developed a technology platform and infrastructure and a set of
products, services and management expertise that effectively support Internet-
based promotion and loyalty networks. We intend to use this platform to drive
revenue opportunities beyond ClickRewards, including:

. Custom Loyalty Networks. As portals, companies with major brands and
other web sites transition from a media or advertising revenue model to
an e-commerce revenue model, they are starting to seek ways of
influencing consumers to shop at their site or network of sites. We are
leveraging our experience in building and operating the ClickRewards
Network to offer these major online companies the ability to implement
custom loyalty programs. Not only do our Custom Loyalty Network products
and services offer many of the same features as our ClickRewards Network,
but they are also designed around the customer's brand, existing consumer
base and partners. Our Custom Loyalty Network products and services
enable these companies to award their members with their own private
label currency points and customized redemption options. We launched our
first Custom Loyalty Network for Looksmart in July 1999 and have entered
into contracts to develop Loyalty Networks for the GO Network and Lycos
that we expect to launch in the fourth quarter of 1999.

. Enterprise Incentive Solutions. To address the large market for employee
and channel partner incentives, we intend to deploy additional incentive
programs for enterprises based on both the ClickRewards Network and
custom implementations. These incentive programs allow enterprises to
motivate, retain and reward employees, channel partners and stakeholders.
We launched our first Enterprise Incentive Solutions program in late 1998
and operate programs for adauction.com, Cisco Systems, Event Source and
Exceptional People.

. Online and Offline Rewards Programs. Many merchants have both an online
and offline presence. For such merchants, we intend to offer integrated
rewards programs that increase consumer loyalty across multiple channels.
In the future, we intend to pursue relationships that will enable
merchants in the ClickRewards and Custom Loyalty Networks to award their
members and consumers for offline activity. We currently do not offer
these types of programs.

Build the Netcentives and ClickRewards Brands

We believe that building greater awareness of the Netcentives and
ClickRewards brands is critical to expanding our merchant, rewards supplier,
and member base and our roster of Enterprise Incentive Solutions and Custom
Loyalty Networks customers. In order to accelerate the acceptance and
penetration of the ClickRewards Network, we have developed and are continuing
to pursue relationships with merchants and airlines whose brands are well known
and widely respected. We believe that increasing the number of ClickRewards
members makes the ClickRewards Network more attractive and valuable to
merchants. Therefore, we actively promote the ClickRewards brand among
consumers through a variety of marketing programs, including promotions, direct
e-mail marketing, and targeted advertising. We also promote the

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<PAGE>

Netcentives brand to potential Enterprise Incentive Solutions customers and
Custom Loyalty Networks customers in trade journals and other industry forums.
As we increase our collective base of merchants rewards suppliers and members,
we believe that the value of the Netcentives and ClickRewards brands will be
reinforced.

Offer a Broad Range of Loyalty and Direct Marketing Services

We seek to provide a broad range of marketing solutions to our ClickRewards
merchants and our Custom Loyalty Network clients. Separate from providing these
customers with a promotional currency, we also offer a wide range of
promotional and marketing services including database marketing, promotion
development and management, e-mail direct marketing, and creative services. We
believe that these services offer a complete loyalty marketing solution to our
customers and allow them to maximize the return from their loyalty program.

For example, our advanced technology, substantial membership bases and
merchant and rewards supplier relationships allow us to collect information
about consumers and their purchasing behavior. We maintain data warehouses of
this and other data. We also capture transactional activity across multiple
merchant product categories, allowing us to aggregate and view consumer
patterns throughout each network.

We enforce strict privacy policies that govern how information about members
is used, and communications are not sent to members who have previously
declined to be contacted. This form of permission-based marketing removes the
issue of unsolicited offers and increases responsiveness to promotional offers.
We currently do not sell member information to third parties and do not intend
to do so in the future. While adhering to our privacy policies, we intend to
use the accumulated data to provide advanced marketing services to merchants
and Custom Loyalty Network clients.

Through the use of our tools, information and processes, we have the
capability to assist merchants in targeting members for specific marketing
promotions. Examples include e-mail messages targeted to the member based on
past interactions, preferences and interests and the monitoring of members'
responses to these promotions. We believe that our capabilities will make
Netcentives' direct marketing capabilities attractive to merchants who prefer
to outsource this function rather than make the necessary investment
themselves.

Extend Technology and Business Process Leadership

We believe that our ability to scale our technology and infrastructure in a
secure manner with the growth in the number of merchants, members and
transactions has been a competitive advantage. We hold a patent that
encompasses a set of systems, procedures and methods for providing Internet-
based incentive and reward programs which we license on a non-exclusive basis.
With our recent acquisition of the Panttaja Consulting Group, Inc., we have
added further capacity to develop enhancements to our technology base and to
bring them to market. We expect to continue to invest heavily in research and
development. We also expect to pursue technology relationships to enhance the
performance, security and functionality of our core technology infrastructure.

Expand Internationally

To date, we have focused on pursuing opportunities in the United States and
Canada. However, we believe that international markets present an attractive
marketplace for our network loyalty infrastructure. We expect to begin our
international efforts by expanding the ClickRewards Network into Europe. We
intend to expand our Custom Loyalty Networks products to portals and online
merchants based in other countries and our Enterprise Incentive Solutions
products to large multinational corporations.

37
<PAGE>

Products and Services

We provide a suite of products and services to address our customers' various
needs for online promotions and loyalty programs. Our programs are positioned
as follows:

<TABLE>
<CAPTION>
Netcentives Target Program Program
Solution Customers Members Branding Rewards
- -----------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
ClickRewards Internet commerce Current shoppers ClickRewards Frequent flyer miles,
Network merchants and ClickRewards branded merchandise and
members travel-related awards
- -----------------------------------------------------------------------------------------------

Custom Loyalty Portals, companies Customer's user Customer branded ClickMiles and
Networks with major brands base customer-specific
and other large scale merchandise
Web sites
- -----------------------------------------------------------------------------------------------

Enterprise Businesses Employees and Customer and Frequent flyer miles,
Incentive channel partners ClickRewards travel-related awards
Solutions co-branded and customer-specific
merchandise
</TABLE>

ClickRewards Network

The ClickRewards Network brings together e-commerce merchants, ClickRewards
members and awards suppliers into a networked loyalty program. Netcentives
sells merchants ClickMiles, a digital promotions currency. Merchants then award
the ClickMiles to consumers for activities such as making purchases, winning
sweepstakes and completing surveys. Members can earn ClickMiles from merchants
across the ClickRewards Network and can track their award balances online.
Members can redeem their ClickMiles for frequent flyer miles from eight leading
airlines on a one-for-one basis and for other travel awards and merchandise
using our online catalog.

. ClickRewards Membership. Consumers become ClickRewards members in a
variety of ways, including by enrolling in the ClickRewards program on
our Web site, earning ClickMiles from participating merchants,
participating in sweepstakes in which ClickMiles are a prize and
enrolling through third-party Web sites. Because our merchants pay us for
ClickMiles prior to awarding them to members, substantially all of our
merchants also require that a consumer elect to become a ClickRewards
member at the time of a qualifying purchase in order to earn ClickMiles.
Membership in ClickRewards is free and protected by a strict privacy
policy. Launched in March 1998, as of September 23, 1999, there were over
2.0 million ClickRewards members who have earned, in the aggregate, over
310 million ClickMiles. Members learn about earning opportunities by
visiting the ClickRewards Web site, receiving member e-mails, or by
electronically visiting a merchant that features ClickRewards. In
addition, the shopping sites that participate in the ClickRewards Network
promote their ClickRewards offers via e-mails to their customers, banner
ads, placement on their Web site and offline advertising. The consumer's
ClickMiles earning activity is integrated with the purchase process. Once
the qualifying transaction is complete, information about the member and
the ClickMiles that have been earned is sent to Netcentives securely over
the Internet, automatically triggering an e-mail receipt to the member
confirming the deposit of ClickMiles. The member can then track his or
her account balance on the ClickRewards Web site in a password-protected
area.

. ClickMiles Redemption. Once a member has accumulated the minimum balance
required for redemption, which is currently 500 ClickMiles and will be
reduced to 250 ClickMiles beginning in the fourth quarter of 1999, he or
she can redeem them by visiting the ClickRewards Web site, logging into
his or her personal account, and selecting the redemption option of their
choice. Members can choose to redeem their ClickMiles one-for-one and add
them into their existing frequent flyer account with American Airlines,
British Airways (USA), Continental Airlines, Delta Air Lines, Northwest
Airlines, TWA, United Airlines, or US Airways. ClickMiles can also be
redeemed for other travel awards such as car rental and hotel
certificates, and for a wide range of merchandise.

38
<PAGE>

. Merchant Participation. We have targeted Web sites in each major shopping
category as merchants. Currently we have 69 e-commerce shopping sites in
the ClickRewards Network. A representative sample of merchants who have
offered ClickRewards promotions during the past twelve months or are
currently developing ClickRewards promotions include:

Representative ClickRewards Merchants
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C> <C>
areyougame.com CyberBills.com KBKids.com Someone Special

ArtSelect DealDeal.com TheKnot.com Visa

Azazz eBags macys.com Visto

@Backup eNutrition MSN Shopping WebFlyer

barnesandnoble.com E*TRADE(TM) Music Boulevard Wells Fargo

beyond.com First Auction OfficeMax.com XOOM.com

CDnow garden.com PlanetRx 1-800-FLOWERS

ClubComputer iOwn.com Red Herring Online

Cooking.com iPrint.com ShopSports
</TABLE>

Custom Loyalty Networks

We believe that most individual merchant sites are best served by
participating in a network loyalty program, such as ClickRewards. However,
portals and other large community sites have their own network of merchants and
consumers, and possess their own considerable scale, traffic and brand.
Therefore, we are leveraging our experience in building and operating the
ClickRewards Network to offer these major online companies the ability to
implement custom loyalty programs. Not only do our Custom Loyalty Network
products and services offer many of the same features as our ClickRewards
Network, but they are also designed around the customer's brand, existing
consumer base and partners. Our Custom Loyalty Network products and services
enable these companies to award their members with custom branded currency
points and customized redemption options. To build large-scale loyalty
programs, we believe that we can provide the necessary tools and expertise,
such as:

. Overall Program Management. We offer overall management services for
custom loyalty products from the definition phase, to design,
implementation and maintenance.

. Loyalty Program Design Services. We offer program design services that
take advantage of the advertising, promotions and loyalty program
experience of our management team, including the conceptualization and
development of the awards catalog.

. Technology and Process Licensing. We offer customers access to our base
of proprietary technology and business processes that enable certain
types of promotions.

. Currency Creation. We work with customers to create unique promotional
currencies that specifically target the customer's consumer base and
utilize the customer's brand identity.

. Currency and Liability Management. We have experience with the complex
financial management of rewards programs. We offer these services to
Custom Loyalty customers to allow them to focus on their core business.

. Awards Transaction Processing and Data Center Services. We offer
reliable, secure and fault-tolerant transaction processing services to
support the issuance of currencies and the exchange of awards. We also
offer reliable data center services for the storage of account
information for a particular customer's program.

. Consumer Services. We offer customers software that enables their
consumer service representatives to have access to real-time consumer
information. In addition, we offer complete outsourcing of the loyalty
program consumer service function.

39
<PAGE>

. Risk Management/Fraud Control. Through technical and operational
processes, we offer comprehensive risk management and fraud control
services to address and prevent potential fraudulent activity.

. Database Marketing Consulting. We offer data analysis based on our
understanding of consumer behavior. Database marketing consulting can
provide our customers with the opportunity to design and modify their
program based on demonstrated consumer behavior.

Enterprise Incentive Solutions

The market for enterprise incentives is estimated to be greater than $20
billion per year by the Incentive Federation, an independent trade
organization. We believe that this market, traditionally managed offline, can
be more efficiently automated using Internet technology that leverages the
enterprise's investment in intranets and extranets. For example, incentives can
be offered to sales forces as additional compensation for the adoption of sales
force automation systems, for performance-based programs and for other
motivational programs. Incentives can also be offered to other employees to
increase loyalty, improve job performance, increase information sharing,
encourage self-improvement training and refer employees.

We believe that the ClickRewards Network has many attributes that make it an
effective platform for enterprise solutions. Our use of the current Netcentives
rewards management technology allows us to reduce the cost of developing and
operating incentive programs for these markets. We launched our first
Enterprise Incentive Solutions program in late 1998 and are currently operating
programs for adauction.com, Cisco Systems, EventSource and Exceptional People.

Netcentives Professional Services

Technical and marketing consulting services are an integral part of our
ClickRewards, Custom Loyalty Networks, and Enterprise Incentives Solutions
offerings to customers. Through the Netcentives Professional Services group, we
have provided systems integration and technical consulting services to clients
to help them deploy the ClickRewards program as well to other businesses. We
also offer software-related training and educational services in the Internet
and client/server market sectors through this group. Additionally, we expect
customers of our Custom Loyalty Networks and Enterprise Incentives Solutions to
use our e-commerce systems development skills to integrate Netcentives
technology with their existing systems, or to build customized applications
that support their e-commerce, loyalty or other initiatives. We have provided
professional services to 16 clients in a variety of industries.

Rewards Suppliers

We believe that a critical element of developing successful direct marketing
and promotion products for merchants is to offer compelling awards to consumers
with a high perceived value. Frequent flyer miles are among the most popular,
proven and effective offline consumer incentives. We have cultivated exclusive
relationships with eight major airlines for the use of frequent flyer miles in
points-based Internet-based promotion networks. A significant advantage we
offer with ClickRewards is the ability for consumers to add ClickMiles to their
existing frequent flyer accounts. We have also entered into a variety of
relationships with other suppliers of incentive awards in order to provide
broad yet compelling appeal to our awards catalog offerings. Current rewards
suppliers include:

Representative ClickRewards Rewards Suppliers
<TABLE>
- -----------------------------------------------------------------------------
<S> <C>
American Airlines AAdvantage US Airways Dividend Miles
British Airways Executive Club (USA) United Airlines Mileage Plus
Continental Airlines OnePass barnesandnoble.com
Delta Air Lines SkyMiles CDnow
Northwest Airlines WorldPerks shop.theglobe.com
TWA Aviators Club
</TABLE>

40
<PAGE>

Marketing and Sales

We have a comprehensive approach to marketing and sales. To our ClickRewards
Network merchants and rewards suppliers, we position ourselves as the leader in
providing powerful relationship marketing products and services to drive
consumer behavior. To the consumer, we position the ClickRewards Network as the
most rewarding way to shop online. Finally, for our Custom Loyalty and
Enterprise Incentive Solutions customers, we market Netcentives as the premier
outsourcing partner for relationship marketing and incentive products and
services. As such, our marketing and sales efforts are distinct to each
audience.

ClickRewards Merchants

We have a direct sales force that sells our entire portfolio of products and
services and includes individuals focused on distinct markets and specific
products and services. Our sales force is based out of our San Francisco
headquarters, with sales offices in Chicago and New York. An internal telesales
team responds to inbound inquiries and provides additional support to our
direct sales force. We plan to increase our direct sales force and open
additional sales offices in the United States and internationally. We will also
pursue distribution relationships with advertising agencies, systems
integrators, consulting firms and others in order to allow third parties to
sell ClickMiles. Our marketing department supports our sales efforts and
coordinates attendance at industry events and pursues trade advertising and
media relations. We also have joint online marketing agreements with MSN
Shopping and CoolSavings which allow us to feature ClickRewards on their
Web sites.

ClickRewards Consumers

We believe that increasing our membership base is a critical element to
making our products and services more valuable to merchants. Therefore, our
consumer marketing strategy and programs are designed to build the ClickRewards
brand, drive new member acquisition, convert members to buyers, encourage
repeat purchases, drive purchases across the network and create loyalty to the
ClickRewards Network and its shopping sites.

We intend to continue building the relationship with our members through
targeted, relevant communications and offers based on their past buying
behavior and preferences. In addition, we offer bonuses to our members to
encourage seasonal purchases and purchases throughout the network. We believe
that if we can build a loyal member base, we can offer greater value to our
merchants.

In order to achieve our brand, acquisition, retention and loyalty goals, we
employ a wide range of promotional, direct marketing, media and public
relations activities.

. Advertising and Public Relations. We advertise in a variety of online and
offline media including newspaper, magazines, radio, outdoor and Internet
banner advertisements. Our advertising efforts are augmented by extensive
consumer public relations to generate coverage in radio and print, and on
television.

. Airline Supplier Co-Marketing. As a benefit of our relationships with our
airline suppliers, we have access to multiple direct marketing channels
targeting the members of the airlines' frequent flyer programs. We have
utilized statement inserts, newsletter articles, e-mails, in-flight video
and Web site placement to reach these frequent flyer program members.

. Merchant Co-Marketing. The majority of our participating e-commerce
shopping sites feature the ClickRewards logo and promotional offers on
their home page. In addition, the ClickRewards message is often threaded
throughout the purchase process. The ClickRewards offers are often
included in e-mails to the shopping sites' customers and included in
their advertising campaigns both online and offline.

. Ongoing E-mail Communications. We have a variety of ongoing e-mail
communications which feature new shopping sites, new offers and special
offers. We will continue to enhance this channel of communication to
become more personalized and customized.

41
<PAGE>

. Network Promotions. We develop and launch network-wide promotions on a
seasonal basis to provide added incentives for members to shop frequently
and throughout the ClickRewards Network. Examples include volume, multi-
purchase and refer-a-friend bonuses.

Custom Loyalty, Enterprise Incentive Solutions and Netcentives Professional
Services Customers

The launch of a custom loyalty program represents a significant and strategic
decision for a company. Consequently, we are primarily using a direct sales
force for Custom Loyalty Networks. These sales efforts are complemented by our
general trade marketing efforts that aim to establish our position as the
leader in our field. Enterprise Incentive Solutions products and services are
also sold by a direct sales force. In the future, we expect this solution to be
sold and delivered through resellers and other entities, such as enterprise
software companies, existing incentive product providers and promotion
agencies. Marketing and sales of our professional services and technical
consulting are integrated into the sales and marketing of each of our products.
Additionally, our existing client base and client referrals generate inquiries
and leads for more general e-commerce consulting projects not directly related
to the implementation of a rewards or loyalty product.

Member Service

We believe that to sell high volumes of ClickMiles to merchants we need to
offer them a large, attractive base of potential consumers. We believe that our
ability to create a loyal and valuable membership base for ClickRewards depends
on high quality member service. Furthermore, direct member feedback on our
service is an important way in which we can continually improve the
ClickRewards shopping experience. The member service team is responsible for
providing phone support during business hours and e-mail support with a 24-hour
response time. Representatives are responsible for resolving general inquiries
about ClickRewards, and inquiries relating to the status of orders and
redemption requests. Many of these requests require coordination with the
member service teams of participating merchants and reward suppliers. E-mail
support utilizes customized automatic response systems and a staff of trained
member support agents to generate personalized responses to inquiries. To
customers of our Custom Loyalty Networks and Enterprise Incentive Solutions
products, we offer the option of outsourcing member service support for
inquiries related to their program, or utilizing the member service module of
our software platform for their internal member service representatives.

42
<PAGE>

Technology

We have built a technology platform for the exchange and management of an
online promotional currency. Our SecureRewards Architecture consists of a set
of software and protocols that interact across the Internet to create a network
among merchants, rewards suppliers and consumers. We designed this system for
security and high volume transaction processing, with the ability to handle
hundreds of thousands of transactions per day. Our system uses a high
performance database design and an architecture designed with security in mind.

A diagram using a grid to represent the Internet and boxes representing the
Netcentives Website and a typical merchant Website. The elements of the
Netcentives software residing on the Netcentives Web site and the merchant
Website are represented by boxes within the boxes representing the Web sites.
The software element within the merchant site is the Reward Broker and the
software elements within the Netcentives site are the Payment System,
Netcentives Central, the Redemption System and the Member Relationship Systems.
Arrows representing the interactions between Netcentives, the merchant, rewards
suppliers and a consumer. The merchant site and the Netcentives site are
connected by the Secure Value Transfer Protocol.

The design of our SecureRewards Architecture allows merchants to distribute
promotional currency safely at their own site. The following is a description
of the modules within the SecureRewards Architecture:

. RewardBroker resides at the merchant site and initiates promotional
currency transfers in real time. We provide merchants with a range of
integration options with RewardBroker, including application programming
interfaces and integration services to enable rapid customization and
integration with the merchant's own unique e-commerce environment.

. Payment System resides at our data center and receives and processes all
promotional currency transfer requests from RewardBroker. It first
determines if the requestor is legitimate and that the request has not
been modified. It then passes the request through the Fraud Detection
System, and finally fulfills the request.

. Secure Value Transfer Protocol ensures the privacy and origin of all
messages in the network. RewardBroker and Payment System communicate
through the protocol, which supports a wide variety of message types. It
employs financial transaction-grade cryptography to sign and encrypt
messages.

. Fraud Detection System provides both per-transaction and aggregate fraud
detection and prevention. The system applies a combination of business
rules about each promotion and monitors activity based on past behavior
to determine if activity is fraudulent.

. Account Management Systems provides consumer, merchant and reward
supplier services, such as account creation and reactivation, promotion
funding and transaction inquiries, as well as a consumer support
information.

. Member Relationship Systems presents the current promotions, rewards and
account balance information to individual consumers through a Web based
interface. Each request to manipulate an

43
<PAGE>

individual consumer's account requires authentication to prevent
fraudulent activity. Member Relationship Systems also include the Customer
Contact Module and the Targeting and Segmentation Database.

. Consumer Contact Module provides consumers with instant receipts of
account activity and periodic account statements. We are developing the
capability to use the Consumer Contact Module to provide consumers with
relevant promotions and award opportunities based on self-identified
interests and past behavior in the network.

. Targeting and Segmentation Database is being developed to provide
relevant promotions and rewards opportunities by tracking consumer
preferences. It will be used in conjunction with the Consumer Contact
Module to personalize each consumer's experience.

. Redemption Systems reside at our data center and processes all requests
by consumers to redeem promotional currency for goods or services. The
requests pass through the Fraud Detection System and are then formatted
for transmission as fulfillment requests to the various rewards
suppliers. Responses to fulfillment requests are also processed by the
Redemption Systems.

. Netcentives Central provides merchants and their account managers with
up-to-date information via the Web on current promotions, including
promotion balances and transactional history.

All elements of the SecureRewards Architecture are designed to operate on a
wide range of merchant systems. This design also helps us to deploy new
technologies without needing to re-write the entire system. Much of the
SecureRewards Architecture is written in Java. The SecureRewards Architecture
is the technological foundation for the ClickRewards Network, Enterprise
Incentive Solutions, and Custom Loyalty Networks.

We designed all elements of the SecureRewards Architecture from the ground up
with security in mind. RewardBroker and Payment System, in particular, utilize
private key cryptography with highly secure financial transaction grade
techniques to authenticate merchants and encrypt transactions. Each request to
manipulate an individual consumer's account requires authentication to prevent
fraudulent activity and encryption to enhance consumer security. We have
implemented additional fraud prevention mechanisms to track unusual behavior.

Competition

As a provider of loyalty, direct marketing and promotion products and
services, we generally compete with advertising and other promotional programs
for a portion of a customer's total marketing budget. In addition, within the
promotions market, we compete with a variety of businesses in connection with
each of our three programs. We believe that the Internet loyalty, direct
marketing and promotion product and services industry includes over 45
companies, of which we are one of the leaders. For the ClickRewards Network our
primary competition can be categorized as follows:

44
<PAGE>

For each of our programs, we expect competition to intensify as more
competitors enter our market. We believe that such future competition could
come from newly formed companies and, more importantly, from traditional
offline promotions and loyalty companies such as Carlson Marketing Group,
Brierley & Partners and Signature Group, a division of GE Capital. In order to
compete in our market, companies will need to develop the necessary Internet-
based technology infrastructure, enter into relationships with key suppliers
and obtain access to appropriate business processes. We believe that large
offline promotions and loyalty companies have the necessary resources and
expertise to do so. While we currently have contractual relationships with many
rewards suppliers, such as airline frequent flyer programs, any of these
suppliers could themselves enter our markets and provide us with substantial
competition.

Many of our potential competitors, and in particular offline promotions
companies and offline rewards programs, have longer operating histories,
stronger brand names and significantly greater financial, technical, marketing
and other resources than we do. In addition, these companies may have existing
relationships with our potential customers and may be able to respond to
changes in market dynamics and technology faster than we can. We cannot assure
you that we will be able to compete successfully against these potential
competitors.

Proprietary Rights

We currently rely on a mixture of patents, copyrights, trademarks, trade
secrets and agreements with third parties and employees to protect our
proprietary rights. We have a patent which relates generally to online
incentive award programs. One aspect of our patent is directed to a computer
system for implementing an incentive award program, with the computer system
including an online product catalog, an online awards catalog and a database
for storing account information for each user of the incentive award program.
Netcentives, ClickRewards, ClickMiles, Custom Loyalty Networks, Enterprise
Incentive Solutions, RewardBroker, Secure Value Transfer Protocol, Secure
Rewards Architecture, the Netcentives logo and the ClickRewards logo are
trademarks of Netcentives. We copyright our Web site content, our software and
our sales and promotional literature. Despite our efforts to protect our
proprietary rights, unauthorized parties may use aspects of our business model
and products and obtain and use information we regard as proprietary. In
addition, other parties may breach confidentiality agreements or other
protective contracts with us, and we may not be able to enforce our rights in
the event of such breaches. We believe that each of these proprietary rights is
important to our business in our effort to prevent unauthorized use of our
technology and processes and protect our investment in establishing and
maintaining our brand. Our competitors may independently develop technologies
or business models that are substantially equivalent or superior to ours. In
March 1999, we licensed our patent to MyPoints.com, a competitor of ours, who
may use this license to compete with us using our business process. We may
decide to license our patent to other competitors. Furthermore, we may expand
internationally, and many countries do not protect intellectual property rights
to the same extent as the laws of the United States. In the event that we are
unable to protect our proprietary rights, our business, financial condition and
results of operations could be materially adversely affected.

The Internet, and specifically the market for e-commerce and online
advertising, direct marketing and promotions, is characterized by a rapidly
evolving legal landscape. A variety of patents relating to this market have
been issued in the past year, including our business process patent. We believe
that several additional, related patents are currently pending. We believe that
there will continue to be substantial activity in this area and that litigation
may arise due to our attempts or a third party's efforts to enforce patent
rights.

We may incur substantial expenses, and the attention of our management may be
diverted if such litigation occurs. In addition, whether or not any claims
against us are meritorious, we may be required to enter into license agreements
or be subject to injunctive or other equitable relief, any of which would
materially adversely affect our business, results of operations and financial
condition.

45
<PAGE>

Employees

As of June 30, 1999, Netcentives had 149 full time employees, including 78 in
marketing and sales, 35 in research and development, 19 in professional
services, and 17 in finance and administration. Our employees are not
represented by any collective bargaining unit or labor union and we have never
experienced a work stoppage. We believe our relations with our employees are
good.

Facilities

Our current headquarters are located in San Francisco, California, where we
lease six locations aggregating approximately 40,000 square feet under leases
expiring between 2000 and 2001. In May 1999, we entered into a lease that
expires in 2007 for approximately 70,000 square feet in which we will
consolidate our San Francisco headquarters in early 2000. We also lease
approximately 1,000 square feet in Chicago, Illinois, approximately 500 square
feet in New York, New York and approximately 4,000 square feet in Healdsburg,
California under leases that are month-to-month.

Legal Proceedings

We are currently involved in no material legal proceedings.

46
<PAGE>

MANAGEMENT

Executive Officers and Directors

Our executive officers and directors and their ages as of June 30, 1999 are
as follows:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
West Shell, III............ 44 Chairman of the Board of Directors and Chief
Executive Officer

Murray Brozinsky........... 34 Executive Vice President and Managing
Director, North America

John F. Longinotti......... 54 Executive Vice President, Operations and Chief
Financial Officer

Elizabeth S. Ames.......... 42 Senior Vice President and General Manager,
Custom Loyalty Networks

Timothy J. O. Catlin....... 35 Senior Vice President, Research & Development

Edward Fong Soo Hoo........ 47 Senior Vice President, Corporate Development

George Loyer............... 50 Vice President and General Manager,
Netcentives Professional Services

Elliott S. Ng.............. 30 Vice President and General Manager,
ClickRewards

William B. Rusitzky........ 35 Vice President and General Manager, Enterprise
Incentive Solutions

Paul F. Danielsen.......... 44 Vice President, Sales

Perryman K. Maynard........ 43 Vice President, Relationship Marketing and
Strategic Alliances
William McGee.............. 42 Vice President, Corporate Marketing

Stewart Alsop(2)........... 47 Director

Tom Byers, Ph.D.(2)........ 46 Director

Eric W. Tilenius........... 31 Director

Virginia M. Turezyn(1)(2).. 41 Director

Wendell G. Van Auken(1).... 54 Director

Sergio Zyman(1)(2)......... 53 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

Mr. Shell was elected to our Board of Directors in January 1997 and as
Chairman of the Board of Directors in July 1999. He has served as our President
and Chief Executive Officer since June 1997. In 1986, Mr. Shell founded Pacific
Marketing Group (subsequently Highway One Communications), a marketing firm,
and acted as its Managing Partner until November 1996. Prior to founding
Pacific Marketing Group, Mr. Shell held marketing positions at Atari Corp., a
video game manufacturer, Johnson & Johnson, a healthcare products company,
and Grey Advertising Inc., an advertising agency. Mr. Shell holds a B.S. in
Business Administration from the University of Vermont.

Mr. Brozinsky joined Netcentives in April 1998 and has served us in a variety
of capacities since that time, including currently as Executive Vice President
and Managing Director, North America, a position he has held since July 1999.
From September 1994 to April 1998, Mr. Brozinsky was a consultant with the
Boston Consulting Group, a management consulting firm, where he specialized in
developing e-commerce strategies for high technology and financial services
clients. Prior to September 1994, Mr. Brozinsky served as the Director of
Finance at McCaw Cellular Communications Inc., a cellular telecommunications
company, General Manager of Monitor Marine, a subsidiary of Monitor Aerospace
Corporation, a high technology manufacturing company, and as an investment
banker with Morgan Stanley and Company, Inc., an investment bank. Mr. Brozinsky
holds a B.S. in Finance and a B.A. in Philosophy from the University of
Pennsylvania and an M.B.A. in management and manufacturing from Northwestern
University's Kellogg and McCormick schools.

47
<PAGE>

Mr. Longinotti joined Netcentives in January 1998 and has served as our
Executive Vice President, Operations since July 1999 and as Chief Financial
Officer since January 1998. Mr. Longinotti served as a consultant to
Netcentives from October 1997 to January 1998. From April 1995 to January 1998
he was an independent consultant in an operational and financial consulting
practice. From July 1993 to March 1995 Mr. Longinotti was Chief Executive
Officer of Digital Collections, Inc., a graphics software and multimedia firm.
Mr. Longinotti started his career at U.S. Leasing International where he spent
sixteen years in a variety of executive positions, followed by two years at
AT&T Capital. Mr. Longinotti holds a B.S. in Engineering from Stanford
University and an M.B.A. from the University of California at Berkeley's Haas
School of Business.

Ms. Ames joined Netcentives in November 1998 and has served us in a variety
of capacities since that time, including currently as Senior Vice President and
General Manager, Custom Loyalty Networks, a position she has held since July
1999. From May 1998 to November 1998, Ms. Ames was General Manager, Internet
Merchant Group at VeriFone, Inc., an electronic payment system company, where
she had profit and loss responsibility for sales, marketing and product
development for the Internet merchant market. While at VeriFone, Ms. Ames also
served as Director, Product Marketing, Internet Commerce Division from June
1997 to May 1998. From October 1996 to June 1997, Ms. Ames was an independent
consultant with a focus on internet commerce and marketing technology. From
November 1995 to October 1996, Ms. Ames was Vice President, Product Development
at Eagle River Interactive, an interactive advertising agency. From January
1994 to November 1995, Ms. Ames was a Principal at Opus Consulting, a strategic
marketing and Internet consulting group. Prior to 1994, Ms. Ames held a variety
of positions with Apple Computer, Inc., a computer manufacturer. Ms. Ames holds
a B.F.A. from the Hartford Art School at the University of Hartford and an
M.B.A. from Southern Methodist University.

Mr. Catlin joined Netcentives in November 1996 as our Vice President,
Research & Development and became our Senior Vice President, Research &
Development in July 1999. From July 1996 to October 1996, Mr. Catlin was Senior
Director of Engineering at Eagle River Interactive. From March 1995 to July
1996, Mr. Catlin was an Engineering Manager at Intuit, Inc., a financial
software company. From September 1993 to January 1995, Mr. Catlin was President
and Chief Executive Officer of Streetlight Software, Inc., a software services
company. Mr. Catlin holds a B.A. in Computer Science from Brown University.

Mr. Soo Hoo has served as our Senior Vice President, Corporate Development
since March 1998. From September 1997 to March 1998, Mr. Soo Hoo was Executive
Vice President of Sales at Quote.com, Inc., a Web-based financial services
information company. From February 1996 to September 1997, Mr. Soo Hoo was
Director of Business Development at CyberCash, Inc., an Internet commerce
payment solutions company. From January 1994 to February 1996, Mr. Soo Hoo was
Business Development Manager, OEM at Novell, Inc., a network operating systems
manufacturer. Mr. Soo Hoo studied business administration at both the
University of San Francisco and California State University, Hayward.

Mr. Loyer has served as our Vice President and General Manager, Netcentives
Professional Services since July 1999. From December 1998 to July 1999, Mr.
Loyer served as our Director, Netcentives Professional Services. From March
1993 to December 1998, Mr. Loyer served in a variety of capacities at Panttaja
Consulting Group, Inc., a technology consulting firm which was acquired by
Netcentives, including most recently as Panttaja's Vice President and General
Manager from June 1996 to December 1998. Mr. Loyer studied Chemical Engineering
at Rensselaer Polytechnic Institute.

Mr. Ng was a co-founder of Netcentives in June of 1996 and has served
Netcentives in a variety of capacities since that time, including currently as
our Vice President and General Manager, ClickRewards a position he has held
since July 1999. Mr. Ng also served as a Director of Netcentives from June 1996
to September 1997 and as our Chief Financial Officer from June 1996 to January
1998. From December 1995 to June 1996, Mr. Ng was a Partner in Tilenius & Ng
Ventures, a predecessor entity to Netcentives. From July 1991 to August 1994,
Mr. Ng was a Product Manager at Microsoft Corporation, a software developer.
Mr. Ng holds a B.A. in Social Studies from Harvard University and an M.B.A.
from the Harvard University Graduate School of Business.

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<PAGE>

Mr. Rusitzky joined Netcentives in February 1997, and has served us in a
variety of capacities, including currently as our Vice President and General
Manager, Enterprise Incentive Solutions, a position he has held since July
1999. From February 1994 to February 1997, Mr. Rusitzky was Manager, Business
Development and International Marketing/Sales at Silicon Graphics, Inc., a
computer workstation manufacturer. Prior to 1994, Mr. Rusitzky served in a
variety of positions with Silicon Graphics. Mr. Rusitzky holds a B.M.E. from
the Georgia Institute of Technology and an M.E. in Operations Research and
Industrial Engineering and an M.B.A. from Cornell University.

Mr. Danielsen has served as our Vice President, Sales since May 1997. From
October 1995 to May 1997, Mr. Danielsen was Director of Business Development at
Sportsline USA, Inc., an internet-based sports media company, where he was
responsible for developing strategic relationships with national governing
bodies, athletes, and new channel partnerships. From 1990 to October 1995, Mr.
Danielsen was a Managing Partner of P&P West, a sports marketing company
specializing in event packaging, production and television. Mr. Danielsen holds
a B.A. in Economics from the University of Colorado.

Mr. Maynard has served as our Vice President, Relationship Marketing and
Strategic Alliances since August 1998. From July 1997 to August 1998, Mr.
Maynard was a Principal at Maynard & Associates, a marketing consulting firm.
From February 1996 to June 1997, Mr. Maynard was a Senior Vice President at
Brierley & Partners, a direct marketing agency. From October 1994 to January
1996, Mr. Maynard was Executive Director, Marketing at Hilton Grand Vacations
Corporation, a developer and marketer of timeshare resorts. Prior to October
1994, Mr. Maynard was Vice President, Marketing Programs with Hilton Hotels
Corporation, a hotel management company and owner. Mr. Maynard holds a B.A. in
History from Bates College.

Mr. McGee joined Netcentives in March 1999, and has served us in a variety of
capacities, including currently as our Vice President, Corporate Marketing, a
position he has held since July 1999. From March 1999 to July 1999, Mr. McGee
served as our Director of Marketing Services. From September 1990 to March
1999, Mr. McGee was Partner and General Manager of Creative Media, Inc., a
media placement and advertising firm. Prior to September 1990, Mr. McGee served
as a Management Supervisor and Vice President at Ketchum Advertising, an
advertising firm, a Product Manager at Microsoft Corporation, an Advertising
Manager at Atari, and as a Media Buyer for Foote, Cone & Belding, an
advertising firm. Mr. McGee holds a B.A. in Economics from the University of
California, Santa Barbara.

Mr. Alsop has served as a director of Netcentives since September 1997. Mr.
Alsop has been a General Partner at New Enterprise Associates, a venture
capital investment firm, since November 1998. Mr. Alsop was a Venture Partner
at New Enterprise Associates from June 1996 to November 1998. From June 1991 to
June 1996, Mr. Alsop served as Senior Vice President and Editor in Chief of
InfoWorld Publishing Company, Inc., which publishes InfoWorld, a weekly
newspaper for information-technology professionals. Prior to 1991, Mr. Alsop
founded Industry Publishing Company, a publisher of computer industry
newsletters. Mr. Alsop also serves on the board of directors of Macromedia,
Inc., a developer of multimedia and digital arts software tools. Mr. Alsop
holds a B.A. in English from Occidental College.

Dr. Byers has served as a director of Netcentives since December 1998. Dr.
Byers has been an Associate Professor at Stanford University and the founding
Director of the Stanford Technology Ventures Program since July 1995. He also
currently serves as the Director of the AEA/Stanford Executive Institute, a
professional development program for high technology executives. From January
1994 to June 1995, Dr. Byers was a Lecturer at the University of California at
Berkeley's Haas School of Business. Dr. Byers also serves on the board of
directors of Visio Corporation, a graphics software company. Dr. Byers holds a
B.S. in Industrial Engineering and Operations Research, and an M.B.A. and Ph.D.
in Business Administration from the University of California, Berkeley.

Mr. Tilenius has served as a member of the Board of Directors since our
founding in June 1996. Mr. Tilenius has served as an Entrepreneur-in-Residence
at Mayfield Fund, a venture capital investment firm,

49
<PAGE>

since July 1999. Prior to joining Mayfield Fund, Mr. Tilenius co-founded
Netcentives in June 1996, and served us in a variety of capacities, including
as Chairman of the Board of Directors and Vice President, Business Development,
from June 1997 and to July 1999 and President and Chief Executive Officer from
June 1996 to June 1997. From September 1995 to June 1996, Mr. Tilenius was a
Partner in Tilenius & Ng Ventures. From April 1992 to September 1994, Mr.
Tilenius was Product Manager of the Quicken for Macintosh business at Intuit,
Inc. From September 1990 to April 1992, Mr. Tilenius held product management
positions at Oracle Corporation, a database software company. Mr. Tilenius
holds a B.A. in Economics from Princeton University, a Certificate in Space
Studies from International Space University and an M.B.A. from Stanford
University.

Ms. Turezyn has served as a director of Netcentives since November 1996. Ms.
Turezyn co-founded Information Technology Ventures, a venture capital firm, in
September 1994 and has served as a General Partner from that time to the
present. From April 1982 to September 1994 she served in a variety of
capacities at Morgan Stanley & Company, Inc., including most recently as a Vice
President in the Venture Capital Group. Ms. Turezyn holds a B.A. in Accounting
from Queens College and is a Certified Public Accountant.

Mr. Van Auken has served as a director of Netcentives since September 1997.
Mr. Van Auken has been a General Partner of the Mayfield Fund since October
1986. Prior to joining Mayfield, Mr. Van Auken was an officer, founder or chief
executive officer of three start-ups in three different technology-oriented
fields. Mr. Van Auken serves as a director of Advent Software, Inc., a
portfolio management software company and Montgomery Street Income Securities
Inc., a closed-end bond fund. Mr. Van Auken holds a B.E.E. from Rensselaer
Polytechnic Institute and an M.B.A. from Stanford University.

Mr. Zyman has served as a director of Netcentives since December 1998. Mr.
Zyman has been an independent consultant since June 1998. For more than five
years prior to June 1998, Mr. Zyman served in a variety of positions at Coca-
Cola, Inc., including most recently as the Chief Marketing Officer. Mr. Zyman
serves as a director of Gap, Inc., an apparel retailer, and UC Television
Network Corp., a college television network.

Each executive officer serves at the discretion of the Board of Directors.
There are no family relationships among any of the directors or executive
officers of Netcentives.

Board Composition

We currently have authorized seven directors. In accordance with the terms of
our Amended and Restated Certificate of Incorporation, effective upon the
closing of this offering, the terms of office of the directors will be divided
into two classes: Class I, whose term will expire at the annual meeting of
stockholders to be held in 2000 or special meeting held in lieu thereof, and
Class II, whose term will expire at the annual meeting of stockholders to be
held in 2001 or special meeting held in lieu thereof. The Class I directors are
Ms. Turezyn, Messrs. Alsop and Tilenius and Dr. Byers and the Class II
directors are Messrs. Shell, Van Auken, and Zyman. At each annual meeting of
stockholders after the initial classification or special meeting in lieu
thereof, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the second
annual meeting following election or special meeting held in lieu thereof. In
addition, our Amended and Restated Certificate of Incorporation will provide
that the authorized number of directors may be changed only by resolution of
the Board of Directors. Any additional directorships resulting from an increase
in the number of directors will be distributed among the two classes so that,
as nearly as possible, each class will consist of one-half of the directors.
This classification of the Board of Directors may have the effect of delaying
or preventing changes in control or management of Netcentives.

Board Compensation

We do not currently compensate our directors, but they are reimbursed for
out-of-pocket expenses incurred in connection with attendance at meetings of
the Board of Directors or its committees. Our directors are generally eligible
to participate in our 1996 Stock Option Plan and, if a director is an employee
of Netcentives,

50
<PAGE>

to participate in our 1999 Employee Stock Purchase Plan. Directors who are not
employees will also receive periodic stock option grants under our 1999
Directors' Stock Option Plan.

The Directors' Stock Option Plan provides for an initial grant of an option
to purchase 40,000 shares of common stock to each nonemployee director who has
not received a grant under the 1996 Stock Option Plan during the twelve months
preceding the effective date of the Directors' Stock Option Plan, and to each
person who first becomes a nonemployee director thereafter. These options shall
become exercisable in four equal installments on the first, second, third and
fourth anniversaries of the grant. On the first day of each fiscal year, each
nonemployee director who has served on our Board of Directors for at least six
months shall be granted an additional option to purchase 10,000 shares of
common stock, which shall become exercisable in full on the fourth anniversary
of the date of grant. The exercise price of all stock options granted under the
Directors' Stock Option Plan shall be equal to the fair market value of a share
of our common stock on the date of grant of an option.

Board Committees

The Compensation Committee currently consists of Ms. Turezyn, Messrs. Alsop
and Zyman and Dr. Byers. The Compensation Committee:

. reviews and approves the compensation and benefits for our executive
officers and grants stock options under our stock option plans; and
. makes recommendations to the Board of Directors regarding these matters.

The Audit Committee currently consists of Ms. Turezyn and Messrs. Van Auken
and Zyman. The Audit Committee:

. makes recommendations to the Board of Directors regarding the selection
of independent auditors;
. reviews the results and scope of the audit and other services provided by
our independent auditors; and
. reviews and evaluates our audit and control functions.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee are currently Ms. Turezyn, Messrs.
Alsop and Zyman and Dr. Byers. Neither Ms. Turezyn, Messrs. Alsop and Zyman nor
Dr. Byers has at any time been an officer or employee of Netcentives. No
executive officer of Netcentives serves as a member of the board of directors
or compensation committee of an entity that has one or more executive officers
serving on Netcentives' Board of Directors or Compensation Committee.

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<PAGE>

Executive Compensation

The following table sets forth certain compensation earned by our Chief
Executive Officer and the four other most highly compensated executive officers
whose total compensation exceeded $100,000 during the year ended December 31,
1998.

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- ------------
Other Securities
Annual Underlying
Name and Principal Position Salary Bonus(1) Compensation Options(#)
- --------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
West Shell, III.................... $200,000 $66,936 $7,836(2) --
Chairman and Chief Executive
Officer

Timothy J.O. Catlin................ 130,000 44,667 -- 50,000
Senior Vice President, Research &
Development

Paul F. Danielsen.................. 110,000 72,624 -- 40,000
Vice President, Sales

John F. Longinotti................. 137,427 32,163 -- 50,000
Executive Vice President,
Operations and
Chief Financial Officer

Edward Fong Soo Hoo ............... 106,329 56,163 -- 182,000
Senior Vice President, Corporate
Development
</TABLE>
- --------
(1) Includes the fair market value of ClickMiles awarded in the past fiscal
year.
(2) Represents term life insurance payments.

Option Grants in Last Fiscal Year

The following table shows certain information regarding stock options granted
to each of the executive officers named in the Summary Compensation Table
during the year ended December 31, 1998. No stock appreciation rights were
granted to the executive officers named in the Summary Compensation Table
during the year.

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Number of Rates of Stock Price
Shares Percentage of Appreciation for Option
Underlying Total Options Exercise Term(3)
Options Granted to Price Expiration --------------------------
Name Granted(1) Employees(2) per Share Date 0%(4) 5% 10%
- ---- ---------- ------------- --------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
West Shell, III......... -- -- -- -- -- -- --

Timothy J.O. Catlin..... 50,000 1.6% $1.05 12/28/08 $170,000 $309,929 $524,608

Paul F. Danielsen....... 40,000 1.3 1.05 12/28/08 136,000 247,943 419,686

John F. Longinotti...... 50,000 1.6 1.05 12/28/08 170,000 309,929 524,608

Edward Fong Soo Hoo..... 155,000 4.9 0.15 03/31/08 116,250 203,981 338,577
27,000 0.9 1.05 12/28/08 91,800 167,362 283,288
</TABLE>
- --------
(1) These stock options, which were granted under the 1996 Stock Option Plan,
become exercisable at a rate of 1/8th of the total number of shares of
common stock subject to the option on the six month anniversary of the date
of grant, and 1/48th of the total number of shares monthly thereafter, as
long as the optionee remains an employee of, consultant to, or director of
Netcentives.
(2) Based on an aggregate of 3,132,293 options to purchase common stock of
Netcentives granted by Netcentives under the 1996 Stock Option Plan in
fiscal year 1998.

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<PAGE>

(3) Potential realizable values are net of exercise price, but before taxes
associated with exercise. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by the Securities and Exchange
Commission. There is no assurance provided to any executive officer or any
other holder of our securities that the actual stock price appreciation
over the 10-year option term will be at the assumed 5% and 10% levels or at
any other defined level. Unless the market price of the common stock
appreciates over the option term, no value will be realized from the option
grants made to the executive officers.
(4) The 0% assumed annual rate of stock price appreciation is indicative of the
difference between the exercise price per share and the fair market value
of our common stock on the date of grant.

Option Exercises and Holdings

The following table sets forth the number of shares of common stock acquired
upon the exercise of stock options by each of the executive officers named in
the Summary Compensation Table during our last fiscal year, and the number and
value of securities underlying unexercised options held by the these executive
officers as of December 31, 1998:

Fiscal Year-End Option Values

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Number of Options at In-the-Money Options
Shares Value December 31, 1998 (#) at December 31, 1998 (2)
Acquired on Realized ------------------------- -------------------------
Name Exercise (#) (1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
West Shell, III......... -- -- 40,833 9,167 $177,024 $ 39,876
Timothy J.O. Catlin..... -- -- 25,000 125,000 107,500 492,500
Paul F. Danielsen....... -- -- 30,833 109,167 133,057 434,143
John F. Longinotti...... 41,979 $125,937 -- 163,021 -- 655,990
Edward Fong Soo Hoo..... -- -- 29,062 152,938 124,967 633,333
</TABLE>
- --------
(1) The amount set forth represents the difference between the fair market
value of the shares on the date of exercise as determined by the Board of
Directors and the exercise price of the option.
(2) Based on the fair market value as of December 31, 1998 ($4.45 per share),
as determined by the Board of Directors, minus the exercise price,
multiplied by the number of shares underlying the option.

Employment Agreements

In June 1997, we entered into an Employment Agreement with West Shell, III,
our Chairman and Chief Executive Officer in which we agreed to pay Mr. Shell an
annualized salary of $200,000. In the event of Mr. Shell's involuntary
termination, we agreed to pay Mr. Shell his regular salary for a period of six
months; agreed to provide medical, dental and other like benefits for a period
of six months; agreed to release our repurchase option as to 1/4th of the
common stock then held by him that is then subject to repurchase; and agreed to
preserve Mr. Shell's eligibility to receive a discretionary bonus on the
involuntary termination date.

In October 1998, we entered into an amendment to Mr. Shell's Employment
Agreement. In this amendment, we agreed to extend the term of the Employment
Agreement until October 29, 2000; agreed to increase Mr. Shell's annualized
salary to $250,000; and agreed to loan Mr. Shell $100,000 upon his request. We
subsequently loaned him $100,000 in January 1999, with interest accruing at the
rate of 4.47% per annum, compounded semianually.

In January 1998, we entered into a Change of Control Agreement with John F.
Longinotti, our Executive Vice President, Operations and Chief Financial
Officer in which we agreed that, subject to certain limitations, if Mr.
Longinotti's employment relationship is involuntarily terminated within twelve
months following a change of control transaction, all of Mr. Longinotti's stock
options shall immediately vest.

Stock Plans

1996 Stock Option Plan. Our 1996 Stock Option Plan (the "Option Plan")
provides for the grant of incentive stock options to employees and nonstatutory
stock options and stock purchase rights to employees,

53
<PAGE>

directors and consultants. The purposes of the Option Plan are to attract and
retain the best available personnel, to provide additional incentives to our
employees and consultants and to promote the success of our business. The
Option Plan was originally adopted by our Board of Directors in November 1996
and approved by our stockholders in August 1997. Unless terminated earlier by
the Board of Directors, the Option Plan shall terminate in November 2006. A
total of 7,671,400 shares of common stock have been reserved for issuance under
the Option Plan, plus an automatic annual increase on the first day of our
fiscal years beginning in 2000, 2001, 2002, 2003 and 2004 equal to 1,250,000
shares or such lesser number of shares as the Board of Directors determines. As
of June 30, 1999, options to purchase 4,786,475 shares of common stock were
outstanding at a weighted average exercise price of $2.05, 566,911 shares had
been issued upon exercise of outstanding options, and 2,318,014 shares remained
available for future grant. In addition, options to purchase 30,000 shares of
our common stock were outstanding outside of the Option Plan.

The Option Plan may be administered by the Board of Directors or a committee
of the Board. The Option Plan administrator determines the terms of options or
purchase rights granted under the Option Plan, including the number of shares
subject to an option or award, the exercise or purchase price, and the term and
exercisability of options. In no event, however, may an individual employee
receive option grants or purchase rights under the Option Plan during any one
fiscal year which would allow him or her to purchase more than 2,000,000
shares. Incentive stock options granted under the Option Plan must have an
exercise price of at least 100% of the fair market value of the common stock on
the date of grant and at least 110% of such fair market value in the case of an
optionee who holds more than 10% of the total voting power of all classes of
our stock. The exercise or purchase price of nonstatutory stock options and
stock purchase rights granted under the Option Plan shall be determined by the
Option Plan administrator; provided however that the exercise price of any
nonstatutory stock option granted to our Chief Executive Officer or our four
other most highly compensated officers will generally equal at least 100% of
the fair market value of the common stock on the date of grant. Payment of the
option exercise or purchase price may be made in cash or other consideration,
as determined by the Administrator.

With respect to options granted under the Option Plan, the Option Plan
administrator determines the term of options, which may not exceed 10 years (or
5 years in the case of an option granted to a holder of more than 10% of the
total voting power of all classes of our stock). No option may be transferred
by the optionee other than by will or the laws of descent or distribution;
provided that the Option Plan administrator may grant nonstatutory stock
options with limited transferability rights in certain circumstances.
Generally, each option may be exercised during the lifetime of the optionee
only by the optionee. The Option Plan administrator determines when options
vest and become exercisable.

In the event of a sale of substantially all of the assets of Netcentives, or
its merger or consolidation with or into another corporation, each option may
be assumed or an equivalent option substituted by the successor corporation.
However, if the successor corporation does not agree to such assumption or
substitution of an option, the option will terminate. The Administrator has the
authority to amend or terminate the Option Plan provided that no action that
impairs the rights of any holder of an outstanding option may be taken without
the holder's consent, and provided that stockholder approval for any amendments
to the Option Plan shall be obtained to the extent required by applicable law.

1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan (the
"Purchase Plan") was adopted by the Board of Directors in March 1999 and was
approved by the stockholders in May 1999, contingent upon the closing of this
offering. A total of 300,000 shares of common stock have been reserved for
issuance under the Purchase Plan, none of which have been issued as of the date
of this offering. The number of shares reserved for issuance under the Purchase
Plan will be subject to an annual increase on the first day of each of our
fiscal years beginning in 2000, 2001, 2002, 2003 and 2004 equal to the lesser
of 75,000 shares, 1% of our outstanding common stock on the last day of the
immediately preceding fiscal year, or such lesser number of shares as the Board
of Directors determines. The Purchase Plan becomes effective upon the date of
this prospectus. Unless terminated earlier by the Board of Directors, the
Purchase Plan shall terminate in March 2019.

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<PAGE>

The Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, will be implemented by a series of overlapping
offering periods of 24 months' duration, with new offering periods (other than
the first offering period) commencing on May 1 and November 1 of each year.
Each offering period will consist of 4 consecutive purchase periods of 6
months' duration. At the end of each such 6 month period an automatic purchase
will be made for participants. The initial offering period is expected to
commence on the date of this offering and end on October 31, 2001; the initial
purchase period is expected to commence on the date of this offering and end on
April 30, 2000. The Board of Directors may, however, amend or terminate an
offering period or a purchase period, if prevailing accounting rules change so
as to have a harmful effect on our financial statements. The Purchase Plan will
be administered by the Board of Directors or by a committee appointed by the
Board. Employees (including officers and employee directors) of Netcentives, or
of any majority-owned subsidiary designated by the Board, are eligible to
participate in the Purchase Plan if they are employed by Netcentives, or any
such subsidiary, for at least 20 hours per week and more than 5 months per
year. The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions of up to 20% of an employee's compensation, at a
price equal to the lower of 85% of the fair market value of the common stock at
the beginning of each offering period or at the end of each purchase period.
The Board of Directors shall have the discretion to increase, prior to the
beginning of an offering period, the percentage of participants' compensation
that may be withheld through the Purchase Plan. Employees may end their
participation in the offering period at any time, and participation
automatically ends on termination of employment.

No employee shall be granted an option under the Purchase Plan if immediately
after the grant such employee would own stock and/or hold outstanding options
to purchase stock equaling 5% or more of the total voting power or value of all
classes of Netcentives' stock or its subsidiaries, or if the option would
permit an employee to purchase stock, under all of our, or our subsidiaries',
employee stock purchase plans, to accrue at a rate that exceeds $25,000 of fair
market value of such stock for each calendar year in which the option is
outstanding at any time. In addition, no employee may purchase more than 2,500
shares of common stock under the Purchase Plan in any one purchase period. If
the fair market value of the common stock on a purchase date is less than the
fair market value at the beginning of the offering period, each participant in
the Purchase Plan shall automatically be withdrawn from the offering period as
of the end of the purchase date and re-enrolled in the new 24 month offering
period beginning on the first business day following the purchase date.

The Purchase Plan provides that in the event of a merger or consolidation of
Netcentives with or into another corporation or a sale of all or substantially
all of its assets, each right to purchase stock under the Purchase Plan will be
assumed or an equivalent right substituted by the successor corporation unless
the Board of Directors shortens any ongoing offering period so that employees'
rights to purchase stock under the Purchase Plan are exercised prior to the
transaction. The Board of Directors has the power to amend or terminate the
Purchase Plan and to change or terminate offering periods as long as such
action does not adversely affect any outstanding rights to purchase stock under
the Purchase Plan, provided however that the Board may amend or terminate the
Purchase Plan or an offering period even if it would adversely affect
outstanding options in order to avoid our incurring adverse accounting charges.

1999 Directors' Stock Option Plan. The 1999 Directors' Stock Option Plan (the
"Directors' Plan") was adopted by the Board of Directors in March 1999 and was
approved by the stockholders in May 1999, contingent upon the closing of this
offering. A total of 400,000 shares of common stock have been reserved for
issuance under the Directors' Plan. The number of shares reserved for issuance
under the Directors' Plan will be subject to an annual increase on the first
day of each of our fiscal years beginning in 2000, 2001, 2002, 2003 and 2004
equal to the lesser of 50,000 shares or 1% of our outstanding common stock on
the last day of the immediately preceding fiscal year. The Directors' Plan
becomes effective upon the effective date of this prospectus. The Directors'
Plan provides for the grant of nonstatutory stock options to nonemployee
directors of Netcentives and is designed to work automatically without
administration; however, to the extent administration is necessary, it will be
performed by the Board of Directors without participation by a director with
respect to matters in which the director has a personal interest. Unless
terminated earlier, the Directors' Plan will terminate in March 2009.

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<PAGE>

The Directors' Plan provides for an initial grant of an option to purchase
40,000 shares of common stock to each nonemployee director who has not received
a grant under the Option Plan during the twelve months preceding the effective
date of the Directors' Plan, and to each person who first becomes a nonemployee
director thereafter. These options shall become exercisable in four equal
installments on the first, second, third, and fourth anniversaries of the
grant. On the first day of each fiscal year, each nonemployee director who has
served on our Board of Directors for at least 6 months shall be granted an
additional option to purchase 10,000 shares of common stock, which shall become
exercisable in full on the fourth anniversary of the date of grant. The
exercise price of all stock options granted under the Directors' Plan shall be
equal to the fair market value of a share of Netcentives' common stock on the
date of grant of the option.

The Directors' Plan sets neither a maximum nor a minimum number of shares for
which options may be granted to any one nonemployee director, but does specify
the number of shares that may be included in any grant and the method of making
a grant. No option granted under the Directors' Plan is transferable by the
optionee other than by will or the laws of descent or distribution or pursuant
to a qualified domestic relations order. Each option is exercisable, during the
lifetime of the optionee, only by the optionee. If a nonemployee director
ceases to serve as a director for any reason other than death or disability, he
or she may, within 90 days after the date he or she ceases to be a director,
exercise options granted under the Directors' Plan to the extent that he or she
was entitled to exercise it at the date of termination. To the extent that he
or she was not entitled to exercise any such option at the date of termination,
or if he or she does not exercise an option (which he or she was entitled to
exercise) within the 90 day period, the option shall terminate. If a director's
service on our Board terminates as a result of his or her death, the director's
estate will have the right to exercise any option granted under the Directors'
Plan as if the deceased director had continued in his or her position on the
Board of Directors for an additional six months following the date of death.
Options granted under the Directors' Plan have a term of ten years.

In the event of a dissolution or liquidation of Netcentives, a sale of all or
substantially all of its assets, or a merger, consolidation or other capital
reorganization of Netcentives with or into another corporation, each option
outstanding under the Directors' Plan shall be assumed or equivalent options
substituted by the successor corporation, unless such successor corporation
does not agree to such assumption or substitution, in which case the options
shall terminate upon consummation of the transaction; provided however that
upon a sale of all or substantially all of our assets or a merger or
consolidation of Netcentives with or into another corporation in which more
than 50% of the shares entitled to vote are exchanged, each director holding
options under the Directors' Plan shall have the right to exercise his or her
options immediately prior to the consummation of such transaction as to all of
the shares of stock underlying such options, including shares as to which the
director would not otherwise be entitled to exercise.

The Board of Directors may amend or terminate the Directors' Plan at any
time; provided however that no such action may adversely affect any outstanding
option and provided that stockholder approval for any amendments to the
Directors' Plan shall be obtained to the extent required by applicable law.

Limitation of Liability and Indemnification Matters

Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that a director
of a corporation will not be personally liable for monetary damages for breach
of such individual's fiduciary duties as a director except for liability:

. for any breach of such director's duty of loyalty to Netcentives or to
its stockholders;

. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;

. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or

. for any transaction from which a director derives an improper personal
benefit.

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<PAGE>

Our Bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our officers, employees and other agents to the
fullest extent permitted by law. We believe that indemnification under our
Bylaws covers at least negligence and gross negligence on the part of an
indemnified party. Our Bylaws also permits us to advance expenses incurred by
an indemnified party in connection with the defense of any action or proceeding
arising out of the party's status or service as a director, officer, employee
or other agent of Netcentives upon an undertaking by the party to repay such
advances if it is ultimately determined that the party is not entitled to
indemnification.

We have entered into separate indemnification agreements with each of our
directors and officers. These agreements require us to, among other things,
indemnify each director or officer against expenses (including attorney's
fees), judgments, fines and settlements paid by such individual in connection
with any action, suit or proceeding arising out of an individual's status or
service as a director or officer of Netcentives (other than liabilities arising
from willful misconduct or conduct that is knowingly fraudulent or deliberately
dishonest) and to advance expenses incurred by an individual in connection with
any proceeding against an individual with respect to which an individual may be
entitled to indemnification by us. We believe that our Certificate of
Incorporation and Bylaw provisions and indemnification agreements are necessary
to attract and retain qualified persons as directors and officers. We also
expect to obtain directors' and officers' liability insurance.

At present we are not aware of any pending litigation or proceeding involving
any director, officer, employee or agent of Netcentives where indemnification
will be required or permitted. Furthermore, we are not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.

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<PAGE>

RELATED PARTY TRANSACTIONS

Certain stock option grants to directors and executive officers of
Netcentives are described in this prospectus under the caption "Management--
Executive Compensation."

Benefits to Related Parties in Private Placement Transactions

The following table summarizes (i) the shares of common stock and preferred
stock purchased in private placement transactions by executive officers,
directors and 5% stockholders of Netcentives, and persons and entities
associated with them, in private placement transactions, and (ii) the total
paid-in capital for such shares and their present value:

<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E Total Present
Common Preferred Preferred Preferred Preferred Preferred Paid-In Value of
Investor Stock Stock Stock(1) Stock(2) Stock(3) Stock(4) Capital Shares(5)
-------- --------- --------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eric W. Tilenius(6)..... 1,000,000(7) -- -- -- -- -- $ 1,000 $12,000,000
Elliot S. Ng(6)......... 1,000,000(7) -- -- -- -- -- 1,000 12,000,000
West Shell, III(6)...... 1,748,600(8) -- -- -- -- -- 347,290 20,983,200
Information Technology
Ventures and
Virginia M.
Turezyn(9)............. -- -- 437,243 1,538,461 539,683 73,314 4,637,245 31,064,412
Integral Capital
Partners(10)........... -- -- 1,269,841 168,621 5,148,860 17,261,544
Mayfield Fund and
Wendell G.
Van Auken(11).......... -- -- -- 2,769,231 1,317,460 549,857 11,500,024 55,638,576
New Enterprise
Associates and
Stewart Alsop(12)...... -- -- -- 1,923,077 634,921 366,568 6,999,995 35,094,792
</TABLE>
- --------
(1) Issued in November 1996 at $1.00 per share.
(2) Issued in September 1997 at $1.30 per share.
(3) Issued in August 1998 at $3.15 per share.
(4) Issued in March, April and June 1999 at $6.82 per share.
(5) Based upon an initial public offering price of $12.00 for the common stock
sold in this offering.
(6) Was an executive officer and director of Netcentives at the time of
purchase.
(7) Issued in June 1996 at $0.001 per share.
(8) Includes 500,000 shares issued in August 1997 at $0.12 per share,
1,048,600 shares issued in December 1997 at $0.15 per share and 200,000
shares issued in December 1998 at $0.65 per share.
(9) Virginia M. Turezyn is a director, and Information Technology Ventures is
a 5% stockholder of Netcentives. Also see note 6 to "Principal
Stockholders."
(10) Integral Capital Partners is a 5% stockholder of Netcentives.
(11) Wendell G. Van Auken is a director, and Mayfield Fund is a 5% stockholder
of Netcentives. Also see note 4 to "Principal Stockholders."
(12) Stewart Alsop is a director, and New Enterprise Associates is a 5%
stockholder of Netcentives. Also see note 5 to "Principal Stockholders."

The Series A, Series B, Series C, Series D and Series E Preferred Stock
issued in private placement transactions are entitled to:

. receive an 8% annual, noncumulative dividend, when and if declared by
the Board of Directors, prior and in preference to any declaration or
payment of any dividend on the Series N Preferred Stock or common stock;

. receive a liquidation preference equal to the purchase price of each
share prior and in preference to the holders of Series N Preferred Stock
and our common stock, in the event of any liquidation, dissolution or
winding up of Netcentives;

. broad-based weighted average anti-dilution protection;

. one vote per share for each share of common into which the preferred
stock is convertible;

. vote together as a class with respect to the election three members of
the Board of Directors;

. vote together as a class to approve or disapprove of any transaction
which negatively impacts the rights, preferences and privileges of the
preferred stock;

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<PAGE>

. exercise certain demand, piggyback and Form S-3 registration rights; and

. receive audited financial statements and annual budgets.

The Series N Preferred Stock issued in private placement transactions is
entitled to:

. receive an 8% annual, noncumulative dividend, when and if declared by
the Board of Directors, subordinate to the other series of preferred
stock, put prior and in preference to the common stock;

. receive a $1.00 liquidation preference subordinate to the preferences of
the other series of preferred stock, but prior and in preference to the
common stock in the event of any liquidation, dissolution or winding up
of Netcentives; and

. anti-dilution protection in the event of stock splits, stock dividends
and similar events.

All of the preferred stock is convertible into common stock at a one to one
ratio.

Loans to Officers

We have loaned West Shell, III, our Chairman and Chief Executive Officer,
funds according to the terms set forth in the table below. Each loan is secured
by the common stock of Netcentives owned by Mr. Shell and partnerships
affiliated with Mr. Shell.

<TABLE>
<CAPTION>
Note Interest
Issue Date Due Date Amount Rate
---------- -------- -------- --------
<S> <C> <C> <C>
August 1997.................................. August 2001 $ 60,000 6.29%
November 1997................................ November 2001 157,290 6.01
December 1998................................ December 2002 130,000 4.47
January 1999................................. January 2003 100,000 4.47
</TABLE>

Indemnification Agreements

We have entered into indemnification agreements with our officers and
directors containing provisions which may require us to, among other things,
indemnify our officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors (other than
liabilities arising from willful misconduct) and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified.

Registration Rights Agreements

Certain holders of common stock and preferred stock have certain registration
rights with respect to their shares of common stock (including common stock
issuable upon conversion of their preferred stock) as described in Description
of Capital Stock--Registration Rights of Certain Holders.

Other Related Party Transactions

In April 1999, we entered into a computer software licensing agreement with
Connectify which provides for payments by Netcentives of approximately $300,000
in fees during fiscal 1999. Mr. Alsop is a director of both Netcentives and
Connectify. We believe that this agreement was entered into on terms and
conditions no less favorable to Netcentives than those that could have been
obtained from an unaffiliated third party.

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<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to beneficial
ownership of our common stock as of June 30, 1999, and as adjusted to reflect
the sale of common stock offered hereby, as to (i) each person (or group of
affiliated persons) known by us to own beneficially more than 5% of our
outstanding common stock, (ii) each of our directors, (iii) each of the
executive officers named in the Summary Compensation Table, and (iv) all
directors and executive officers of Netcentives as a group.
<TABLE>
<CAPTION>
Percent
Beneficially Owned(2)
--------------------------
Name and Address of Beneficial Number of Before After
Owner(1) Shares(2) Offering Offering(3)
- ------------------------------ ---------- ---------- ------------
<S> <C> <C> <C>
Wendell G. Van Auken(4)............... 4,636,548 17.98% 14.58%
2800 Sand Hill Road
Menlo Park, CA 94025
Stewart Alsop(5)...................... 2,873,461 11.14 9.04
2490 Sand Hill Road
Menlo Park, CA 94025
Virginia M. Turezyn(6)................ 2,588,701 10.04 8.14
3000 Sand Hill Road, Building I
Suite 280
Menlo Park, CA 94025
West Shell, III(7)(8)................. 1,792,766 6.94 5.63
Eric W. Tilenius(7)................... 1,004,166 3.89 3.16
Timothy J.O. Catlin(7)................ 149,999 * *
Tom Byers............................. 125,000 * *
John F. Longinotti(7)................. 76,145 * *
Edward Fong Soo Hoo(7)................ 59,395 * *
Paul F. Danielsen(7).................. 54,166 * *
Sergio Zyman(7)....................... 50,000 * *
Mayfield Fund(9)...................... 4,576,741 17.74 14.40
2800 Sand Hill Road
Menlo Park, CA 94025
New Enterprise Associates(10)......... 2,924,566 11.34 9.20
2490 Sand Hill Road
Menlo Park, CA 94025
Information Technology Ventures(11)... 2,588,701 10.04 8.14
3000 Sand Hill Road, Building I
Suite 280
Menlo Park, CA 94025
Integral Capital Partners(12)......... 1,438,462 5.58 4.52
2750 Sand Hill Road
Menlo Park, CA 94025
All directors and officers as a group
(18 persons)(4)(5)(6)(7)(8).......... 14,718,748 55.87 45.50
</TABLE>
- --------
*Less than 1%.

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<PAGE>

(1) Except as otherwise noted, the address of each person listed in the table
is c/o Netcentives Inc., 690 Fifth Street San Francisco, California 94107,
and the persons named in the table have sole voting and investment power
with respect to all shares of common stock shown as beneficially owned by
them, subject to community property laws where applicable.
(2) Applicable percentage of beneficial ownership is based on 25,793,417
shares of common stock outstanding as of June 30, 1999, and 31,793,417
shares of common stock to be outstanding upon the consummation of this
offering, together with applicable options exercisable within 60 days of
June 30, 1999 and warrants for such stockholder. Shares issuable pursuant
to such options are deemed outstanding for computing the percentage
ownership of the person holding such options but are not deemed
outstanding for the purposes of computing the percentage ownership of each
other person. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission.
(3) Assumes that the underwriters do not exercise their over-allotment option.
(4) Includes 59,807 shares held by the Wendell G. Van Auken & Ethel S. Van
Auken Trust. Additionally, Mr. Van Auken is a general partner of Mayfield
VIII Management, which is the General Partner of Mayfield VIII which holds
4,033,692 shares and Mayfield Associates Fund III which holds
212,300 shares. Affinity Trust, an investment entity affiliated with the
Mayfield Fund, holds an additional 330,749 shares. Mr. Van Auken disclaims
beneficial ownership of the shares held by Mayfield VIII, Mayfield
Associates Fund III, and Affinity Trust except to the extent of his
pecuniary interest in such entities. See Note 9.
(5) Mr. Alsop is a limited partner of New Enterprise Associates VII, L.P.
which holds 2,873,461 shares. Mr. Alsop disclaims beneficial ownership of
the shares held by this entity except to the extent of his pecuniary
interests in such entities. See Note 10. Shares attributable to Mr. Alsop
do not include any shares owned by NEA President's Fund or NEA Ventures
1997.
(6) Ms. Turezyn is a general partner of Information Technology Ventures, L.P.
which holds 2,521,988 shares and ITV Affiliates Fund, L.P. which holds
66,713 shares. Ms. Turezyn disclaims beneficial ownership of the shares
held by these entities except to the extent of her pecuniary interests in
such entities. See Note 11.
(7) Includes the following shares issuable upon exercise of outstanding
options exercisable within 60 days of June 30, 1999: Mr. Shell, 44,166;
Mr. Tilenius, 4,166; Mr. Catlin, 20,833; Mr. Danielsen, 54,166;
Mr. Longinotti, 34,166; Mr. Soo Hoo, 59,395; Mr. Zyman, 50,000; and
others, 293,594.
(8) Includes 677,512 shares held by Shell Associates, L.P. a family limited
partnership of which Mr. Shell is a general partner.
(9) Includes 4,033,692 shares held by Mayfield VIII, 212,300 shares held by
Mayfield Associates Fund III, and 330,749 shares held by Affinity Trust.
(10) Includes 2,873,461 shares held by New Enterprise Associates VII, L.P.,
47,259 shares held by NEA President's Fund and 3,846 shares held by NEA
Ventures 1997.
(11) Includes 2,521,988 shares held by Information Technology Ventures, L.P.
and 66,713 shares held by ITV Affiliates Fund, L.P.
(12) Includes 1,431,313 shares held by Integral Capital Partners IV, L.P. and
7,149 shares held by Integral Capital Partners IV MS Side Fund, L.P.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

Following the closing of the sale of the shares offered hereby, our
authorized capital stock will consist of 100,000,000 shares of common stock,
$0.001 par value, and 5,000,000 shares of undesignated preferred stock, $0.001
par value.

Common Stock

As of June 30, 1999, there were 25,793,417 shares of common stock outstanding
that were held of record by approximately 129 stockholders after giving effect
to the conversion of our preferred stock into common stock at a one-to-one
ratio and the exercise of 46,891 warrants terminable upon the closing of this
offering, and assuming no exercise or conversion of outstanding convertible
securities after June 30, 1999. There will be 31,793,417 shares of common stock
outstanding (assuming no exercise of the underwriters' over-allotment option
and no exercise or conversion of outstanding convertible securities after June
30, 1999) after giving effect to the sale of the shares of common stock offered
hereby.

The holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of Netcentives, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior rights of preferred stock, if
any, then outstanding. Our common stock has no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund
provisions available to the common stockholders. All outstanding shares of
common stock are fully paid and non-assessable.

Preferred Stock

Effective upon the closing of this offering, we will be authorized to issue
5,000,000 shares of undesignated preferred stock. The Board of Directors will
have the authority to issue the undesignated preferred stock in one or more
series and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series of undesignated preferred stock and to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the stockholders. The types of powers and preferences
the Board may designate includes, for example, payment of dividends,
liquidation preferences, anti-dilution protections, conversion privileges,
certain voting rights and redemption rights. The issuance of preferred stock
may have the effect of delaying, deferring or preventing a change in control of
Netcentives without further action by the stockholders and may adversely affect
the voting and other rights of the holders of common stock. At present, we have
no plans to issue any shares of preferred stock.

Registration Rights of Certain Holders

The holders of 20,569,126 shares of common stock, and the holders of 62,948
shares issuable upon exercise of warrants, or their transferees, are entitled
to certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of an agreement among
Netcentives and the holders of these securities dated March 19, 1999. Subject
to certain limitations in this agreement, the holders of the these securities
may require, on two occasions at any time after six months from the effective
date of this offering, that we use our best efforts to register the Registrable
Securities for public resale, provided that the proposed aggregate offering
price is at least $10,000,000. If we register any of our common stock either
for our own account or for the account of other security holders, the holders
of these securities are entitled to include their shares of common stock in the
registration. A holder's right to include shares in an underwritten
registration is subject to the ability of the underwriters to limit the number
of shares included in that offering.

Additionally, holders of these securities may require on no more than two
separate occasions in a twelve-month period, that we register their shares for
public resale on Form S-3 or similar short-form registration, once

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<PAGE>

we are eligible to use Form S-3 or similar short-form registration and provided
further that the value of the securities to be registered is at least $500,000.

All fees, costs and expenses of such registrations must be borne by
Netcentives and all selling expenses (including underwriting discounts, selling
commissions and stock transfer taxes) relating to these securities must be
borne by the holders of the securities being registered.

Anti-Takeover Provisions of Delaware Law

We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless (with certain exceptions) the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale or other transaction
resulting in a financial benefit to the stockholder, and an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's outstanding
voting stock. This provision may have the effect of delaying, deferring or
preventing a change in control of Netcentives without further action by the
stockholders.

In addition, upon completion of this offering, certain provisions of our
charter documents, including a provision eliminating the ability of
stockholders to take actions by written consent, may have the effect of
delaying or preventing changes in control or management of Netcentives, which
could have a negative effect on the market price of our common stock. Our
Option Plan, Purchase Plan and Directors' Plan generally provide for assumption
of such plans or substitution of an equivalent option of a successor
corporation or, alternatively, at the discretion of the Board of Directors,
exercise of some or all of the options stock, including non-vested shares, or
acceleration of vesting of shares issued pursuant to stock grants, upon a
change of control or similar event.

The Board of Directors has authority to issue up to 5,000,000 shares of
preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares without any further vote
or action by the stockholders. The rights of the holders of the common stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of our
outstanding voting stock, thereby delaying, deferring or preventing a change in
control of Netcentives. Furthermore, such preferred stock may have other
rights, including economic rights senior to the common stock, and, as a result,
the issuance of such preferred stock could have a negative effect on the market
value of the common stock. We have no present plans to issue shares of
preferred stock.

Warrants

As of June 30, 1999, warrants were outstanding to purchase an aggregate of
615,448 shares of common stock at a weighted average exercise price of $1.13
per share. Warrants to purchase 22,500 shares at $2.00 per share will expire in
January 2000. Warrants to purchase 190,000 shares at $1.00 per share will
expire in August 2001. Warrants to purchase 10,000 shares at $1.00 per share
will expire in October 2001. Warrants to purchase 120,000 shares at $1.30 per
share will expire in October 2001. Warrants to purchase 110,000 shares at
$1.00 per share will expire in July 2001. Warrants to purchase 50,000 shares at
$1.00 per share will expire in September 2001. Warrants to purchase 21,000
shares at $1.30 per share will expire in May 2002. Warrants to purchase
10,000 shares at $1.30 per share will expire in September 2002. Warrants to
purchase 50,000 shares at $1.00 per share will expire in October 2002. Warrants
to purchase 31,948 shares at $1.30 per share will expire in May 2003.

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<PAGE>

Transfer Agent and Registrar

The Transfer Agent and Registrar for our common stock is American Stock
Transfer and Trust. Their phone number is (212) 936-5100.

Listing

Our common stock has been approved for listing on The Nasdaq Stock Market's
National Market under the trading symbol "NCNT."

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock.
We cannot provide any assurances that a significant public market for our
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock in the public market, or the possibility of
such sales occurring, could adversely affect prevailing market prices for our
common stock or our future ability to raise capital through an offering of
equity securities.

After this offering, we will have outstanding 31,793,417 shares of common
stock. Of these shares, the 6,000,000 shares to be sold in this offering
(6,900,000 shares if the underwriters' over-allotment option is exercised in
full) will be freely tradable in the public market without restriction under
the Securities Act, unless such shares are held by affiliates, which are
persons or entities that directly or indirectly control Netcentives, such as
officers, directors and substantial stockholders.

The remaining 25,793,417 shares outstanding upon completion of this offering
will be restricted shares meaning that they were not acquired in a public
offering and are not registered or freely tradable. We issued and sold the
restricted shares in private transactions in reliance on exemptions from
registration under the Securities Act. Restricted shares may be sold in the
public market only if they are registered or if they qualify for an exemption
from registration under Rule 144 or Rule 701 under the Securities Act, as
summarized below.

Pursuant to certain lock-up agreements, all the executive officers, directors
and certain stockholders of Netcentives, who collectively hold the restricted
shares, have agreed not to offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of any such shares for a period of 180 days from
the date of this prospectus. We also have entered into an agreement with the
underwriters that we will not offer, sell or otherwise dispose of common stock
for a period of 180 days from the date of this prospectus.

Assuming that this offering is effective on October 1, 1999, on the date of
the expiration of the lock-up agreements, 23,102,330 restricted shares that
will not then be subject to any repurchase option will be eligible for
immediate sale (of which 19,897,882 shares will be subject to certain volume,
manner of sale and other limitations under Rule 144). The remaining 2,691,087
restricted shares will be eligible for sale pursuant to Rule 144 on the
expiration of various one-year holding periods over the six months following
the expiration of the lock-up period and the expiration of certain repurchase
options over the four years following the original purchase date of such
shares. Following the completion of this offering, warrants to purchase 615,448
shares will be outstanding, which if exercised pursuant to net-exercise
provisions would be immediately saleable without restriction upon the
expiration of the 180 day lock-up period. If such warrants were to be otherwise
exercised, they would be saleable upon the expiration of various one-year
holding periods, subject to certain volume, manner of sale, and other
limitations under Rule 144. In general, under Rule 144 as in effect at the
closing of this offering, beginning 90 days after the date of this prospectus,
a person (or persons whose shares of Netcentives are aggregated) who has
beneficially owned restricted shares for at least one year (including the
holding period of any prior owner who is not an affiliate of Netcentives) would
be entitled to sell, within any three-month period, a number of shares that
does not exceed the greater of (1) 1% of the then-outstanding shares of common
stock or (2) the average weekly trading volume of the common stock during the
four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also

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<PAGE>

subject to certain manner of sale and notice requirements and to the
availability of current public information about Netcentives. Under Rule
144(k), a person who is not deemed to have been an affiliate of Netcentives at
any time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years (including the holding period
of any prior owner who is not an affiliate of Netcentives) is entitled to sell
such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.

Of the 4,816,475 options to purchase shares of common stock outstanding as of
June 30, 1999, on the date 180 days following the assumed effective date of
this offering, options to purchase 1,687,055 shares of common stock will be
fully exercisable and saleable.

We intend to file, no later than the effective date of this offering, a
Registration Statement on Form S-8 to register approximately 7,804,489 shares
of common stock reserved for issuance under the Option Plan, the Purchase Plan
and the Directors' Plan. The Registration Statement will become effective
automatically upon filing. Shares issued under the foregoing plans, after the
filing of a Registration Statement on Form S-8, may be sold in the open market,
subject, in the case of certain holders, to the Rule 144 limitations applicable
to affiliates, the above-referenced lock-up agreements and vesting restrictions
imposed by us.

In addition, following this offering, the holders of 20,569,126 shares of
outstanding common stock and the holders of warrants to purchase 62,948 shares,
or their transferees, will, under certain circumstances, have rights to require
us to register their shares for future sale.

65
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated October 13, 1999 we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Hambrecht & Quist
LLC and Thomas Weisel Partners LLC are acting as representatives, the following
respective numbers of shares of common stock:

<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation........................... 2,295,000
Hambrecht & Quist LLC............................................ 1,402,500
Thomas Weisel Partners LLC....................................... 1,402,500
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated......................... 100,000
Deutsche Bank Securities Inc..................................... 100,000
E*OFFERING Corp. ................................................ 100,000
Invemed Associates LLC........................................... 100,000
Charles Schwab & Co., Inc. ...................................... 100,000
SG Cowen Securities Corporation.................................. 100,000
C.E. Unterberg, Towbin........................................... 100,000
U.S. Bancorp Piper Jaffray Inc................................... 100,000
Warburg Dillon Read LLC.......................................... 100,000
---------
Total.......................................................... 6,000,000
=========
</TABLE>

The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro rata
basis up to 900,000 additional shares at the initial public offering price less
the underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at the
public offering price on the cover page of this prospectus and to selling group
members at that price less a concession of $0.50 per share. The underwriters
and selling group members may allow a discount of $0.10 per share on sales to
other broker/dealers. After the initial public offering, the public offering
price and concession and discount to broker/dealers may be changed by the
representatives.

The following table summarizes the compensation and estimated expenses we
will pay.

<TABLE>
<CAPTION>
Per Share Total
------------------- ---------------------
Without With Without With
Over- Over- Over- Over-
allotment allotment allotment allotment
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us......... $0.84 $0.84 $5,040,000 $5,796,000
Expenses payable by us.......... $0.20 $0.17 $1,200,000 $1,200,000
</TABLE>

The underwriters have informed us that they do not expect discretionary sales
to exceed 5% of the shares of common stock being offered.

We, our officers and directors, and some of our stockholders have agreed that
we and they will not offer, sell, contract to sell, announce our intention to
sell, pledge or otherwise dispose of, directly or indirectly, or file with the
Securities Exchange Commission a registration statement under the Securities
Act relating to, any

66
<PAGE>

shares of our common stock or securities convertible into or exchangeable or
exercisable for any of our common stock without the prior written consent of
Credit Suisse First Boston Corporation for a period of 180 days after the date
of this prospectus, except, in our case, issuances pursuant to the exercise of
employee stock options outstanding on the date hereof.

The underwriters have reserved for sale, at the initial public offering
price, up to 900,000 shares of the common stock for merchants, custom loyalty
clients, companies with whom we are developing commercial relationships,
rewards suppliers, consultants and service providers and employees of such
entities who have expressed an interest in purchasing common stock in the
offering. Directors and officers who purchase the reserved shares are subject
to resale restrictions promulgated by the Securities and Exchange Commission,
and employees of the Company may be restricted by the free-riding and
withholding restrictions of the National Association of Securities Dealers,
Inc. The number of shares available for sale to the general public in the
offering will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the other shares.

We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.

Our common stock has been approved for listing stock on The Nasdaq Stock
Market's National Market under the symbol "NCNT."

Prior to this offering, there has been no public market for our common stock.
The initial public offering price was determined by negotiation between us and
the representatives. The principal factors considered in determining the
initial public offering price consisted of the following: the information set
forth in this prospectus; the history and the prospects for the industry in
which we will compete; the ability of our management; our prospects for future
earnings; the present state of our development and our current financial
condition; the general condition of the securities markets at the time of this
offering; and the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies.

The representatives on behalf of the underwriters may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.

. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.

. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.

. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member are purchased in a stabilizing transaction or a
syndicate covering transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners LLC has been named as a lead or co-
manager on 56 filed public offerings of equity securities, of which 33 have
been completed, and has acted as a syndicate member in an additional 28 public
offerings of equity securities. Thomas Weisel Partners LLC does not have any
material relationship with us or any of our officers, directors or other

67
<PAGE>

controlling persons, except as provided below and with respect to its
contractual relationship with us pursuant to the underwriting agreement entered
into in connection with this offering.

In March, April and June 1999, Hambrecht & Quist LLC acted as private
placement agent for the sale of an aggregate of 5,278,583 shares of our Series
E preferred stock for which it received a customary fee for its services.
Hambrecht & Quist LLC did not purchase any of the shares in this sale, and they
were selected as the private placement agent through arms-length negotiations
on terms substantially similar to the terms obtained by other underwriters. An
entity associated with Thomas Weisel Partners LLC purchased an aggregate of
73,313 shares of our Series E preferred stock on the same terms as other
purchasers in this sale for a total purchase price of approximately $500,000,
or $6.82 per share, and has agreed not to sell, pledge, transfer or hypothecate
its shares for a one year period from the effective date of this offering.

Charles Schwab & Co., Inc., which is a member of the underwriting syndicate,
has made copies of the preliminary prospectus available over the Internet to
certain customers who meet certain risk-tolerance criteria through a password
protected, proprietary Web site. Prospective investors must confirm receipt of
the preliminary prospectus before making an offer to purchase any shares.

68
<PAGE>

NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.

Representations of Purchasers

Each purchaser of common stock in Canada who receives a purchase confirmation
will be deemed to represent to us and the dealer from whom such purchase
confirmation is received that (i) such purchaser is entitled under applicable
provincial securities laws to purchase such common stock without the benefit of
a prospectus qualified under these securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent, and (iii) such
purchaser has reviewed the text above under "Resale Restrictions."

Rights of Action (Ontario Purchasers)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

Enforcement of Legal Rights

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.

Notice to British Columbia Residents

A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. Such report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.

Taxation and Eligibility for Investment

Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.

69
<PAGE>

LEGAL MATTERS

The validity of the common stock offered hereby was passed upon for
Netcentives by Venture Law Group, A Professional Corporation, Menlo Park,
California. Craig W. Johnson and Elias J. Blawie, each a director of Venture
Law Group, are the Secretary and Assistant Secretary of Netcentives,
respectively. VLG Investments 1996, an entity affiliated with Venture Law
Group, holds an aggregate of 69,538 shares of our common stock. Mr. Johnson and
Mr. Blawie, hold an aggregate of 20,385 shares and 12,692 shares, respectively,
of our common stock and each has a pecuniary interest in the shares owned by
VLG Investments 1996. The underwriters have been represented by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.

EXPERTS

The (1) consolidated balance sheets of Netcentives Inc. and its subsidiary as
of December 31, 1997 and 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for the period June 21, 1996
(inception) to December 31, 1996 and for the years ended December 31, 1997 and
1998, and (2) Statements of Operations and Cash Flows of Panttaja Consulting
Group, Inc. for the years ended November 30, 1997 and 1998 included herein and
elsewhere in the registration statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing in this
prospectus, and are included in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 under the Securities Act with respect to the common stock
offered. This prospectus, which is part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in exhibits to the Registration Statement as
permitted by the rules and regulations of the SEC. For further information with
respect to Netcentives and the common stock being offered, reference is made to
the Registration Statement, including its exhibits, and the financial
statements and notes filed as a part of the Registration Statement. Statements
made in this prospectus concerning the contents of any other document filed as
an exhibit are not necessarily complete. With respect to each such document
filed with the SEC as an exhibit to the Registration Statement, you should see
the exhibit itself for a more complete description of the matter involved. The
Registration Statement, including exhibits and the financial statements and
notes filed as a part of the Registration Statement, as well as such reports
and other information filed with the SEC, may be inspected without charge at
the public reference facilities maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at
Seven World Trade Center, 13th Floor, New York, NY 10048, and the Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of all or any part of these documents may be obtained from the SEC upon
payment of certain fees prescribed by the SEC. These reports and other
information may also be inspected without charge at a Web site maintained by
the SEC. The address of this Web site is http://www.sec.gov.

70
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Netcentives Inc.:

Independent Auditors' Report............................................... F-2

Consolidated Balance Sheets................................................ F-3

Consolidated Statements of Operations ..................................... F-4

Consolidated Statements of Stockholders' Equity............................ F-5

Consolidated Statements of Cash Flows...................................... F-6

Notes to Consolidated Financial Statements................................. F-7

Panttaja Consulting Group, Inc.:

Independent Auditors' Report............................................... F-21

Statements of Operations................................................... F-22

Statements of Cash Flows................................................... F-23

Notes to Financial Statements.............................................. F-24

Pro Forma Consolidated Financial Information:

Pro Forma Consolidated Statement of Operations............................. F-27

Notes to Pro Forma Consolidated Statement of Operations.................... F-28
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Netcentives Inc.:

We have audited the accompanying consolidated balance sheets of Netcentives
Inc. and its subsidiary as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period June 21, 1996 (inception) to December 31, 1996 and for the years
ended December 31, 1997 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Netcentives Inc. and its
subsidiary as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the periods stated above in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP

San Jose, California
July 14, 1999
(September 9, 1999 as to the last two paragraphs of Note 15)

F-2
<PAGE>

NETCENTIVES INC.

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and par value amounts)

<TABLE>
<CAPTION>
December 31,
----------------- June 30,
1997 1998 1999
------- -------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................ $ 6,608 $ 13,651 $ 36,152
Accounts receivable............................. 23 893 767
Prepaid incentive awards........................ 703 1,600 1,603
Prepaid expenses................................ 239 147 91
------- -------- --------
Total current assets.......................... 7,573 16,291 38,613
Property and equipment--net....................... 933 1,858 4,274
Intangible assets--net............................ 36 3,611 2,741
Deferred offering costs........................... -- -- 894
Other assets...................................... 7 175 729
------- -------- --------
Total assets.................................. $ 8,549 $ 21,935 $ 47,251
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loan payable............................... $ 200 $ 100 $ --
Accounts payable................................ 583 1,324 783
Accrued compensation and benefits............... 51 667 767
Accrued redemption costs........................ -- 509 1,856
Other accrued liabilities....................... 266 1,198 2,803
Deferred revenue--product....................... 43 1,250 2,963
Deferred revenue--services...................... 16 656 1,348
Current portion of long-term obligations........ 66 664 458
------- -------- --------
Total current liabilities..................... 1,225 6,368 10,978
Long-term obligations............................. 196 1,233 973
Commitments and contingencies (Notes 3, 5, 7, 12,
13 and 15)
Stockholders' equity:
Convertible preferred stock, $.001 par value--
16,050,000 shares authorized;
shares outstanding: 1997, 9,692,460; 1998,
15,168,652; June 30, 1999, 20,522,235
(aggregate liquidation preference of $28,760 at
1998).......................................... 10 15 21
Common stock, $.001 par value--shares
authorized: 1997 and 1998, 30,000,000; June 30,
1999, 33,240,000; shares outstanding: 1997,
3,735,683; 1998, 4,894,069; June 30, 1999,
5,224,491...................................... 4 5 5
Paid-in capital................................. 12,080 41,654 77,829
Deferred stock expenses......................... (300) (8,433) (7,399)
Receivables from sales of stock................. (220) (350) (450)
Accumulated deficit............................. (4,446) (18,557) (34,706)
------- -------- --------
Total stockholders' equity.................... 7,128 14,334 35,300
------- -------- --------
Total liabilities and stockholders' equity.... $ 8,549 $ 21,935 $ 47,251
======= ======== ========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>

NETCENTIVES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
June 21, 1996 Years Ended Six Months
(Inception) to December 31, Ended June 30,
December 31, ----------------- -----------------
1996 1997 1998 1998 1999
-------------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Product................. $ -- $ -- $ 64 $ 10 $ 216
Program-related
services............... -- 9 583 117 428
Technical consulting
services............... -- -- -- -- 2,377
------ ------- -------- ------- --------
Total revenues........ -- 9 647 127 3,021
------ ------- -------- ------- --------
Costs and expenses:
Cost of product
revenues............... -- -- 59 9 185
Program-related
services, marketing and
support costs.......... 102 1,496 7,293 2,439 9,566
Cost of technical
consulting services
revenues............... -- -- -- -- 1,496
Research and
development............ 63 1,505 3,383 1,401 1,869
Selling, general and
administrative......... 108 1,210 3,134 1,319 3,596
Amortization of deferred
stock compensation..... -- -- 296 31 1,084
Amortization of supplier
stock awards........... -- 63 811 130 943
Amortization of
intangibles............ -- -- 79 3 878
------ ------- -------- ------- --------
Total costs and
expenses............. 273 4,274 15,055 5,332 19,617
------ ------- -------- ------- --------
Loss from operations...... (273) (4,265) (14,408) (5,205) (16,596)
Interest income........... 7 121 441 116 553
Interest expense.......... -- (36) (144) (42) (106)
------ ------- -------- ------- --------
Net loss.................. $ (266) $(4,180) $(14,111) $(5,131) $(16,149)
====== ======= ======== ======= ========
Net loss per share--basic
and diluted.............. $(0.97) $ (5.70) $ (8.58) $ (3.68) $ (5.10)
====== ======= ======== ======= ========
Shares used in computing
per share amounts--basic
and diluted.............. 273 734 1,644 1,396 3,167
====== ======= ======== ======= ========
Pro forma net loss per
share on a converted
basis--basic and
diluted.................. $ (1.05) $ (0.78)
======== ========
Shares used in computing
pro forma per share
amounts on a converted
basis.................... 13,422 20,807
======== ========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

NETCENTIVES INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1997 and 1998 and for the six months ended
June 30, 1999
(unaudited)
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
Preferred
Stock Common Stock Deferred Receivables
------------- ------------- Paid-In Stock from Sales Accumulated
Shares Amount Shares Amount Capital Expenses of Stock Deficit Total
------ ------ ------ ------ ------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock................. 2,050 $ 2 $ 1 $ 3
Sale of Series A
preferred stock, at
$0.65 per share, net
of expenses
of $7................ 1,453 $ 1 936 937
Sale of Series B
preferred stock, at
$1.00 per share, net
of expenses
of $13............... 485 1 471 472
Net loss .............. $ (266) (266)
------ --- ----- --- ------- ------- ----- -------- --------
BALANCES, December 31,
1996................... 1,938 2 2,050 2 1,408 (266) 1,146
Sale of Series C
preferred stock, at
$1.30 per share, net
of expenses
of $17............... 7,755 8 10,057 10,065
Sale of common stock... 1,564 2 216 $(217) 1
Exercise of common
stock options......... 122 13 (3) 10
Stock warrants issued.. 386 $ (386) --
Amortization of stock
warrant expenses...... 86 86
Net loss............... (4,180) (4,180)
------ --- ----- --- ------- ------- ----- -------- --------
BALANCES, December 31,
1997................... 9,693 10 3,736 4 12,080 (300) (220) (4,446) 7,128
Sale of Series D
preferred stock, at
$3.15 per share, net
of expenses
of $18............... 5,476 5 17,226 17,231
Sale of common stock to
officer............... 200 630 (500) (130) --
Common stock issued for
patent................ 35 76 76
Exercise of common
stock options......... 115 19 19
Stock warrants issued.. 31 (31) --
Increase in value of
unvested warrants..... 1,038 (1,038) --
Deferred stock
compensation related
to option grants...... 7,071 (7,071) --
Shares issued in
Panttaja acquisition.. 808 1 2,547 (630) 1,918
Vested options issued
in Panttaja
acquisition........... 936 936
Amortization of
deferred stock
expenses.............. 1,137 1,137
Net loss............... (14,111) (14,111)
------ --- ----- --- ------- ------- ----- -------- --------
BALANCES, December 31,
1998................... 15,169 15 4,894 5 41,654 (8,433) (350) (18,557) 14,334
Sale of Series E
preferred stock, at
$6.82 per share, net
of expenses
of $1,017*............ 5,278 6 34,977 34,983
Issuance of receivable
related to previously
issued common stock*.. (100) (100)
Exercise of common
stock options*........ 330 115 115
Increase in value of
unvested warrants..... 938 (938) --
Exercise of Series B
warrants*............. 75 75 75
Deferred stock
compensation related
to option grants*..... 70 (70) --
Amortization of
deferred stock
expenses.............. 2,042 2,042
Net loss*.............. (16,149) (16,149)
------ --- ----- --- ------- ------- ----- -------- --------
BALANCES, June 30, 1999*
....................... 20,522 $21 5,224 $ 5 $77,829 $(7,399) $(450) $(34,706) $ 35,300
====== === ===== === ======= ======= ===== ======== ========
</TABLE>
- --------
* unaudited

See notes to consolidated financial statements.

F-5
<PAGE>

NETCENTIVES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Six Months
June 21, 1996 Years Ended Ended June 30,
(Inception) to December 31, -----------------
December 31, -----------------
1996 1997 1998 1998 1999
-------------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Cash received from
customers............... $ -- $ 45 $ 1,294 $ 306 $ 4,944
Cash paid to suppliers
and employees........... (177) (4,222) (11,156) (4,618) (12,439)
Cash paid for interest... -- (23) (114) (42) (91)
Cash paid for income
taxes................... -- (2) -- -- --
Interest received........ 7 121 441 116 553
------ ------- -------- ------- --------
Net cash used in
operating activities.. (170) (4,081) (9,535) (4,238) (7,033)
------ ------- -------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment............... (124) (967) (1,157) (380) (3,579)
Cash paid in Panttaja
acquisition, net of cash
acquired................ -- -- (150) -- --
Other long-term assets... -- -- (58) -- (500)
------ ------- -------- ------- --------
Net cash used in
investing activities.. (124) (967) (1,365) (380) (4,079)
------ ------- -------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Sales of common stock.... 3 11 19 15 115
Issuance of receivable
related to previous
issuances of common
stock................... -- -- -- -- (100)
Bridge financing......... -- 1,321 -- -- --
Sales of preferred
stock................... 1,409 8,744 17,231 -- 35,058
Borrowings on long-term
debt.................... -- 279 1,141 109 --
Principal payments on
long-term debt.......... -- (17) (248) -- (466)
Borrowings on bank loan
payable, net............ -- 200 (200) 794 (100)
Deferred offering costs.. -- -- -- -- (894)
------ ------- -------- ------- --------
Net cash provided by
financing activities.. 1,412 10,538 17,943 918 33,613
------ ------- -------- ------- --------
NET INCREASE (DECREASE) IN
CASH AND EQUIVALENTS..... 1,118 5,490 7,043 (3,700) 22,501
CASH AND EQUIVALENTS,
Beginning of period...... -- 1,118 6,608 6,608 13,651
------ ------- -------- ------- --------
CASH AND EQUIVALENTS, End
of period................ $1,118 $ 6,608 $ 13,651 $ 2,908 $ 36,152
====== ======= ======== ======= ========
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of debt to
preferred stock......... $ -- $ 1,321 $ -- $ -- $ --
====== ======= ======== ======= ========
Stock and warrants issued
in exchange for patent.. $ -- $ 10 $ 76 $ -- $ --
====== ======= ======== ======= ========
Sales of stock for notes
and accounts
receivable.............. $ -- $ 217 $ 130 $ -- $ --
====== ======= ======== ======= ========
Acquisition of Panttaja:
Value of stock and
options issued, net of
deferred stock
compensation........... $ 2,854
Cash paid............... 194
Liabilities assumed..... 1,090
--------
Assets acquired
(including intangibles
of $3,526)............ $ 4,138
========
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

NETCENTIVES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1996, 1997 and 1998 and six months ended June 30, 1999
and 1998
(Information as of June 30, 1999 and for the
six months ended June 30, 1999 and 1998 is unaudited)

1. Business and Operations

Netcentives Inc. (the "Company") provides Internet-based merchants, portals
and community sites with promotion tools to drive consumer behavior, loyalty,
and sales on the Internet. The Company was incorporated in California in June
1996.

The Company has developed an Internet-based network (the "ClickRewards
Network") of merchants ("Merchants"), consumers ("Members") and redemption
award suppliers ("Suppliers"). The Company has developed a promotional currency
("ClickMiles") which is used throughout the network. The Company sells
ClickMiles to Merchants who use them as promotional incentives to drive their
consumers' behavior in areas such as brand loyalty and increased transaction
size. As consumers are awarded ClickMiles, they establish accounts and become
Members of the Company's ClickRewards program. Consumers can accumulate and
manage ClickMiles on their personal online account and redeem these for
frequent flyer airline miles or other merchandise. ClickMiles expire if not
redeemed within specified periods. Members who do not record any activity for a
twelve-month period forfeit their accumulated ClickMiles. The Company also
offers its Merchants consulting, promotional, and direct marketing services for
a variety of fee arrangements.

In December 1998 the Company acquired Panttaja Consulting Group, Inc. (see
Note 3). The Company now provides technical consulting services to its
Merchants as well as other customers through this wholly-owned subsidiary.

2. Summary of Significant Accounting Policies

Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of Netcentives Inc. and its wholly-owned
subsidiary. All significant intercompany accounts and transactions have been
eliminated.

Cash equivalents consist of highly-liquid debt instruments with a maturity at
time of purchase of three months or less.

Prepaid Incentive Awards--The Company has purchased frequent flyer airline
miles ("airmiles") under frequent flyer programs from several airlines. Such
airmiles are stated at cost determined on a weighted-average basis.

Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over estimated useful
lives of three years.

Income Taxes--The Company accounts for income taxes using an asset and
liability approach. Deferred income tax assets and liabilities result from
temporary differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in taxable or
deductible amounts in future years. Valuation allowances are provided when
necessary to reduce deferred tax assets to the amount expected to be realized.

Revenue Recognition--The Company allocates the sales price of ClickMiles
based on relative fair values between the redemption component of the award
ultimately provided to the Member (the "product component") and the service
components related to the marketing and support services provided to Merchants

F-7
<PAGE>

NETCENTIVES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

and members (the "services component"). The fair value of the product component
is determined based on separate pricing offered by the Company as well as other
objective evidence; service component revenues represent the difference between
the product component and the amount received from the sale of the ClickMile.
The product component of revenues is deferred until the Member redeems the
ClickMiles for frequent flyer miles or other awards, or until the ClickMile
expires. The service components of the ClickMile sale are initially deferred
until the sale of the ClickMile becomes non-refundable, which typically is upon
award of the currency by the Merchant to the Member. Upon award of the
ClickMile by the Merchant to a Member, revenues attributable to the service
component generally are amortized over the period from award through expected
redemption or expiration (the life of the ClickMile). Service revenues relating
to separately-priced services, principally software integration services
performed at the inception of the Merchant relationship, are recognized at the
time the services are delivered. Upon termination of a Merchant relationship,
unamortized deferred service revenue attributable to the Merchant is recognized
as revenue.

The service periods for the member and merchant elements of ClickMile
revenues have been initially calculated for the maximum life of the ClickMile
based on its expiration date, which is currently the third December following
award. To the extent ClickMiles are redeemed prior to expiration or Merchants
leave the ClickRewards Network, the remaining amount of deferred service
revenues associated with the member or merchant services, as appropriate, is
recognized at that time. Deferred revenues arising from non-refundable
ClickMiles which have not been awarded by a Merchant are recognized as program-
related service revenues at the time the ClickMiles are forfeited by the
Merchant.

The Company exchanges ClickMiles with certain of its Merchants in return for
advertising and merchandise. Such advertising services are recorded as an
expense or prepaid asset, as appropriate, based on the lower of the estimated
fair value of the services received or the cash value of the ClickMiles issued.
Revenues from such barter transactions are accounted for on the same basis as
cash transactions; i.e., the product component of revenues is deferred until
redemption and the marketing services component is recognized over the service
period. In 1998, approximately $956,000 of advertising expense was recognized
under these arrangements, of which 74% was transacted with two Merchants.
ClickMiles exchanged for advertising are non-returnable and must be awarded by
the Merchant within a specified time frame. Program-related service revenues
for 1998 include $296,000 from an Internet portal which provided the
advertising services but permitted the ClickMiles it purchased to expire
unissued.

Program-related revenues are comprised of the service component of ClickMiles
described above, as well as advertising and other direct marketing services
provided to Merchants, and are recognized as these services are performed.

Technical consulting service revenues are provided by Netcentives
Professional Services (NPS) and are recognized as the services are performed.
NPS offers consulting services in relationship marketing, developing e-commerce
applications and implementing our promotion solutions.

Accrued Redemption Costs--The Company issues ClickMiles to certain Merchants
in exchange for Member referrals and other cross-promotional activities, and
awards ClickMiles directly to Members in connection with promotional and other
activities. These ClickMiles are accounted for as expenses and an accrual is
recorded at the time they are exchanged for these services for the expected
costs to be incurred at redemption.

Advertising Costs--Advertising costs are expensed as incurred. The Company
does not incur any direct-response advertising costs. Advertising expense was
approximately $12,000 in 1996, $534,000 in 1997 and $3,652,000 in 1998.

F-8
<PAGE>

NETCENTIVES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Stock-Based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.

The Company accounts for equity instruments issued to nonemployees in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation, and Emerging Issues
Task Force ("EITF") Issue No. 96-18, Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services, which requires that the fair value of such instruments be
recognized as an expense over the period in which the related services are
received.

Segment Reporting--Effective January 1, 1998, the Company adopted SFAS No.
131, Disclosures About Segments of an Enterprise and Related Information. In
1998, the Company operated in a single reportable segment and will evaluate
additional segment disclosure requirements as it expands its operations.

Comprehensive Income--For the periods presented, the Company's comprehensive
loss, as defined by SFAS 130, Reporting Comprehensive Income, is equal to its
net loss.

Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses. Actual results
will differ from these estimates.

Concentration of Credit Risk--Financial instruments that potentially subject
the Company to concentrations of credit risk consist of cash and equivalents,
short-term investments, and accounts receivable. Risks associated with cash are
mitigated by banking and creditworthy institutions. Cash equivalents and short-
term investments consist primarily of governmental obligations, commercial
paper and bank certificates of deposit and are regularly monitored by
management. Credit risk with respect to the trade receivables is spread over
diverse customers who make up the Company's customer base. At December 31,
1997, three customers accounted for 43%, 26% and 26% of total accounts
receivable. At December 31, 1998, one customer accounted for 17% of total
accounts receivable.

Recently Issued Accounting Standards--In March 1998, the American Institute
of Certified Public Accountants issued Statement of Position ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, which requires the capitalization of direct costs after
management commits to funding a project it believes will be completed and used
to perform the functions intended. The Company adopted SOP 98-1 in 1999 as it
is applicable to certain software systems internally developed by the Company.
Through December 31, 1998, no development costs had been capitalized. During
the six months ended June 30, 1999, the Company capitalized $675,000 of
development costs.

In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was released. The statement requires the recognition of all
derivatives as either assets or liabilities in the balance sheet and the
measurement of those instruments at fair value. The accounting for changes in
the fair value of a derivative depends on the planned use of the derivative and
the resulting designation. The Company is required to implement the statement
in the first quarter of fiscal 2000. The Company has not used derivative
instruments and is still evaluating the statement's impact.

Fair Value of Financial Instruments--The carrying amount of cash and cash
equivalents, accounts receivable, capital leases and long-term debt approximate
fair value, based on management's estimate.

F-9
<PAGE>

NETCENTIVES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Unaudited Interim Financial Statements--Interim financial statements as of
June 30, 1999 and for the six months ended June 30, 1998 and 1999 are unaudited
but have been prepared in accordance with generally accepted accounting
principles for interim financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. The results of operations
of any interim period are not necessarily indicative of the results of
operations for the full year.

Reclassifications--Certain prior year amounts have been reclassified for
consistency with the current year presentation. Such reclassifications had no
impact to net loss or total stockholders' equity.

3. Acquisition of Panttaja

On December 18, 1998, the Company acquired all of the outstanding shares and
assumed the outstanding options of Panttaja Consulting Group, Inc.
("Panttaja"), a software consulting firm, in exchange for 808,780 shares of
common stock valued at $2,548,000, cash of $194,000 and options to purchase
455,648 shares of Company stock at $0.254 per share, of which 306,755 were
vested at the date of the acquisition and have been included as part of the
acquisition price at their fair value of $936,000. The common stock includes
200,000 shares subject to vesting over a four-year period, which has initially
been recorded as deferred stock compensation and will be expensed over the
vesting period. The Company also agreed to pay the stockholders additional cash
of up to $450,000 within 13 months following closing based on meeting certain
employment retention milestones, which was considered probable at the time of
the acquisition and has been accrued as part of the purchase price of Panttaja.

The acquisition was accounted for as a purchase and, accordingly, the results
of operations of Panttaja since the date of acquisition have been included in
the Company's consolidated financial statements. The total consideration
exceeded the fair value of the net assets acquired by $3,526,000, which
represents the value of the existing consulting relationships and is being
amortized on a straight-line basis over two years.

The following unaudited pro forma information shows the results of operations
for the two years ended December 31, 1997 and 1998 as if the Panttaja
acquisition had occurred at the beginning of the year. The results are not
necessarily indicative of what would have occurred had the acquisition actually
been made at the beginning of the respective periods presented or of future
operations of the combined companies (in thousands, except per share
information).

<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Total revenues........................................... $ 3,005 $ 4,079
Net loss................................................. $(6,004) $(16,218)
Net loss per share, basic and diluted.................... $ (4.39) $ (7.12)
</TABLE>

F-10
<PAGE>

NETCENTIVES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. Property and Equipment

Property and equipment consists of (in thousands):

<TABLE>
<CAPTION>
December 31,
-------------- June 30,
1997 1998 1999
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Computer equipment............................... $ 557 $2,131 $ 4,586
Office and furniture equipment................... 340 192 452
Leasehold improvements........................... 194 237 426
Internal use software............................ -- -- 675
------ ------ -------
Total............................................ 1,091 2,560 6,139
Accumulated depreciation......................... (158) (702) (1,865)
------ ------ -------
Total property and equipment--net................ $ 933 $1,858 $ 4,274
====== ====== =======
</TABLE>

At June 30, 1999, the capitalized internal use software costs relate to
projects which were under development and no amortization has been recorded.
Such costs are expected to be amortized over two to three years, depending on
the specific project. At December 31, 1998 the Company had assets under capital
lease with a net book value of $236,000.

5. Bank Loan Payable and Line of Credit

The Company had a bank loan with principal outstanding at December 31, 1997
of $200,000. During the year ended December 31, 1998, this loan was paid in
full.

In connection with the Panttaja acquisition, the Company assumed a $100,000
bank loan which was repaid in January 1999. The Company pays interest based on
a variable rate determined by the bank (10.5% at December 31, 1998). At
December 31, 1998, the amount due on the credit line is $100,000. Accounts
receivable are pledged as collateral on this line of credit. The borrowing
agreement includes various covenants, including restrictions on payments of a
note payable to an officer.

6. Long-term Obligations

Long-term obligations consist of the following (in thousands):

<TABLE>
<CAPTION>
December
31,
----------- June 30,
1997 1998 1999
---- ------ -----------
(unaudited)
<S> <C> <C> <C>
Notes payable........................................ $262 $1,155 $ 996
Capital lease obligations............................ -- 193 135
Note payable to officer.............................. -- 48 48
Panttaja acquisition payable (note 3)................ -- 450 252
Other................................................ -- 51 --
---- ------ ------
Total................................................ 262 1,897 1,431
Less current portion................................. 66 664 458
---- ------ ------
Long-term obligations................................ $196 $1,233 $ 973
==== ====== ======
</TABLE>

The notes payable are collateralized by the assets purchased with the
proceeds of these borrowings and are payable in monthly installments through
November 2001. The borrowings bear interest ranging from 9.15% to 14%.

F-11
<PAGE>

NETCENTIVES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The note payable to officer bears interest at 8%, is subordinated to other
debt of the Company and may not be repaid until other long-term debt is repaid.

During 1997, the Company issued $1.3 million of promissory notes. These notes
bore interest at 5.93% and were due in 120 days. In addition, the noteholders
received warrants to buy 156,075 shares of Series B Preferred Stock at $1.00
per share (see Note 7). All of these notes were converted into shares of Series
C Convertible Preferred Stock concurrent with the sale of Series C Preferred
Stock in September 1997. The conversion price was the same price as the cash
sale price of the Series C Preferred Stock.

Maturities of long-term debt and capital leases as of December 31, 1998 are
as follows (in thousands):

<TABLE>
<CAPTION>
Capital
Year Ending December 31, Debt Leases
------------------------ ------ -------
<S> <C> <C>
1999.......................................................... $ 577 $103
2000.......................................................... 600 82
2001.......................................................... 527 32
------ ----
Total payments................................................ $1,704 217
======
Less amount representing interest............................. (24)
----
Present value of capital leases............................... $193
====
</TABLE>

7. Stockholders' Equity

Convertible Preferred Stock

At December 31, 1998, the amounts, terms and liquidation values of the
Company's preferred stock are as follows:
<TABLE>
<CAPTION>
Amount,
Shares Net of Aggregate
Shares Issued and Issue Liquidation
Series Designated Outstanding Costs Preference
------ ---------- ----------- ------- -----------
(In thousands)
<S> <C> <C> <C> <C>
A................................. 1,452,613 1,452,613 $ 937 $ 944
B................................. 660,391 485,000 472 485
C................................. 7,787,155 7,754,847 10,065 10,081
D................................. 5,500,000 5,476,192 17,231 17,250
N................................. 650,000 -- -- --
---------- ---------- ------- -------
Total........................... 16,050,159 15,168,652 $28,705 $28,760
========== ========== ======= =======
</TABLE>

Significant terms of the outstanding preferred stock are as follows:

. Each share of preferred stock is convertible into shares of common stock
on a one-for-one basis, subject to adjustment in certain instances, at
the option of the stockholder. Such shares will be converted
automatically following the effectiveness of a registration statement
under the Securities Act of 1933 meeting certain criteria or the
affirmative vote of the holders of a majority of the shares of preferred
stock outstanding at the time of such vote.

. Except for Series N, each share of preferred stock has voting rights
equivalent to the number of shares of common stock into which it is
convertible. In addition, holders of each series of preferred stock are
entitled as a group to elect two members of the Board of Directors.
Series N has no voting rights.

F-12
<PAGE>

NETCENTIVES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

. Stockholders are entitled to receive noncumulative dividends as declared
by the Board of Directors out of any assets legally available, prior to
and in preference to any declaration or payment of any dividend on the
common stock. The dividend rate for Series A, Series B, Series C, Series
D and Series N preferred stock per share per annum is $0.052, $0.08,
$0.104, $0.252 and $.08 respectively. No dividends have been declared as
of December 31, 1997 and 1998.

. In the event of liquidation, dissolution or winding up of the Company,
stockholders of Series A, Series B, Series C, Series D and Series N
preferred stock are entitled to receive $0.65, $1.00, $1.30, $3.15 and
$1.00 per share, respectively, plus any declared and unpaid dividends
with respect to such shares prior to any distributions to common
stockholders or non-voting convertible stockholders. If the assets and
funds to be distributed are insufficient to permit full payment, then the
funds shall be distributed on a pro rata basis. Upon completion of the
distribution, the holders of the common stock will receive all remaining
assets of the corporation.

Deferred Stock Expense-Warrants

During 1997, the Company issued warrants to purchase 410,000 shares of Series
N preferred stock at $1.00 per share to various airlines in connection with
their airmile purchase agreements (see Note 12). The warrants vest over three
years, subject to continuation of exclusivity arrangements with such airlines,
and expire in four or five years. Also during 1997, the Company issued warrants
to purchase 120,000 shares of Series N preferred stock at $1.30 per share to
one of its Merchants. The warrants vest over two years, subject to certain
exclusivity provisions, and expire in four years. All of the warrants permit
the holder to "net exercise" and receive shares of stock with a value equal to
the net appreciation at the time of exercise. Because the vesting of these
warrants is subject to maintaining the exclusivity of the arrangement with
these partners, the valuation of the warrants is not finalized until their
vesting date. The value of these warrants has been estimated using the Black-
Scholes option pricing model with the following assumptions: expected life, the
term of the option; risk-free interest rate of 5.8% in 1997 and 4.6% in 1998;
volatility of 70% in 1997 and 95% in 1998; and no dividend during the expected
term. The estimated value of such warrants is being expensed over the related
exclusivity periods. At December 31, 1997 and 1998, 90,000 and 204,000
warrants, respectively, were vested. The value of the warrants is estimated and
is adjusted each period until the exclusivity milestones are met and the
warrants vests. The initial value of the warrants issued in 1997 was estimated
at $281,000; this was increased by $1,038,000 in 1998 and $938,000 in the first
six months of 1999. Operating expenses include $63,000, $811,000 and $943,000
in 1997 and 1998 and the six months ended June 30, 1999, respectively, relating
to these warrants. The value relating to the unvested warrants of $440,000 as
of June 30, 1999 is subject to adjustment for changes in the future value of
the Company's common stock.

During 1997, the Company issued warrants to purchase 175,391 shares of Series
B preferred stock at an average price of $1.16 per share in connection with the
Company's financing transactions. During 1998, the Company issued warrants to
purchase 31,948 shares of Series C preferred stock at an average price of $1.30
per share in connection with the Company's financing transactions. The
estimated fair value of these warrants on their grant date was $105,000 in 1997
and $31,000 in 1998, which is being expensed over the term of the related
financings. The Company has included in interest expense $13,000, $30,000 and
$15,000 for the portion relating to 1997 and 1998, and the six months ended
June 30, 1999, respectively.

All warrants issued were outstanding at December 31, 1998; warrants to
purchase 75,000 shares of Series B were exercised in the six months ended June
30, 1999.

F-13
<PAGE>

NETCENTIVES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Receivables from Sales of Stock

At December 31, 1997 and 1998 and June 30, 1999, receivables from sales of
stock included notes receivable from an officer of the Company were comprised
of:

<TABLE>
<CAPTION>
Stock Purchased
-------------------------------
Issue Date Amount Number Per Share Interest Rate
---------- -------- --------- --------- -------------
<S> <C> <C> <C> <C>
August 1997 $ 60,000 500,000 $0.12 6.29%
November 1997 157,290 1,048,600 0.15 6.01
December 1998 130,000 200,000 0.65 4.47
January 1999 100,000 N/A N/A 4.47
</TABLE>

These notes are secured by common stock and are due four years from the issue
date. The 1997 and 1998 notes are full recourse and the 1999 note is non-
recourse. The 1997 stock sales were made at fair market value. The December
1998 loan financed a stock purchase made in October 1998. That stock sale was
made when the fair value of the shares was deemed to be $3.15 per share, and
accordingly, $500,000 of deferred compensation was recorded relating to this
transaction. The January 1999 loan represents a cash loan secured by the shares
of stock previously purchased by the officer. The stock sold in connection with
these notes is subject to repurchase at the original sale price; this right
lapses ratably over a four-year period subject to the officer's continued
employment. At December 31, 1998, 1,167,875 shares of common stock were subject
to this repurchase right.

Stock Option Plan

The Company has a stock option plan (the 1996 Stock Option Plan), under which
incentive and non-qualified options to purchased 5,671,400 shares of common
stock may be granted to employees and independent contractors. Options
generally vest in installments over four years from the grant date and expire
ten years from the grant date.

A summary of activity under the option plan is set forth below:

<TABLE>
<CAPTION>
Outstanding Stock Options
---------------------------
Weighted Average
Number of Exercise Price
Shares per Share
--------- ----------------
<S> <C> <C>
1996 Grants (weighted average fair value of
$0.02 per share).............................. 205,500 $0.10
--------- -----
Outstanding, December 31, 1996................. 205,500 0.10
Granted (weighted average fair value of $0.03
per share).................................... 1,221,550 0.12
Exercised...................................... (122,083) 0.10
Canceled....................................... (16,000) 0.10
--------- -----
Outstanding, December 31, 1997 (284,749
exercisable at a weighted average price of
$0.10)........................................ 1,288,967 0.12
Granted (weighted average fair value of
$0.70 per share).............................. 2,676,645 0.64
Issued in connection with Panttaja
acquisition................................... 455,648 0.25
Exercised...................................... (114,606) 0.17
Canceled....................................... (218,137) 0.15
--------- -----
Outstanding, December 31, 1998 (914,132
exercisable at a weighted average price of
$0.26)........................................ 4,088,517 $0.51
========= =====
</TABLE>

At December 31, 1998, options to purchase 1,346,194 shares of common stock
were available for grant.

F-14
<PAGE>

NETCENTIVES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

During the six months ended June 30, 1999, the Company issued options to
purchase 1,203,965 shares of common stock at a weighted average exercise price
of $6.56 per share.

Additional information regarding options outstanding as of December 31, 1998
is as follows:

<TABLE>
<CAPTION>
Stock Options Outstanding Options Exercisable
------------------------------------- --------------------
Weighted Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Life Exercise Number Exercise
Exercise Prices Outstanding (years) Price Exercisable Price
--------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10-$0.15...... 1,447,559 8.83 $0.14 459,428 $0.13
$0.20-$0.25...... 681,938 9.83 0.25 280,240 0.25
$0.35-$0.65...... 699,588 9.75 0.64 149,000 0.60
$1.05............ 1,259,432 9.92 1.05 25,464 1.05
--------- ---- ----- ------- -----
4,088,517 9.51 $0.51 914,132 $0.26
========= ==== ===== ======= =====
</TABLE>

Shares of common stock sold to employees, directors and consultants under
stock purchase agreements are subject to repurchase at the Company's option
upon termination of their employment or services at the original purchase
price. This right to repurchase expires ratably over the vesting period. At
December 31, 1997 and 1998, respectively, 2,578,985 and 2,105,585 shares were
subject to such repurchase right.

Deferred Stock Expense-Employee Compensation

In connection with certain equity transactions during the year ended December
31, 1998 and the six months ended June 30, 1999, the Company recorded deferred
stock compensation of $7,571,000 and $70,000, respectively, for the difference
between the exercise or sale price of the stock and deemed fair value of the
stock at that time. The 1998 total consists of $7,071,000 related to stock
option grants (including $432,000 arising from the Panttaja acquisition) and
$500,000 related to common stock sold to an officer of the Company. An
additional $630,000 arose from shares of common stock issued in connection with
the Panttaja acquisition which are subject to vesting. The 1999 total consists
of $70,000 related to stock option grants. Deferred compensation related to
stock option grants is being amortized over the four-year vesting periods of
the related options. Amortization of such expense during 1998 and the six
months ended June 30, 1999 totaled approximately $296,000 and $1,084,000,
respectively.

Additional Stock Plan Information

Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, requires the disclosure of pro forma net loss and net loss
per share had the Company adopted the fair value method. The fair value of
stock-based awards to employees has been calculated using the minimum value
method with the following weighted average assumptions: expected life, 48
months; risk-free interest 5.8% in 1996 and 1997 and 4.6% in 1998; and no
dividends during the expected term. The Company's calculations are based on a
single option valuation approach, and forfeitures are recognized as they occur.
If the computed fair values of the Company's awards had been amortized to
expense over their related vesting periods, the effect would have been to
increase net loss to $271,000 ($0.99 per share) in 1996, $4,313,000 ($5.88 per
share) in 1997 and $14,427,000 ($8.78 per share) in 1998.

F-15
<PAGE>

NETCENTIVES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Net Loss Per Share

The following is a reconciliation of the numerators and denominators used in
computing basic and diluted net loss per share (in thousands):

<TABLE>
<CAPTION>
Period from
June 21, 1996
(inception) Years Ended Six Months
through December 31, Ended June 30,
December 31, ----------------- -----------------
1996 1997 1998 1998 1999
------------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net loss (numerator),
basic and diluted..... $ (266) $(4,180) $(14,111) $(5,131) $(16,149)
====== ======= ======== ======= ========
Shares (denominator):
Weighted average
common shares
outstanding......... 1,074 2,372 3,818 3,757 5,138
Weighted average
common shares
outstanding subject
to repurchase....... (801) (1,638) (2,174) (2,361) (1,971)
------ ------- -------- ------- --------
Shares used in
computation, basic and
diluted............... 273 734 1,644 1,396 3,167
====== ======= ======== ======= ========
Net loss per share,
basic and diluted..... $(0.97) $ (5.70) $ (8.58) $ (3.68) $ (5.10)
====== ======= ======== ======= ========
Shares used in
computation, basic and
diluted............... 1,644 3,167
Weighted average
preferred stock
outstanding........... 11,778 17,640
-------- --------
Shares used in
computing pro forma
per share amounts on a
converted basis....... 13,422 20,807
======== ========
Pro forma net loss per
share on a converted
basis--basic and
diluted............... $ (1.05) $ (0.78)
======== ========
</TABLE>

Pro forma net loss per share assumes that the conversion of all shares of
convertible preferred stock into common stock, which occurs upon the
consummation of the initial public offering contemplated by this Prospectus,
had occurred as of the beginning of 1998.

For the above mentioned periods, the Company had securities outstanding which
could potentially dilute basic earnings per share in the future, but were
excluded in the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following (in thousands):

<TABLE>
<CAPTION>
Period from
June 21, 1996 Six Months
(inception) Years Ended Ended
through December 31, June 30,
December 31, ------------ ------------
1996 1997 1998 1998 1999
------------- ----- ------ ----- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Convertible preferred stock........ 1,938 9,693 15,169 9,693 20,522
Shares of common stock subject to
repurchase........................ 1,614 2,579 2,106 2,142 1,745
Outstanding options................ 206 1,289 4,089 1,851 4,849
Warrants........................... -- 705 737 737 662
</TABLE>

F-16
<PAGE>

NETCENTIVES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

9. Income Taxes

The Company's net deferred tax assets were comprised of the following (in
thousands):

<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Net deferred tax assets:
Net operating loss carryforwards......................... $ 1,409 $ 6,058
General business credits................................. -- 158
Accrued expenses and reserves............................ 11 1,265
Other timing differences................................. -- 276
------- -------
1,420 7,757
Valuation allowance........................................ (1,420) (7,757)
------- -------
Net deferred tax assets.................................... $ -- $ --
======= =======
</TABLE>

Deferred income taxes result from temporary differences in the recognition of
certain assets and liabilities for financial statement and tax return purposes
and from net operating loss carryforwards. Due to the uncertainty surrounding
the realization of its net deferred tax assets, at December 31, 1997 and 1998,
the Company has fully reserved its net deferred tax assets of approximately
$1,420,000 and $7,757,000, respectively.

The Company's effective tax rate differed from the expected benefit at the
federal statutory tax rate as follows:

<TABLE>
<CAPTION>
Years Ended
June 21, 1996 December 31,
(inception) to ---------------
December 31, 1996 1997 1998
------------------ ------ ------
<S> <C> <C> <C>
Federal statutory tax rate............... (35.0)% (35.0)% (35.0)%
State taxes, net of federal benefit...... (5.7) (5.7) (5.7)
Other.................................... 6.9 8.9 (4.2)
Valuation allowance...................... 33.8 31.8 44.9
----- ------ ------
Effective tax rate..................... -- % -- % -- %
===== ====== ======
</TABLE>

At December 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $14,200,000 which expires through
2018. In addition, the Company had, at December 31, 1998, a net operating loss
carryforward for California state income tax purposes of approximately
$14,100,000 which expires through 2004.

At December 31, 1998, the Company also has research and development credit
carryforwards of approximately $109,000 and $49,000 available to offset future
federal and state income taxes, respectively. The federal credit expires
through 2018, and the state credit carryforward has no expiration.

Current federal and California state tax laws include substantial
restrictions on the utilization of net operating losses and tax credits in the
event of an "ownership change" of a corporation. Accordingly, the Company's
ability to utilize net operating loss and tax credit carryforwards may be
limited as a result of such "ownership change" as defined. Such a limitation
could result in the expiration of carryforwards before they are utilized.

F-17
<PAGE>

NETCENTIVES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10. Employee Benefit Plan

The Company has a 401(k) plan for its employees who meet certain service and
age requirements. Participants may contribute up to 15% of their salaries up to
amounts specified under the Internal Revenue Code. The Company does not
contribute to this plan.

11. Significant Customers and Merchant Relationships

In 1996, no sales were recorded by the Company. In 1997, one Merchant
accounted for 85% of net revenues and 82% of the ClickMiles awarded by all
Merchants during the year. In 1998, two customers accounted individually for
46% and 13% of revenues. Additionally, two Merchants accounted individually for
34% and 21% of the ClickMiles awarded by Merchants during 1998.

12. Airline Arrangements

The Company has entered into certain long-term arrangements to purchase
airmiles from its airline suppliers. At December 31, 1998, the Company had
prepaid for airmiles with a cost of $1,600,000 which are available for
redemption by Members. Certain of these airmiles expire if not exchanged by
Members for ClickMiles within specified time periods, including $237,000 which
are subject to expiration in 1999.

The contracts require certain minimum annual airmile purchases in order for
the Company to maintain its exclusivity agreement. These future minimum
payments, including excise tax, are as follows (in thousands):

<TABLE>
<S> <C>
Year ending December 31:
1999............................................................ $1,142
2000............................................................ 1,432
2001............................................................ 860
------
Total......................................................... $3,434
======
</TABLE>

13. Leases

The following is a schedule of future lease payments required under
noncancelable operating leases, as of December 31, 1998 (in thousands):

<TABLE>
<S> <C>
Year Ending December 31,
1999........................................................... $ 552
2000........................................................... 459
2001........................................................... 119
------
Total minimum payments....................................... $1,130
======
</TABLE>

Rent expense under all rental agreements was $8,000 in 1996, $158,000 in 1997
and $334,000 in 1998.

F-18
<PAGE>

NETCENTIVES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

14. Consolidated Statement of Cash Flows Information

A reconciliation of net loss to net cash used in operating activities follows
(in thousands):

<TABLE>
<CAPTION>
June 21, 1996 Years Ended Six Months
(Inception) to December 31, Ended June 30,
December 31, ----------------- -----------------
1996 1997 1998 1998 1999
-------------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss................ $(266) $(4,180) $(14,111) $(5,131) $(16,149)
Reconciliation to net
cash used in operating
activities:
Depreciation and
amortization.......... 8 150 629 235 2,041
Deferred stock
compensation expense.. -- -- 296 31 1,084
Expenses relating to
stock warrants........ -- 76 841 130 958
Advertising expense
arising from barter
transactions.......... -- -- 956 355 608
ClickMiles issued for
services.............. -- -- 587 95 1,531
Changes in operating
assets and
liabilities:
Accounts receivable... -- (23) (201) (155) 126
Prepaid incentive
awards............... -- (703) (897) (253) (3)
Prepaid expenses...... (19) (220) 115 (29) 56
Other assets.......... (2) (31) (155) (249) (62)
Accounts payable...... 71 512 281 140 (541)
Accrued compensation
and benefits......... -- 13 877 126 100
Accrued redemption
costs................ -- -- (78) 9 (184)
Other accrued
liabilities.......... 38 266 477 124 1,605
Deferred revenue--
product and
services............. -- 59 848 334 1,797
----- ------- -------- ------- --------
Net cash used in
operating
activities.......... $(170) $(4,081) $ (9,535) $(4,238) $ (7,033)
===== ======= ======== ======= ========
</TABLE>

15. Subsequent Events

In March and April 1999, the stockholders of the Company approved the
increase of the number of authorized shares of its common stock to 33,240,000
and its preferred stock to 21,329,221 and designated 5,279,062 shares as Series
E Preferred Stock. The Series E Preferred Stock has similar rights and
preferences to the other series of preferred stock (see Note 7), other than its
liquidation preference of $6.82 per share and its annual dividends which, if
declared, would be $0.546 per share.

In March 1999, the Company sold 3,519,053 shares of Series E Preferred Stock
to investors for aggregate proceeds of approximately $23,000,000, net of
expenses. In April and June 1999, the Company sold an additional
1,759,530 shares of Series E Preferred Stock to investors for aggregate
proceeds of approximately $12,000,000, net of expenses.

In May 1999, the stockholders of the Company approved the following:

. Adoption of the 1999 Employee Stock Purchase Plan, and reserved 300,000
shares of common stock (increasing by 75,000 shares in each of the
following five years) for sale to employees at a price no less than 85%
of the lower of fair market value at the beginning of the two-year
offering period or the end of each of the six-month purchase periods.

. Adoption of the 1999 Outside Directors Stock Option Plan, and reserved
400,000 shares of common stock (increasing by 50,000 shares in each of
the following five years) for grants of options to each

F-19
<PAGE>

NETCENTIVES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

outside director to purchase 40,000 shares of common stock at fair market
value as of the grant date, as well as additional option grants for 10,000
shares to be issued in each subsequent year.

. The reincorporation of the Company into Delaware by exchanging one share
of common stock of the successor Delaware corporation for each share of
common stock of the predecessor California corporation.

. The number of shares of authorized but unissued preferred stock was
designated at 5,000,000. Such authorization is contingent upon the
completion of the closing of the initial public offering contemplated by
this Prospectus.

In June 1999, the stockholders of the Company approved an increase in the
number of authorized shares available under the Employee Stock Option Plan by
2,000,000 shares and provided for annual increases of 1,250,000 shares in each
of the following five years.

On March 31, 1999, the Company entered into a Patent License Agreement with
MyPoints.com. Under this agreement, the Company earns royalties based on the
issuance of points by MyPoints.com with such royalties recorded as program
related services revenue. During the six months ended June 30, 1999, the
Company recognized approximately $66,000 of royalties.

In May 1999, the Company entered into a seven-year operating lease for a new
headquarters facility. The lease, which is expected to commence in January
2000, requires annual rental payments ranging from approximately $2,600,000 to
$2,900,000 over the term of the lease. The Company is required to obtain a
letter of credit of approximately $2,400,000 as a security deposit prior to
lease commencement (of which $500,000 was obtained in May 1999 and
approximately $1,900,000 was obtained in August 1999), a portion of which may
be released over the term of the lease. The letters of credit are
collaterialized by time deposits which are included in other assets.

In July 1999, the Company borrowed $1.2 million under a note payable, which
is collateralized by certain assets of the Company. The borrowing is payable
in monthly installments through June 2002 and bears interest at 14.44%.

In July 1999, the Company issued to a customer a warrant to purchase 150,000
shares of common stock at an exercise price of $8.00 per share in exchange for
advertising to be provided on the customer's web sites. The warrant was fully
vested upon issuance and expires in July 2001. The estimated fair value of the
advertising to be received, which is equal to the fair value of the warrant of
approximately $630,000, will be recorded in the third quarter of 1999 and will
be expensed at the time the advertising services are provided.

In August 1999, the Company issued 100,000 shares of common stock in
connection with the hiring of an employee. The shares vest in tranches over
one year and the fair value of the common stock of approximately $1,000,000
will be charged to expense over the vesting period.

On September 9, 1999, the Company agreed to issue to one of its suppliers a
warrant to purchase 85,000 shares of common stock at $11.00 per share in
connection with the extension of its exclusive supply arrangement. The warrant
is fully vested and expires in three years. The estimated value of the warrant
of $580,000 will be recorded in the third quarter of 1999 and expensed over
the one year exclusivity term.

* * * * *

F-20
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Panttaja Consulting Group, Inc.:

We have audited the accompanying statements of operations and cash flows of
Panttaja Consulting Group, Inc. (the "Company") for the years ended November
30, 1997 and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such financial statements referred to above present fairly,
in all material respects, the result of the Company's operations and its cash
flows for the years ended November 30, 1997 and 1998 in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP

San Jose, California
March 12, 1999

F-21
<PAGE>

PANTTAJA CONSULTING GROUP, INC.

STATEMENTS OF OPERATIONS
(In thousands)

<TABLE>
<CAPTION>
Years Ended
November 30,
----------------
1997 1998
------- -------
<S> <C> <C>
Net revenues................................................. $ 3,361 $ 4,048
Cost of revenues............................................. (1,777) (2,521)
------- -------
Gross profit............................................. 1,584 1,527
Selling, general and administrative expenses................. (1,416) (1,624)
------- -------
Income (loss) from operations................................ 168 (97)
Interest income.............................................. 1 1
Interest expense............................................. (39) (42)
Other income (expense), net.................................. 1 (4)
------- -------
Income (loss) before taxes on income......................... 131 (142)
Income tax (expense) benefit................................. (39) 24
------- -------
Net income (loss)............................................ $ 92 $ (118)
======= =======
</TABLE>

See notes to financial statements.

F-22
<PAGE>

PANTTAJA CONSULTING GROUP, INC.

STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Years Ended
November 30,
--------------
1997 1998
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................. $ 92 $ (118)
Reconciliation to net cash used in operating activities:
Depreciation................................................ 90 87
(Gain) loss from disposition of fixed assets................ (1) 4
Deferred income tax provision............................... 36 (25)
Changes in operating assets and liabilities:
Accounts receivable....................................... 62 (382)
Other receivable.......................................... 2 1
Prepaid expenses.......................................... 4 (5)
Accounts payable.......................................... (116) 332
Accrued liabilities....................................... (11) 61
Deferred revenues......................................... (14) 7
------ ------
Net cash provided (used) in operating activities........ 144 (38)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........................... (5) (31)
Sale of property and equipment................................ 7 9
------ ------
Net cash provided (used) in investing activities........ 2 (22)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts from short-term borrowing............................ 55 141
Repayments of capital leases.................................. (58) (80)
Repayments of debt............................................ (115) (44)
Proceeds from issuing common stock............................ -- 4
------ ------
Net cash provided (used) in financing activities........ (118) 21
------ ------
NET INCREASE (DECREASE) IN CASH................................. 28 (39)
CASH, Beginning of year......................................... 16 44
------ ------
CASH, End of year............................................... $ 44 $ 5
====== ======
SUPPLEMENTAL DISCLOSURES--
Noncash investing and financing transactions--
Capital lease obligation incurred for equipment............... $ 82 $ 105
====== ======
</TABLE>

See notes to financial statements.

F-23
<PAGE>

PANTTAJA CONSULTING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
Years ended November 30, 1997 and 1998

1. Business and Significant Accounting Policies

Line of Business--Panttaja Consulting Group, Inc.'s (the "Company") provides
software consulting, development, and educational services in the internet and
client/server market sectors. The Company was incorporated in January 1990.

Revenue--The Company's revenues consist primarily of fees for services,
including consulting and education. Consulting services are primarily provided
on a time and materials basis. Educational services are generally priced on a
per student basis. Consulting and education revenues are recognized as the
services are performed.

Cost of Revenues--The cost of services consists primarily of compensation and
travel costs associated with providing consulting and education.

Cash and Cash Equivalents--The Company considers all highly liquid
investments with original maturities of ninety days or less to be cash
equivalents.

Depreciation--Depreciation is computed using the straight-line method over
the estimated useful lives of the related assets which range from five to ten
years. Amortization of leasehold improvements is computed over the shorter of
the lease term or the estimated useful lives of the improvements.

Income Taxes--The Company accounts for income taxes using an asset and
liability approach. Deferred income taxes and liabilities result from temporary
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible
amounts in future years. Valuation allowances are provided when necessary to
reduce deferred tax assets to the amount expected to be realized.

2. Major Customers

Three customers accounted for 10%, 11%, and 18% of total revenues for the
year ended November 30, 1997. Two customers accounted for 15% and 18% of total
revenues for the year ended November 30, 1998.

3. Leases

Rent expense was $171,000 and $181,000 for the years ended November 30, 1997
and 1998 respectively.

F-24
<PAGE>

PANTTAJA CONSULTING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

4. Income Taxes

The provision (benefit) from income taxes consists of (in thousands):

<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Current:
Federal..................................................... $ 2 $ --
State....................................................... 1 1
--- ----
3 1
Deferred--federal............................................. 36 (25)
--- ----
$39 $(24)
=== ====
</TABLE>

5. Employee Benefit Plans

Deferred Compensation Plan

The Company maintains a qualified deferred compensation plan under Section
401(k) of the Internal Revenue Code. Under the plan, employees may elect to
defer up to 10% of their salary, subject to Internal Revenue Service limits.
The plan allows the Company to make discretionary contributions. During 1997
and 1998, all contributions were made by the employees.

Stock Option Plan

The Company has adopted a stock option plan for employees. Under the terms of
the plan, options generally vest over a period of one to four years after date
of grant. Common stock issued upon exercise of these options is subject to the
Company's right of first refusal upon future sale or transfer. This right of
first refusal terminates at such time as a established market exists for the
Company's common stock.

A summary of activity under the option plan follows:

<TABLE>
<CAPTION>
Number of Weighted Average
Shares Price per Share
--------- ----------------
<S> <C> <C>
Outstanding, November 30, 1996.............. 1,790,000 $0.05
Granted (fair value of $0.01 per share)..... 375,000 0.05
Exercised................................... (5,000) 0.05
Canceled.................................... (309,000) 0.05
--------- -----
Outstanding, November 30, 1997.............. 1,851,000 0.05
Granted (fair value of $0.01 per share)..... 1,187,000 0.05
Exercised................................... (86,000) 0.05
Canceled.................................... (510,000) 0.05
--------- -----
Outstanding, November 30, 1998.............. 2,442,000 $0.05
========= =====
</TABLE>

Additional Stock Plan Information

As discussed in Note 1, the Company accounts for its stock-based award using
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations. Accordingly, no compensation expense has been recognized in
the financial statements for employee stock arrangements.

F-25
<PAGE>

PANTTAJA CONSULTING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, requires the disclosure of pro forma net income (loss) had
the Company adopted the fair value method. The fair value of stock-based awards
to employees has been calculated using the minimum value method with the
following weighted average assumptions: expected life, 48 months; risk-free
interest 5.8% in 1997 and 4.6% in 1998; and no dividends during the expected
term. The Company's calculations are based on a single option valuation
approach, and forfeitures are recognized as they occur. If the computed fair
values of awards made in 1997 and 1998 had been amortized to expense over the
vesting period of the awards, the effect on reported net income (loss) would
not have been significant.

6. Subsequent Events

On December 18, 1998, Netcentives Inc. ("Netcentives") acquired all of the
Company's outstanding shares of common stock and assumed all of its outstanding
options, at which time the Company became a wholly owned subsidiary of
Netcentives.

* * * * *

F-26
<PAGE>

NETCENTIVES INC.

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year ended December 31, 1998
(Unaudited, in thousands, except per share amounts)

<TABLE>
<CAPTION>
Pro Forma Pro Forma
Netcentives Panttaja(1) Adjustments Consolidated
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Product................... $ 64 $ -- $ -- $ 64
Program-related services.. 583 -- -- 583
Technical consulting
services................. -- 4,048 (616)(2) 3,432
-------- ------ ------- --------
Total revenues.......... 647 4,048 (616) 4,079
-------- ------ ------- --------
Costs and expenses:
Cost of product revenues.. 59 -- -- 59
Program-related services,
marketing and support
costs.................... 7,293 -- -- 7,293
Cost of technical
consulting services
revenues................. -- 2,521 (368)(2) 2,153
Research and development.. 3,383 -- (248)(2) 3,135
Selling, general and
administrative........... 3,134 1,624 -- 4,758
Amortization of deferred
stock compensation....... 296 -- 266 (3) 562
Amortization of supplier
stock awards............. 811 -- 1,699 (4) 2,510
Amortization of
intangibles.............. 79 -- -- 79
-------- ------ ------- --------
Total costs and
expenses............... 15,055 4,145 1,349 20,549
-------- ------ ------- --------
Loss from operations........ (14,408) (97) (1,965) (16,470)
Other income (expense)...... 297 (45) -- 252
-------- ------ ------- --------
Loss before income tax
provision.................. (14,111) (142) (1,965) (16,218)
Income tax benefit.......... 24 (24)(5) --
-------- ------ ------- --------
Net loss.................... $(14,111) $ (118) $(1,989) $(16,218)
======== ====== ======= ========
Net loss per share--basic
and diluted................ $ (8.58) $ (7.12)
======== ========
Shares used in per share
calculations............... 1,644 634 (6) 2,278
======== ======= ========
</TABLE>

See notes to pro forma consolidated statement of operations.

F-27
<PAGE>

NETCENTIVES INC.

NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Year ended December 31, 1998

On December 18, 1998, Netcentives Inc. ("Netcentives") acquired all of the
outstanding shares and assumed the outstanding options of Panttaja Consulting
Group, Inc. ("Panttaja"), a software consulting firm in exchange for 808,780
shares of common stock valued at $2,548,000, cash of $194,000 and options to
purchase 455,648 shares of Netcentives stock at $0.254 per share, of which
306,755 were vested at the date of acquisition and have been included as part
of the acquisition price at their fair value of $936,000. The common stock
includes 200,000 shares subject to vesting over a four-year period, will be
accounted for as deferred compensation over the vesting period. Netcentives
also agreed to pay the stockholders additional cash up to $450,000 within 13
months following closing based on certain employment levels, which was
considered probable at the time of the acquisition and has been accrued as part
of the purchase price of Panttaja.

The acquisition was accounted for as a purchase and, accordingly, the results
of operations of Panttaja since the date of acquisition have been included in
the Company's financial statements. The total consideration exceeded the fair
value of the net assets acquired by $3,526,000, which has been recorded as the
value of the existing consulting relationships and is being amortized on a
straight-line basis over two years.

The accompanying pro forma statement of operations is presented in accordance
with Article 11 of Regulation S-X.

The pro forma statement of operations for the year ended December 31, 1998
includes the following adjustments to reflect consummation of the transaction
as if it had occurred at the beginning of 1998:

1. Represents Panttaja's historical results of operations for its fiscal
year ended November 30, 1998. The results of operations of Panttaja for the
period December 18 through December 31, 1998 included in Netcentive's
consolidated results of operations were not significant.

2. To eliminate intercompany consulting revenues.

3. To record one year of compensation expense ($158,000) related to the
200,000 share restricted stock arrangement and one year of expense
($108,000) relating to the options granted to Panttaja employees.

4. To record one year of amortization of the intangible assets recorded
in the acquisition.

5. To reverse income tax benefits recorded by Panttaja. Netcentives has
incurred losses since inception and records a full valuation on all
operating loss carryforwards and deferred tax assets.

6. To reflect the assumed issuance of 608,780 unrestricted shares of
common stock issued in connection with the acquisition and the vesting of
50,000 shares of restricted stock during the year.

The adjustments do not give effect to any potential benefits that might have
been realized through the combination of operations and are not necessarily
indicative of the consolidated results which would have been reported if the
Panttaja acquisition had actually occurred at the beginning of the period
presented.

F-28
<PAGE>

[INSIDE BACK COVER]

Title: Netcentives Technical and Marketing Services

Screen shot of Netcentives Professional Services Web page.
Caption: Netcentives Professional Services. Through Netcentives Professional
Services, we provide systems integration and technical consulting services to
clients to help them deploy ClickRewards programs as well as other businesses.

Screen shot of an e-mail that includes graphics.
Caption: Direct Marketing Services. Targeted direct response email to
ClickRewards members. (Sample)

Picture of ClickRewards advertisement including ClickRewards merchant logos.
Caption: Advertising and Promotional Services. We derive revenue from selling
placement in advertising campaigns and banner advertisements. Revenues from
these programs through 6/30/99 were not material. Joint advertising campaign.
(Sample)

Picture of a banner advertisement.
Caption: Joint banner advertisement. (Sample)
<PAGE>

[LOGO OF NETCENTIVES]