<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
NETCENTIVES INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
NETCENTIVES INC.
Notice of Annual Meeting of Stockholders
To Be Held on May 24, 2000
The Annual Meeting of Stockholders (the "Annual Meeting") of Netcentives
Inc., a Delaware corporation (the "Company"), will be held at the principal
executive offices of the Company, located at 475 Brannan Street, Third Floor,
San Francisco, California on Wednesday, May 24, 2000, at 10:00 a.m., local
time, for the following purposes:
1. To elect four (4) Class I directors to serve until the 2002 Annual
Meeting.
2. To approve the amendment of the Company's 1996 Stock Option Plan to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 2,000,000 shares, to an aggregate of
10,921,400 shares (excluding shares that may be added pursuant to the
automatic annual increase provisions of the plan).
3. To approve the amendment of the Company's 1999 Employee Stock Purchase
Plan (a) to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 1,000,000 shares, to an
aggregate of 1,375,000 shares (excluding shares that may be added
pursuant to the automatic annual increase provisions of the plan), and
(b) to change the automatic annual increase on the first day of each of
the Company's fiscal years in 2001 through 2004 to the lesser of 500,000
shares or 2% of our outstanding Common Stock on the last day of the
immediately preceding fiscal year, or such lesser amount determined by
the Board of Directors.
4. To ratify the appointment of Deloitte & Touche LLP as the independent
auditors of the Company for the fiscal year ending December 31, 2000.
5. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
The foregoing items of business, including the nominees for directors, are
more fully described in the Proxy Statement which is attached and made a part
of this Notice.
The Board of Directors has fixed the close of business on April 10, 2000 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and any adjournment or postponement thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, whether or not you expect to attend the Annual Meeting in
person, you are urged to mark, date, sign and return the enclosed proxy card
as promptly as possible in the postage-prepaid envelope provided to ensure
your representation and the presence of a quorum at the Annual Meeting. If you
send in your proxy card and then decide to attend the Annual Meeting to vote
your shares in person, you may still do so. Your proxy is revocable in
accordance with the procedures set forth in the Proxy Statement.
By Order of the Board of Directors,
John F. Longinotti
Executive Vice President, Operations
and CFO
San Francisco, California
April 26, 2000
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED
EXPENSE OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND
SO DESIRE, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY.
<PAGE>
NETCENTIVES INC.
475 Brannan Street
San Francisco, California 94107
PROXY STATEMENT
General
This Proxy Statement is furnished in connection with the solicitation by
Netcentives Inc., a Delaware corporation (the "Company"), of proxies in the
enclosed form for use in voting at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held at the principal executive offices of the
Company, located at 475 Brannan Street, Third Floor, San Francisco, California
94107 on Wednesday, May 24, 2000 at 10:00 a.m., local time, and any
adjournment or postponement thereof.
This Proxy Statement, the enclosed proxy card and the Company's Annual
Report to Stockholders for the fiscal year ended December 31, 1999, including
financial statements, were first mailed to stockholders entitled to vote at
the meeting on or about April 26, 2000.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
John F. Longinotti) a written notice of revocation or a duly executed proxy
bearing a later date, or by attending the Annual Meeting and voting in person.
Record Date; Voting Securities
The close of business on April 10, 2000 has been fixed as the record date
(the "Record Date") for determining the holders of shares of Common Stock of
the Company entitled to notice of and to vote at the Annual Meeting. At the
close of business on the Record Date, the Company had approximately 32,868,411
shares of Common Stock outstanding and held of record by approximately 204
stockholders.
Voting and Solicitation
Each outstanding share of Common Stock on the Record Date is entitled to
one vote on all matters. Shares of Common Stock may not be voted cumulatively.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's transfer agent. The Inspector will also determine whether or not a
quorum is present. The nominees for election as directors at the Annual
Meeting will be elected by a plurality of the votes of the shares of Common
Stock present in person or represented by proxy at the meeting. All other
matters submitted to the stockholders will require the affirmative vote of a
majority of shares present in person or represented by proxy at a duly held
meeting at which a quorum is present, as required under Delaware law for
approval of proposals presented to stockholders. In general, Delaware law also
provides that a quorum consists of a majority of the shares entitled to vote
and present in person or represented by proxy. The Inspector will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum and as negative votes for purposes of
determining the approval of any matter submitted to the stockholders for a
vote.
Any proxy that is returned using the form of proxy enclosed and that is not
marked as to a particular item will be voted FOR the election of directors,
FOR ratification of the appointment of the designated independent auditors and
as the proxy holders deem advisable on other matters that may come before the
meeting, as the case may be with respect to the item not marked. If a broker
indicates on the enclosed proxy or its substitute that it does not have
discretionary authority as to certain shares to vote on a particular matter
("broker non-votes"), those shares will not be considered as present with
respect to that matter. The Company believes that the
1
<PAGE>
tabulation procedures to be followed by the Inspector are consistent with the
general requirements of Delaware law concerning voting of shares and
determination of a quorum.
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing
and mailing proxy solicitation materials for the Annual Meeting and
reimbursements paid to brokerage firms and others for their expenses incurred
in forwarding solicitation materials regarding the Annual Meeting to
beneficial owners of the Company's Common Stock. The Company may conduct
further solicitation personally, telephonically or by facsimile through its
officers, directors and employees, none of whom will receive additional
compensation for assisting with the solicitation.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Board Composition
The Company currently has authorized seven directors. In accordance with
the terms of the Company's Amended and Restated Certificate of Incorporation,
the terms of office of the directors are divided into two classes: Class I,
whose term will expire at the Annual Meeting, 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 current Class I directors are Stewart Alsop,
Tom Byers, Eric W. Tilenius and Virginia M. Turezyn and the Class II directors
are West Shell, Wendell G. Van Auken, and Sergio Zyman. At each annual meeting
of stockholders, 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, the Company's Amended and Restated Certificate of
Incorporation provides that the authorized number of directors may be changed
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 the Company.
Mr. Tilenius has indicated that he will resign as a director of the
Company, effective as of the date of the Annual Meeting. The Board of
Directors has nominated Mr. Michael Solomon to fill the vacancy for a Class I
director at the Annual Meeting.
Nominees
At the Annual Meeting, the stockholders will elect four (4) directors to
serve until the 2002 Annual Meeting of Stockholders or until their respective
successors are elected and qualified. In the event any nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting, the
proxies may be voted for the balance of those nominees named and for any
substitute nominee designated by the present Board or the proxy holders to
fill such vacancy, or for the balance of the nominees named without nomination
of a substitute, or the size of the Board may be reduced in accordance with
the Bylaws of the Company. The Board has no reason to believe that any of the
persons named below will be unable or unwilling to serve as a nominee or as a
director if elected.
Assuming a quorum is present, the four (4) nominees receiving the highest
number of affirmative votes of shares entitled to be voted for them will be
elected as Class I directors of the Company for the ensuing two years. Unless
marked otherwise, proxies received will be voted FOR the election of each of
the four (4) nominees named below. In the event that additional persons are
nominated for election as directors, the proxy holders intend to vote all
proxies received by them in such a manner as will ensure the election of as
many of the nominees listed below as possible, and, in such event, the
specific nominees to be voted for will be determined by the proxy holders.
2
<PAGE>
The names of the nominees, their ages as of April 26, 2000 and certain
other information about them are set forth below:
<TABLE>
<CAPTION>
Director
Name of Nominee Age Position with Company Since
--------------- --- --------------------- --------
<S> <C> <C> <C>
Stewart Alsop............................. 48 Director 1997
Tom Byers, Ph.D........................... 47 Director 1998
Virginia M. Turezyn....................... 42 Director 1996
Michael Solomon........................... 48 N.A. N.A.
</TABLE>
There are no family relationships among any of the directors or executive
officers of the Company.
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 Egreetings
Network, Inc., Be Inc. and TiVo Inc. 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 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.
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 also serves on the
Board of Directors of Viador, Inc., a software company. Ms. Turezyn holds a
B.A. in Accounting from Queens College and is a Certified Public Accountant.
Mr. Solomon has been a partner at the venture partnership Mohr, Davidow
Ventures since 1996. He has served as a board member with a number of his
partnership's portfolio companies, including Brigade Solutions, Collabra, IC
Verify and Telocity. Prior to his involvement in Internet start-up companies,
from 1985 until 1989 Mr. Solomon was the Vice President of Sales and Marketing
of Aldus Corp. Mr. Solomon earned a bachelor's degree in Business
Administration from Kent State University.
Other Directors
The names of the other directors of the Company, their ages as of April 26,
2000, and certain other information about them are set forth below:
<TABLE>
<CAPTION>
Director
Name of Director Age Position with Company Since
---------------- --- --------------------- --------
<S> <C> <C> <C>
West Shell, III............. 45 Chief Executive Officer and 1997
Chairman of the Board of Directors
Wendell G. Van Auken........ 55 Director 1997
Sergio Zyman................ 54 Director 1998
</TABLE>
3
<PAGE>
Mr. Shell was elected to the Company's Board of Directors in January 1997
and as Chairman of the Board of Directors in July 1999. He has served as the
Company's 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. 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.
Meetings and Committees of the Board of Directors
During the period from January 1, 1999 through December 31, 1999 (the "last
fiscal year"), the Board met thirteen (13) times and no director attended
fewer than 75% of the aggregate number of meetings of the Board and meetings
of the committees of the Board on which he or she served. The Board has an
Audit Committee and a Compensation Committee.
The Board does not have a nominating committee or a committee performing
the functions of a nominating committee. A nomination for a director made by a
stockholder must be submitted to John F. Longinotti at the address of the
Company's executive offices set forth above on or before March 3, 2001.
Nominations that are intended to be included in the Company's proxy statement
for the 2001 Annual Meeting must be submitted no later than December 26, 2000.
See "Deadline for Receipt of Stockholder Proposals for 2001 Annual Meeting."
The Audit Committee consists of directors Ms. Turezyn and Messrs. Van Auken
and Zyman, three of the Company's non-employee directors, and held two
meetings during the last fiscal year. The Audit Committee recommends the
engagement of the firm of certified public accountants to audit the financial
statements of the Company and monitors the effectiveness of the audit effort,
the Company's financial and accounting organization and its system of internal
accounting controls.
The Compensation Committee consists of directors Ms. Turezyn, Messrs. Alsop
and Zyman and Dr. Byers, and held three meetings during the last fiscal year.
Its functions are to establish and administer the Company's policies regarding
annual executive salaries and cash incentives and long-term equity incentives.
The Compensation Committee administers the Company's 1996 Stock Option Plan,
1999 Directors' Stock Option Plan and 1999 Employee Stock Purchase Plan.
Compensation of Directors
The Company does not currently compensate its 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. The Company's
directors are generally eligible to participate in the Company's 1996 Stock
Option Plan and, if a director is an employee of Netcentives, to participate
in the Company's 1999 Employee Stock Purchase Plan. Directors who are not
employees will also receive periodic stock option grants under the Company's
1999
4
<PAGE>
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 the
Company's 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 the Company's
Common Stock on the date of grant of an option.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE ELECTION OF ALL NOMINEES NAMED ABOVE.
5
<PAGE>
PROPOSAL NO. 2
APPROVAL OF INCREASE OF SHARES OF COMMON STOCK UNDER OPTION PLAN
We are asking the Company's stockholders to approve an amendment to the
1996 Stock Option Plan (the "Option Plan") that will increase the aggregate
number of shares of Common Stock authorized for issuance by 2,000,000 shares,
to an aggregate of 10,921,400 shares (excluding shares that may be added
pursuant to the automatic annual increase provisions of the Option Plan).
The amendment to the Option Plan that is the subject of this Proposal will
be adopted by the Board on April 26, 2000, subject to stockholder approval at
the Annual Meeting. The proposed share increase will assure that a sufficient
reserve of Common Stock is available under the Option Plan to attract and
retain the services of employees, which is essential to the Company's long-
term growth and success.
The following is a summary of the principal features of the Option Plan as
amended. The summary, however, does not purport to be a complete description
of all the provisions of the Option Plan. Any stockholder of the Company who
wishes to obtain a copy of the actual Option Plan document may do so upon
written request to the Corporate Secretary at the Company's principal
executive offices in San Francisco, California.
Summary of the Option Plan
The Option Plan was originally adopted by the Board of Directors in
November 1996 and approved by the Company's stockholders in August 1997.
Unless terminated earlier by the Board of Directors, the Option Plan
terminates in November 2006. Immediately prior to the increase of shares
described herein, a total of 8,921,400 shares of Common Stock were reserved
for issuance under the Option Plan, plus an automatic annual increase on the
first day of each of our fiscal years beginning in 2001 through 2004 equal to
1,250,000 shares or such lesser number of shares as the Board of Directors
determines.
The plan is not a tax-qualified deferred compensation plan under Section
401(a) of the Internal Revenue Code, and is not subject to the provisions of
the Employee Retirement Income Security Act of 1974, as amended.
During the year ended December 31, 1999, the Company's current executive
officers received grants under the plan of options or stock purchase rights to
purchase 698,000 shares of Common Stock of the Company (12 persons); 195,000
option or stock purchase right grants were made to the Company's current
directors who are not executive officers (six persons); and all other Company
employees, including current officers who are not executive officers, received
grants of options or stock purchase rights to purchase 2,159,235 shares of
Common Stock (203 persons).
The purposes of the Option Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees and consultants of the Company, to promote
the success of the Company's business, and to clearly align the interests of
eligible employees directly with those of the stockholders.
The Option Plan may be administered by the Board of Directors or a
committee of the Board. The Option Plan is currently being administered by the
Compensation Committee of the Board of Directors. The Compensation Committee
has exclusive authority to grant stock options or purchase rights and
otherwise administer the plan with respect to the officers and directors.
The Option Plan provides that either incentive stock options or
nonstatutory stock options may be granted to employees (including officers and
directors) of the Company or any of its subsidiaries. In addition, the plan
provides that nonstatutory stock options may be granted to consultants
(including directors who are not employees of the Company or any of its
subsidiaries). The Plan administrator selects the grant recipients and
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 vesting or exercisability of
6
<PAGE>
options. In making such determination, a number of factors are taken into
account, including the duties and responsibilities of the recipient of a
grant, the value of the recipient's services to Netcentives, the recipient's
present and potential contribution to the success of Netcentives, and other
relevant factors. As of December 31, 1999, there were approximately 221
employees, officers, consultants and directors eligible to receive grants
under the Option Plan.
The Option Plan provides that the maximum number of shares of Common Stock
which may be granted under options and stock purchase rights to any one
employee during any fiscal year is 2,000,000, subject to adjustment as
provided in the plan. There is also a limit on the aggregate market value of
shares subject to all incentive stock options that may become exercisable by
an optionee during any calendar year. 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 the Company's 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 the Company's Chief Executive Officer or the Company's 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 Plan administrator.
All options granted under the plan expire after 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 the Company's stock), or earlier if so determined by
the Plan administrator at the time of grant, and such options also expire
earlier in the event of termination of the optionee's service with
Netcentives. 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.
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 Option
Plan 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.
Certain United States Federal Income Tax Consequences of Option Grants
Options granted under the Option Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
nonstatutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Stock Options
The recipient of an incentive stock option does not incur ordinary taxable
income at the time of grant or exercise of the option. However, the optionee
may incur alternative minimum tax upon exercise of the option. Netcentives is
not entitled to a tax deduction at the time of exercise of an incentive stock
option regardless of the applicability of the alternative minimum tax. Upon
the sale or exchange of the shares at least one year after exercise of the
option by the optionee and at least two years after grant of the incentive
stock option, any gain is treated as long-term capital gain. If both of these
statutory holding period requirements are not satisfied, the optionee
recognizes ordinary taxable income (and Netcentives is entitled to a
corresponding deduction) equal to the difference between the exercise price,
and the lower of the fair market value of the stock at the date of the option
exercise or the sale price of the stock. Any gain to the optionee in excess of
the ordinary income from a
7
<PAGE>
disposition which does not meet the statutory holding period requirements is
long-term capital gain if the sale occurs more than one year after exercise or
short-term capital gain if the sale occurs earlier. The current federal tax
rate on long-term capital gain is capped at 20%.
Non-Statutory Options
An optionee does not recognize taxable income at the time of grant of a
nonstatutory stock option. However, upon exercise, the optionee does recognize
ordinary taxable income equal to the excess of the fair market value of the
purchased shares on the exercise date over the exercise price paid for the
shares. The income recognized by an optionee who is also an employee of
Netcentives is subject to income tax withholding. Netcentives is entitled to a
tax deduction for the amount of the ordinary income recognized by the
optionee. Upon resale of such shares by the optionee, any difference between
the sale price and the optionee's tax basis (exercise price plus the income
recognized on exercise) is treated as capital gain or loss.
Stock Purchase Rights and Option Shares Purchased Prior to Vesting
Stock purchase rights are generally taxed in the same manner as
nonstatutory stock options. A purchaser will generally recognize ordinary
taxable income equal to the excess of the fair market value of the shares at
the time of purchase over the purchase price, provided that if the shares are
subject to vesting and repurchase by Netcentives in the event that the
purchaser terminates services with Netcentives prior to vesting, the timing of
the recognition of income is deferred until the date of vesting, unless the
purchaser elects to accelerate the income recognition to the purchase date.
The income recognized by a purchaser who is also an employee of Netcentives is
subject to income tax withholding. Netcentives is entitled to a tax deduction
for the amount of ordinary income recognized by the purchaser. Upon resale of
such shares by the purchaser, any difference between the sale price and the
purchaser's tax basis (purchase price plus the income recognized upon purchase
or vesting, as applicable) is treated as capital gain or loss. Similarly, if
the shares acquired upon exercise of an option are unvested and subject to
repurchase by the Company in the event of the optionee's termination of
service prior to vesting in those shares, then the optionee will recognize any
ordinary or alternative minimum taxable income at the time of vesting, unless
the optionee elects to accelerate the income recognition to the purchase date.
Deductibility of Executive Compensation
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of nonstatutory options granted with exercise prices equal to the
fair market value of the option shares on the grant date will qualify as
performance-based compensation for purposes of Code Section 162(m) and will
not have to be taken into account for purposes of the $1 million limitation
per covered individual on the deductibility of the compensation paid to
certain executive officers of the Company. Accordingly, all compensation
deemed paid with respect to those options is expected to remain deductible by
the Company without limitation under Code Section 162(m).
Accounting Treatment
Option grants or stock issuances with exercise or issue prices less than
the fair market value of the shares on the grant or issue date will result in
a compensation expense to the Company's earnings equal to the difference
between the exercise or issue price and the fair market value of the shares on
the grant or issue date. Such expense will be accruable by the Company over
the period that the option shares or issued shares are to vest. Option grants
or stock issuances at 100% of fair market value will not result in any charge
to the Company's earnings so long as no material changes are made to the terms
of such awards after the date of grant. However, the Company must disclose in
footnotes and pro-forma statements to the Company's financial statements, the
impact those options would have upon the Company's reported earnings were the
value of those options at the time of grant treated as a compensation expense.
Whether or not granted at a discount, the number of outstanding options may be
a factor in determining the Company's earnings per share on a fully-diluted
basis.
8
<PAGE>
New Option Plan Benefits
As of April 26, 2000, no option grants have been made under the Option Plan
on the basis of the 2,000,000 share increase for which stockholder approval is
sought as part of this Proposal.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the amendment to the Option Plan. Should such
stockholder approval not be obtained, then the share reserve will not be
increased. The Option Plan will, however, continue to remain in effect, and
option grants and stock issuances may continue to be made pursuant to the
provisions of the Option Plan prior to its amendment until the available
reserve of Common Stock under such Option Plan is issued. The Board believes
that it is in the best interests of the Company to implement a comprehensive
equity incentive program for the Company which will provide a meaningful
opportunity for officers, employees and non-employee Board members to acquire
a substantial proprietary interest in the enterprise and thereby encourage
such individuals to remain in the Company's service and more closely align
their interests with those of the stockholders.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE OPTION PLAN.
9
<PAGE>
PROPOSAL NO. 3
APPROVAL OF INCREASE OF SHARES OF COMMON STOCK UNDER EMPLOYEE STOCK PURCHASE
PLAN
We are asking the Company's stockholders to approve an amendment to the
1999 Employee Stock Purchase Plan (the "Purchase Plan"), that will increase
the number of shares of Common Stock authorized for issuance by 1,000,000
shares, to an aggregate of 1,375,000 shares (excluding shares that may be
added pursuant to the automatic increase provisions of the Purchase Plan
described below). In addition, we are asking the Company's stockholders to
approve an amendment to the Purchase Plan that will change the automatic
annual increase on the first day of each of Netcentives' fiscal years in 2001
through 2004 from the previously approved increase equal to the lesser of
75,000 shares or 1% of our outstanding Common Stock on the last day of the
immediately preceding fiscal year, or such lesser amount determined by the
Board, to an increase equal to the lesser of 500,000 shares or 2% of our
outstanding Common Stock on the last day of the immediately preceding fiscal
year, or such lesser amount determined by the Board.
Netcentives implemented the Purchase Plan in 1999 as an incentive to its
employees and executives as a means to promote increased stockholder value.
The purpose of the Purchase Plan is to provide employees of Netcentives with
an opportunity to purchase Common Stock of Netcentives through accumulated
payroll deductions. Management believes that stock ownership is one of the
prime methods of attracting and retaining key personnel responsible for the
continued development and growth of the Company's business. The amendment to
the Purchase Plan that is the subject of this Proposal will be adopted by the
Board on April 26, 2000, subject to stockholder approval at the Annual
Meeting. Due to significant increases in the number of employees of
Netcentives, without these increases, the Company projects that there would
not be sufficient shares of Common Stock authorized for issuance under the
Purchase Plan to cover existing options outstanding under the Purchase Plan
for the offering period that commenced coincident with the Company's initial
public offering, or to cover options that would become outstanding upon
commencement of additional offering periods.
The following is a summary of the principal features of the Purchase Plan
as amended. The summary, however, does not purport to be a complete
description of all the provisions of the Purchase Plan. Any stockholder of the
Company who wishes to obtain a copy of the actual Purchase Plan document may
do so upon written request to the Corporate Secretary at the Company's
principal executive offices in San Francisco, California.
Summary of the Purchase Plan
The Purchase Plan was originally adopted by the Board in March 1999 and
approved by the stockholders in May 1999. A total of 300,000 shares of Common
Stock was initially reserved for issuance under the Purchase Plan, plus an
annual increase on the first day of each of our fiscal years 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 became effective October 13, 1999. Unless terminated earlier
by the Board of Directors, the Purchase Plan terminates in March 2019. Based
on current participation rates and assuming no employees withdraw or decrease
their current participation rate, approximately 133,458 shares will be issued
under the Purchase Plan on the first purchase date under the Purchase Plan,
which is April 28, 2000.
The Purchase Plan is intended to qualify under Section 423 of the Internal
Revenue Code of 1986. The Purchase Plan may be implemented by a series of
overlapping offering periods of up to 27 months' duration, with new offering
periods (other than the first offering period) commencing on May 1 and
November 1 of each year. The first offering period under the Purchase Plan
commenced in October 1999 and will end on October 31, 2001, and will consist
of four consecutive purchase periods of approximately six months' duration,
ending on April 28, 2000, October 31, 2000, April 30, 2001 and October 31,
2001. At the end of each such six month period an automatic purchase will be
made for participants. The second offering period will commence on
10
<PAGE>
May 25, 2000 and will end on October 31, 2001, and will consist of three
consecutive purchase periods of six months' duration, ending on October 31,
2000, April 30, 2001 and October 31, 2001, with automatic purchases made at
the end of each such six month purchase period for participants. Each offering
period commencing on and after November 1, 2000 will be of six months'
duration with a corresponding six-month purchase period. The Board of
Directors may, however, change the duration of upcoming offering periods or
change the duration of upcoming purchase periods if such change is announced
at least five days prior to the otherwise scheduled beginning of the offering
period or purchase period affected, and may 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 may be administered by the Board of Directors or by a
committee appointed by the Board. Employees (including officers and employee
directors) of the Company, or of any majority-owned subsidiary designated by
the Board, are eligible to participate in the Purchase Plan if they are
employed by the Company, or any such subsidiary, for at least 20 hours per
week and more than 5 months per year. Currently 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 an offering
period or at the end of each purchase period with respect to such offering
period. Commencing with the offering period that starts on November 1, 2001,
the maximum contribution rate will be 15% of an employee's compensation;
however, the Board of Directors has 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 the Company's 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, currently 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 the offering date
(based on the preceding trading day's closing price) for a new offering period
that commences within an ongoing offering period is less than the fair market
value at the beginning of the ongoing offering period, each participant in the
Purchase Plan shall automatically be withdrawn from the ongoing offering
period as of the end of the purchase date and re-enrolled in the new offering
period following the purchase date for the ongoing offering period that
immediately precedes the first day of the new offering period.
The Purchase Plan provides that in the event of a proposed dissolution or
liquidation of Netcentives, each offering period will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided
by the Board of Directors, 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 (and can shorten offering periods in
the event of a merger or consolidation or sale of assets without regard for
any such adverse effect), provided however that the Board may amend or
terminate the Purchase Plan or an offering period even if such action would
adversely affect outstanding options in order to avoid our incurring adverse
accounting charges. Stock holder approval will be obtained for any plan
amendment as required by applicable law.
11
<PAGE>
Certain United States Federal Income Tax Information
The following is a general summary as of the date of this proxy statement
of the United States federal income tax consequences associated with
participation in the Purchase Plan. The federal tax laws may change and the
federal, state and local tax consequences for any participant will depend upon
his or her individual circumstances. All participants are advised to seek the
advice of a tax advisor regarding the tax consequences of participation in the
plan.
The plan is intended to qualify as an "employee stock purchase plan" within
the meaning of section 423 of the Internal Revenue Code. Under these
provisions, no income will be taxable to a participant at the time of grant of
the option or purchase of shares. A participant may become liable for tax upon
disposition of the shares acquired, as summarized below.
If the shares are sold or disposed of (including by way of gift) more than
two years after the first day of the offering period during which shares were
purchased or more than one year after a purchase date. In this event, the
lesser of (a) the excess of the fair market value of the shares at the time of
such disposition over the purchase price of the shares subject to the option
or (b) 15% of the fair market value of the shares on the first day of the
offering period, will be treated as ordinary income to the participant. Any
further gain upon such disposition will be treated as long-term capital gain,
taxable currently at a maximum tax rate of 20%. If the shares are sold and the
sale price is less than the purchase price, no ordinary income is recognized
and the participant has a capital loss for the difference.
If the shares are sold or disposed of (including by way of gift) before the
expiration of the holding periods described above. In this event, referred to
as a disqualifying disposition, the excess of the fair market value of the
shares on the purchase date over the option price will be treated as ordinary
income to the participant. This excess will constitute ordinary income in the
year of sale or other disposition even if no gain is realized on the sale or a
gift of the shares is made. The balance of any gain will be treated as capital
gain and will be treated as long-term capital gain if the shares have been
held more than one year. Even if the amount realized upon disposition of the
shares is less than their fair market value on the purchase date, the same
amount of ordinary income is attributed to a participant and a capital loss is
recognized equal to the difference between the sales price and the value of
the shares on such purchase date.
The ordinary income reported under the rules described above, added to the
actual purchase price of the shares, determines the tax basis of the shares
for the purpose of determining capital gain or loss on a sale or exchange of
the shares.
The Company will be entitled to a deduction for federal income tax purposes
to the extent that a participant recognizes ordinary income on a disqualifying
disposition of the shares, but not if a participant meets the holding period
requirements.
New Purchase Plan Benefits
As of April 26, 2000, no stock purchases have been made under the Purchase
Plan.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the amendment to the Purchase Plan to increase the
shares authorized for issuance under the Purchase Plan, including the increase
in the automatic share increase at the beginning of the Company's fiscal years
2001 through 2004. Should such stockholder approval not be obtained, then the
share reserve and the automatic increase in the share reserve will not be
increased. The Purchase Plan will, however, continue to remain in effect, and
stock purchases may continue to be made pursuant to the provisions of the
Purchase Plan prior to its amendment until the available reserve of Common
Stock under
12
<PAGE>
such Purchase Plan (including the previously approved automatic increase in
the share reserve) is issued. The Board believes that it is in the best
interests of the Company to implement a comprehensive equity incentive program
for the Company which will provide a meaningful opportunity for employees to
acquire a substantial proprietary interest in the enterprise and thereby
encourage such individuals to remain in the Company's service and more closely
align their interests with those of the stockholders.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE PURCHASE PLAN.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Deloitte & Touche LLP has served as the Company's independent auditors
since 1998 and has been appointed by the Board to continue as the Company's
independent auditors for the fiscal year ending December 31, 2000. In the
event that ratification of this selection of auditors is not approved by a
majority of the shares of Common Stock voting at the Annual Meeting in person
or by proxy, the Board will reconsider its selection of auditors.
A representative of Deloitte & Touche LLP is expected to be present at the
Annual Meeting. This representative will have an opportunity to make a
statement and will be available to respond to appropriate questions.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000.
13
<PAGE>
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information that has been provided to the
Company with respect to beneficial ownership of shares of the Company's Common
Stock as of the Record Date for (i) each person who is known by the Company to
own beneficially more than five percent of the outstanding shares of Common
Stock, (ii) each director and nominee for director of the Company, (iii) each
of the executive officers named in the Summary Compensation Table of this
proxy statement (the "Named Executive Officers"), and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
Percent
Number of Beneficially
Name and Address of Beneficial Owner(1) Shares(2) Owned(2)
- --------------------------------------- ---------- ------------
<S> <C> <C>
Wendell G. Van Auken(3)(4)............................ 4,636,548 14.11%
2800 Sand Hill Road
Menlo Park, CA 94025
Stewart Alsop(5)...................................... 2,873,461 8.74
2490 Sand Hill Road
Menlo Park, CA 94025
Virginia M. Turezyn(6)................................ 2,588,701 7.88
3000 Sand Hill Road, Building I
Suite 280
Menlo Park, CA 94025
Michael Solomon(7).................................... 2,307,995 7.02
2775 Sand Hill Road, Suite 240
Menlo Park, CA 94025
West Shell, III(4)(8)(9).............................. 1,825,859 5.54
Eric W. Tilenius(8)................................... 1,008,854 3.07
Timothy J.O. Catlin(8)................................ 194,792 *
Murray Brozinsky(8)................................... 160,000 *
John F. Longinotti(8)................................. 136,895 *
Tom Byers(8).......................................... 133,333 *
Sergio Zyman(8)....................................... 118,076 *
Edward Fong Soo Hoo(8)................................ 99,875 *
Mayfield Fund(4)(10).................................. 4,576,741 13.92
2800 Sand Hill Road
Menlo Park, CA 94025
New Enterprise Associates(4)(11)...................... 2,920,720 8.89
2490 Sand Hill Road
Menlo Park, CA 94025
Information Technology Ventures(4)(12)................ 2,588,701 7.88
3000 Sand Hill Road, Building I
Suite 280
Menlo Park, CA 94025
Mohr, Davidow Ventures(13)............................ 2,196,736 6.68
2775 Sand Hill Road, Suite 240
Menlo Park, CA 94025
Integral Capital Partners(4)(14)...................... 1,848,462 5.62
2750 Sand Hill Road
Menlo Park, CA 94025
All directors and executive officers as a group (19
persons)(3)(4)(5)(6)(8)(9)........................... 14,118,205 42.95
</TABLE>
- --------
* Less than 1%.
14
<PAGE>
(1) Except as otherwise noted, the address of each person listed in the table
is c/o Netcentives Inc., 475 Brannan 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 32,868,411
shares of Common Stock outstanding as of the Record Date, together with
applicable options exercisable within 60 days of the Record Date 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) 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 10.
(4) Beneficial ownership calculation is based solely on a review of Schedule
13G filings made with the Securities and Exchange Commission. Such
filings set forth beneficial ownership as of December 31, 1999.
(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 11. 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 12.
(7) Mr. Solomon is a partner in Mohr, Davidow Ventures. Includes 111,259
shares held by Mr. Solomon, 109,526 shares held by MDV IV Entrepreneurs'
Network Fund L.P. and 2,087,210 shares held by Mohr, Davidow Ventures IV,
L.P. Mr. Solomon disclaims beneficial ownership of the shares held by MDV
IV Entrepreneurs' Network Fund L.P. and Mohr, Davidow Ventures IV, L.P.
except to the extent of his pecuniary interest in such entities. See Note
13.
(8) Includes the following shares issuable upon exercise of outstanding
options exercisable within 60 days of the Record Date: Mr. Shell, 77,259;
Mr. Brozinsky, 160,000; Dr. Byers, 8,333; Mr. Catlin, 65,626;
Mr. Longinotti, 82,186; Mr. Soo Hoo, 99,875; Mr. Tilenius, 8,854; Mr.
Zyman, 118,076; and others, 1,821,742.
(9) Includes 677,512 shares held by Shell Associates, L.P. a family limited
partnership of which Mr. Shell is a general partner.
(10) 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.
(11) Includes 2,873,461 shares held by New Enterprise Associates VII, L.P. and
47,259 shares held by NEA President's Fund.
(12) Includes 2,521,988 shares held by Information Technology Ventures, L.P.
and 66,712 shares held by ITV Affiliates Fund, L.P.
(13) Includes 109,526 shares held by MDV IV Entrepreneurs' Network Fund L.P.
and 2,087,210 shares held by Mohr, Davidow Ventures IV, L.P.
(14) Includes 1,431,313 shares held by Integral Capital Partners IV, L.P. and
7,149 shares held by Integral Capital Partners IV.
15
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows (a) the compensation earned by the Company's
Chief Executive Officer and the four other most highly compensated individuals
who served as an executive officer of the Company during the fiscal year ended
December 31, 1999; and (b) the compensation earned by each such individual for
the Company's two preceding fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
--------------------- -------------------
Other Securities
Annual Underlying
Name & Principal Position Fiscal Year Salary($) Bonus($)(1) Compensation($) Options(#)
- ------------------------- ----------- --------- ----------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
West Shell, III...................... 1999 250,000 131,848 7,712(2) 201,400
Chairman and Chief 1998 200,000 66,936 7,836(2) --
Executive Officer 1997 91,703 -- -- 30,000
John F. Longinotti................... 1999 185,417 32,540 -- 115,000
Executive Vice President, Operations 1998 137,427 32,163 -- 50,000
and Chief Financial Officer 1997 -- -- -- 155,000
Timothy J.O. Catlin.................. 1999 160,417 37,372 600(3) 75,000
Senior Vice President, 1998 130,000 44,667 -- 50,000
Research & Development 1997 96,154 -- -- 100,000
Murray Brozinsky..................... 1999 158,334 22,271 -- 225,000
Executive Vice President, 1998 82,013 1,755 -- 150,000
North America 1997 -- -- -- --
Edward Fong Soo Hoo.................. 1999 145,417 55,211 -- 38,000
Senior Vice President, 1998 106,329 56,163 -- 182,000
Corporate Development 1997 -- -- -- --
</TABLE>
- --------
(1) Includes the fair market value of ClickMiles awarded in each such year.
(2) Represents term life insurance payments.
(3) Represents commuter expense reimbursement.
Employment Agreements
In June 1997, the Company entered into an Employment Agreement with West
Shell, III, the Company's Chairman and Chief Executive Officer in which the
Company agreed to pay Mr. Shell an annualized salary of $200,000. In the event
of Mr. Shell's involuntary termination, the Company 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
the Company's 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, the Company entered into an amendment to Mr. Shell's
Employment Agreement. In this amendment, the Company 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. The Company subsequently loaned him $100,000 in January
1999, with interest accruing at the rate of 4.47% per annum, compounded
semiannually.
16
<PAGE>
In January 1998, the Company entered into a Change of Control Agreement
with John F. Longinotti, the Company's Executive Vice President, Operations
and Chief Financial Officer in which the Company agreed that, subject to
certain limitations, if Mr. Longinotti's employment relationship is
involuntarily terminated within twelve months following a change of control
transaction, all of Mr. Longinotti's stock options shall immediately vest.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to stock
options granted to the Named Executive Officers in the last fiscal year. In
addition, as required by Securities and Exchange Commission rules, the table
sets forth the hypothetical gains that would exist for the options based on
assumed rates of annual compound stock price appreciation during the option
term.
<TABLE>
<CAPTION>
Individual Grants(1)
----------------------------------------------- Potential Realizable
Percent of Value at Assumed
Number of Total Options Annual Rates of Stock
Securities Granted to Price Appreciation
Underlying Employees in Exercise of For Option Term(3)
Options Fiscal Year Base Price Expiration ---------------------
Name Granted(#) (%)(2) ($/share) Date 5%($) 10%($)
- ---- ---------- ------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
West Shell, III......... 100,000 3.29% $11.00 10/09/09 $ 691,305 $1,751,627
101,400 3.34 37.94 12/03/09 2,419,303 6,130,989
John F. Longinotti...... 30,000 0.99 6.82 05/05/09 128,672 326,080
60,000 1.98 10.00 07/22/09 337,337 956,245
25,000 0.82 11.00 10/09/09 172,826 437,907
Timothy J.O. Catlin..... 50,000 1.65 10.00 07/22/09 314,447 796,871
25,000 0.82 11.00 10/09/09 172,826 437,907
Murray Brozinsky........ 30,000 0.99 6.82 05/05/09 128,672 326,080
120,000 3.95 10.00 07/22/09 754,674 1,912,491
50,000 1.65 10.00 07/22/09 314,447 796,871
25,000 0.82 11.00 10/09/09 172,826 437,907
Edward F. Soo Hoo....... 13,000 0.43 10.00 07/22/09 81,756 207,187
25,000 0.82 12.00 10/13/09 147,946 413,279
</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 the Company.
(2) Based on an aggregate of 3,035,335 options to purchase Common Stock of the
Company granted by the Company under the 1996 Stock Option Plan in fiscal
year 1999.
(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 the Company's 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.
17
<PAGE>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
The following table sets forth certain information with respect to stock
options exercised by the Named Executive Officers during the fiscal year ended
December 31, 1999. In addition, the table sets forth the number of shares
covered by stock options as of the fiscal year ended December 31, 1999, and
the value of "in-the-money" stock options, which represents the positive
spread between the exercise price of a stock option and the market price of
the shares subject to such option at the end of the fiscal year ended December
31, 1999.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Shares Unexercised Options In-the-Money Options at
Acquired on Value at Fiscal Year End (#) Fiscal Year End ($)
Name Exercise(#) Realized($)(1) Exercisable/Unexercisable(2) Exercisable/Unexercisable(3)
---- ----------- -------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
West Shell, III......... -- -- 45,833/205,567 2,850,808/7,862,166
John F. Longinotti...... 13,730 135,241 41,895/222,396 2,563,867/12,757,773
Timothy J.O. Catlin..... 29,166 87,498 33,334/162,500 2,060,891/9,303,987
Murray Brozinsky........ -- -- 61,459/313,541 3,781,086/17,349,188
Edward F. Soo Hoo....... -- -- 74,563/145,437 4,628,947/8,598,203
</TABLE>
- --------
(1) Value realized is calculated based on the closing price of the Company's
Common Stock as reported on the Nasdaq Stock Market on the date of
exercise ($62.3125 on December 31, 1999) minus the exercise price of the
option and does not necessarily indicate that the optionee sold such
stock.
(2) No stock appreciation rights (SARs) were outstanding during fiscal 1999.
(3) Based on the $62.3125 per share closing price of the Company's Common
Stock on The Nasdaq Stock Market on December 31, 1999, less the exercise
price of the options.
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933 or the Securities Exchange Act of
1934 that might incorporate future filings, including this Proxy Statement, in
whole or in part, the following report and the Stock Performance Graph which
follows shall not be deemed to be incorporated by reference into any such
filings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is a report of the Compensation Committee of the Board of
Directors (the "Committee") describing the compensation policies applicable to
the Company's executive officers during the fiscal year ended December 31,
1999.
The fundamental objective of the Committee is to assist the Board of
Directors in establishing the general compensation policies, compensation
plans, and specific compensation levels for executive officers. Executive
compensation plans are set up in accordance with the contributions of the
executive to the development and financial success of the company and also
consider individual performance. The Committee also makes recommendations to
the Board of Directors concerning the granting of options under the Company's
stock option plans.
General Compensation Policy
Under the supervision of the Board of Directors, the Company's compensation
policy is intended to achieve the following objectives:
. Provide competitive compensation to attract top talent and retain key
executives;
. Motivate executives to generate revenue and profit growth and reinforce a
sense of ownership;
. Create a meaningful link between both business and team success as well
as individual performance and rewards; and
. Encourage leadership behavior critical to the Company's success and
culture.
18
<PAGE>
Accordingly, each executive officer's compensation package is comprised of
three components: (1) base salary, (2) variable cash bonus awards which are
paid on an annual basis and (3) stock option awards, which are designed to
strengthen the common interests between the executive officers and the
Company's stockholders.
The summary below describes in more detail the factors, which the Board of
Directors considers in establishing each of the three primary components of
the compensation package provided to the executive officers.
Base Salary
The Committee assists in establishing the amount of base salary on the
basis of the individual's qualifications and relevant experience, the
compensation levels at companies which compete with the Company for business
and executive talent, the amount of incentive-based compensation available to
each individual and the Company's financial position. Because the Company
operates in a highly competitive environment, it aims to pay base salaries
that are market competitive in its industry. Base salary is adjusted each year
to take into account the individual's performance and relative level of
contribution, and to maintain a competitive salary structure.
Cash Bonuses
The Committee recommends cash bonuses to be awarded annually on a
discretionary basis to executive officers on the basis of their success in
achieving designated individual goals and the Company's success in achieving
specific company-wide goals, such as customer satisfaction and revenue growth.
The Company aims to pay cash bonuses at levels that are average in its
industry.
Stock Options
The Company uses its stock option and stock purchase plans to provide
executives and other key employees with incentives to maximize long-term
stockholder value. Awards under these plans take the form of stock options or
purchase rights designed to give the recipient a significant equity stake in
the Company and thereby closely align his or her interests with those of the
Company's stockholders. Factors considered in making such awards include the
individual's position in the Company, his or her performance and level of
responsibilities, and internal comparability considerations. The Board of
Directors does not adhere to any specific guidelines as to the relative option
holdings of the Company officers but does consider internal comparability.
However, the Board of Directors is not required to adhere strictly to these
guidelines and may vary the size of the option grant made to each executive
officer as it determines the circumstances warrant.
The Committee consulted with the Company's internal human resources
specialist as well as a compensation consulting firm in developing a stock
option grant strategy, reviewing the stock option practices of competitors of
the Company and comparing the Company's projected stock option usage to
industry standards.
Each option grant allows the executive officer to acquire shares of Common
Stock at a fixed price per share equal to the fair market value on the date of
grant. The options vest in periodic installments over a four-year period,
contingent upon the executive officer's continued employment with the Company.
Accordingly, the option will provide a return to the executive officer only if
he or she remains in the Company's service, and then only if the market price
of the Common Stock appreciates over the option term.
Compensation of the Chief Executive Officer
West Shell, III has served as the Company's President and Chief Executive
Officer since June 1997. His base salary for fiscal 1999 was $250,000. Mr.
Shell also received a bonus of $131,848 and options to purchase 201,400 shares
of Common Stock.
19
<PAGE>
Significant factors in establishing Mr. Shell's compensation were his
success in effecting the initial public offering of the Company and achieving
specific objectives with regard to financial and business endeavors of the
Company. The factors discussed above in "Base Salary," "Cash Bonuses" and
"Stock Options" were also applied in establishing the amount of Mr. Shell's
compensation.
The Committee consulted with a compensation consulting firm in developing
the compensation plan for the Chief Executive Officer to align the Company's
standards with the compensation practices of its competitors and industry
comparables in the areas of (1) base salary, (2) cash-based incentive bonus
and (3) stock option awards.
Deductibility of Executive Compensation
The Committee has considered the impact of Section 162(m) of the Internal
Revenue Code adopted under the Omnibus Budget Reconciliation Act of 1993,
which section disallows a deduction for any publicly held corporation for
individual compensation exceeding $1 million in any taxable year for the CEO
and four other most highly compensated executive officers, respectively,
unless such compensation meets the requirements for the "performance-based"
exception to Section 162(m). As the cash compensation paid by the Company to
each of its executive officers is expected to be below $1 million and the
Committee believes that options granted under the Company's 1996 Stock Option
Plan to such officers will meet the requirements for qualifying as
performance-based, the Committee believes that Section 162(m) will not affect
the tax deductions available to the Company with respect to the compensation
of its executive officers. It is the Committee's policy to qualify, to the
extent reasonable, its executive officers' compensation for deductibility
under applicable tax law. However, the Company may from time to time pay
compensation to its executive officers that may not be deductible.
Compensation Committee:
Sergio Zyman, Chairman
Stewart Alsop
Tom Byers
Virginia M. Turezyn
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Purchases of Series E Preferred Stock
In March, April and June 1999, the Company sold 5,278,583 shares of its
Series E Preferred Stock for $6.82 per share in private placement
transactions. The purchasers of such shares included the following directors
and 5% stockholders of the Company, and persons and entities with them.
<TABLE>
<CAPTION>
Number of Shares of
Investor Series E Preferred Stock
-------- ------------------------
<S> <C>
Information Technology Ventures and Virginia M.
Turezyn(1)....................................... 73,314
Integral Capital Partners(2)..................... 168,621
Mayfield Fund and Wendell G. Van Auken(3)........ 549,857
New Enterprise Associates and Stewart Alsop(4)... 366,568
</TABLE>
- --------
(1) Virginia M. Turezyn is a director, and Information Technology Ventures is
a 5% stockholder of Netcentives. Also see Note 6 to "Common Stock
Ownership of Certain Beneficial Owners and Management."
(2) Integral Capital Partners is a 5% stockholder of Netcentives.
(3) Wendell G. Van Auken is a director, and Mayfield Fund is a 5% stockholder
of Netcentives. Also see Note 3 to "Common Stock Ownership of Certain
Beneficial Owners and Management."
(4) Stewart Alsop is a director, and New Enterprise Associates is a 5%
stockholder of Netcentives. Also see Note 5 to "Common Stock Ownership of
Certain Beneficial Owners and Management."
All of the preferred stock was converted into Common Stock at a one to one
ratio upon the closing of the Company's initial public offering on October 19,
1999.
20
<PAGE>
In connection with such purchases of preferred stock, the purchasers were
granted certain registration rights with respect to their shares. These rights
are provided under the terms of an agreement among the Company 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 date of the Company's initial
public offering, that the Company use its best efforts to register the
registrable securities for public resale, provided that the proposed aggregate
offering price is at least $10,000,000.
If the Company registers any of its Common Stock either for the Company 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 the Company register their shares for public resale on Form S-3 or
similar short-form registration, once the Company is 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 the Company 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.
Loans to Officers
The Company has loaned West Shell, III, the Company's 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>
Issue Date Due Date Note Amount Interest 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
The Company has entered into indemnification agreements with its officers
and directors containing provisions which may require us to, among other
things, indemnify the Company's 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.
Other Related Party Transactions
In April 1999, the Company 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. The Company believes 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.
Michael Solomon, a nominee for Class I director, was a director and
shareholder of Post Communications, Inc. ("Post") prior to its acquisition by
Netcentives in April 2000. Mr. Solomon personally held 310,583 shares of
common stock of Post, which were converted into 111,259 shares of Netcentives
Common Stock upon the acquisition of Post by Netcentives. Mr. Solomon is also
a partner of Mohr Davidow Ventures ("MDV") which,
through affiliated limited partnerships, held 6,137,542 shares of common stock
of Post prior to its acquisition by Netcentives. These shares were converted
into 2,196,736 shares of Common Stock of Netcentives in connection with such
acquisition. Mr. Solomon disclaims beneficial ownership of the shares held by
MDV, except to the extent of his pecuniary interest therein.
21
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return data
for the Company's Common Stock since October 13, 1999 (the date on which the
Company's stock was first registered under Section 12 of the Securities
Exchange Act of 1934, as amended) to the cumulative return over such period of
(i) the Nasdaq Stock Market-U.S. Index and (ii) the Chase H&Q Internet Index.
The graph assumes that $100 was invested on October 13, 1999, the date on
which the Company completed the initial public offering of its Common Stock,
in the Common Stock of the Company and in each of the comparative indices. The
graph further assumes that such amount was initially invested in the Common
Stock of the Company at a per share price of $12.00, the price to which such
stock was first offered to the public by the Company on the date of its
initial public offering, and reinvestment of any dividends. The stock price
performance on the following graph is not indicative of future stock price
performance.
COMPARISON OF YEAR CUMULATIVE TOTAL RETURN *
AMONG NETCENTIVES INC., NASDAQ STOCK MARKET (U.S.) INDEX
AND CHASE H&Q INTERNET INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
NASDAQ CHASE H&Q
Measurement Period NETCENTIVES STOCK MARKET INTERNET
(Fiscal Year Covered) INC. (U.S.) INDEX INDEX
------------------------- ----------- ------------ ---------
<S> <C> <C> <C>
Measurement Pt-10/13/1999 $100.00 $100.00 $100.00
10/1999 $139.58 $105.77 $108.19
11/1999 $218.75 $117.05 $136.35
12/1999 $519.25 $142.30 $189.41
</TABLE>
* Assumes $100 invested on October 13, 1999 in stock or index, including
reinvestment of dividends. The Company has never paid dividends on its
Common Stock and has no present plans to do so. Total return is based on
historical results and is not intended to indicate future performance.
22
<PAGE>
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Proposals of stockholders intended to be included in the Company's proxy
statement for the 2001 Annual Meeting of Stockholders must be received by John
F. Longinotti, Netcentives Inc., 475 Brannan Street, San Francisco, California
94107 no later than December 26, 2000. If the Company is not notified of a
stockholder proposal by March 3, 2001, then the proxies held by management of
the Company provide discretionary authority to vote against such stockholder
proposal, even though such proposal is not discussed in the Proxy Statement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file with the Securities and
Exchange Commission ("SEC") initial reports of ownership and changes in
ownership of the Company's Common Stock. Reporting Persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports
they file. To the Company's knowledge, based solely on its review of the
copies of such reports received or written representations from certain
Reporting Persons that no other reports were required, the Company believes
that during its fiscal year ended December 31, 2000, all Reporting Persons
complied with all applicable filing requirements, except that: (a) each of the
following individuals filed a late Form 4 in November 1999 to report his or
her purchase of shares in October 1999 -- Tom Byers (one purchase), Timothy
Catlin (three purchases), Paul Danielsen (three purchases), John F. Longinotti
(two purchases), William McGee (two purchases), Eric Tilenius (one purchase)
and Virginia Turezyn (one purchase); and (b) William McGee filed a late Form 4
in December 1999 to report two sales of shares in November 1999.
OTHER MATTERS
The Board of Directors knows of no other business that will be presented to
the Annual Meeting. If any other business is properly brought before the
Annual Meeting, proxies in the enclosed form will be voted in respect thereof
as the proxy holders deem advisable.
It is important that the proxies be returned promptly and that your shares
be represented. Stockholders are urged to mark, date, execute and promptly
return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
John F. Longinotti
Executive Vice President, Operations
and CFO
April 26, 2000
San Francisco, California
23
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF NETCENTIVES INC. FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 24, 2000
The undersigned stockholder of Netcentives Inc., a Delaware corporation
(the "Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
-------
Stockholders and Proxy Statement, each dated April 26, 2000, and hereby appoints
West Shell, III and John F. Longinotti or either of them, proxies and attorneys-
in-fact, with full power to each of substitution, on behalf and in the name of
the undersigned, to represent the undersigned at the Annual Meeting of
Stockholders of Netcentives Inc. to be held on Wednesday, May 24, 2000 at 10
a.m., local time, at 475 Brannan Street, Third Floor, San Francisco, California
and at any adjournment or postponement thereof, and to vote all shares of Common
Stock which the undersigned would be entitled to vote if then and there
personally present, on the matters set forth below:
1. ELECTION OF CLASS I DIRECTORS:
___ FOR all nominees listed below (except as indicated).
___ WITHHOLD authority to vote for all nominees listed below.
If you wish to withhold authority to vote for any individual nominee,
strike a line through that nominee's name in the list below:
Stewart Alsop Tom Byers Michael Solomon Virginia M. Turezyn
2. PROPOSAL TO APPROVE THE AMENDMENT OF THE COMPANY'S 1996 STOCK OPTION
PLAN TO INCREASE THE AGGREGATE NUMBER OF SHARES OF COMMON STOCK
AUTHORIZED FOR ISSUANCE UNDER SUCH PLAN BY 2,000,000 SHARES, TO AN
AGGREGATE OF 10,921,400 SHARES (EXCLUDING SHARES THAT MAY BE ADDED
PURSUANT TO THE AUTOMATIC ANNUAL INCREASE PROVISIONS OF THE PLAN).
____FOR ____AGAINST ____ABSTAIN
3. PROPOSAL TO APPROVE THE AMENDMENT OF THE COMPANY'S 1999 EMPLOYEE STOCK
PURCHASE PLAN (A) TO INCREASE THE AGGREGATE NUMBER OF SHARES OF COMMON
STOCK AUTHORIZED FOR ISSUANCE UNDER SUCH PLAN BY 1,000,000 SHARES, TO
AN AGGREGATE OF 1,375,000 SHARES (EXCLUDING SHARES THAT MAY BE ADDED
PURSUANT TO THE AUTOMATIC ANNUAL INCREASE PROVISIONS OF THE PLAN), AND
(B) TO CHANGE THE AUTOMATIC ANNUAL INCREASE ON THE FIRST DAY OF EACH
OF THE COMPANY'S FISCAL YEARS IN 2001 THROUGH 2004 TO THE LESSER OF
500,000 SHARES OR 2% OF THE COMPANY'S OUTSTANDING COMMON STOCK ON THE
LAST DAY OF THE IMMEDIATELY PRECEDING FISCAL YEAR, OR SUCH LESSER
AMOUNT DETERMINED BY THE BOARD OF DIRECTORS.
____FOR ____AGAINST ____ABSTAIN
4. PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING
DECEMBER 31, 2000.
____FOR ____AGAINST ____ABSTAIN
and, in their discretion, upon such other matter or matters that may properly
come before the meeting and any postponement(s) or adjournment(s) thereof.
PLEASE SIGN ON REVERSE SIDE AND RETURN IMMEDIATELY
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF
CLASS I DIRECTORS; (2) FOR THE PROPOSAL TO APPROVE THE AMENDMENT OF
THE COMPANY'S 1996 STOCK OPTION PLAN TO INCREASE THE AGGREGATE NUMBER
OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE UNDER SUCH PLAN BY
2,000,000 SHARES, TO AN AGGREGATE OF 10,921,400 SHARES (EXCLUDING
SHARES THAT MAY BE ADDED PURSUANT TO THE AUTOMATIC ANNUAL INCREASE
PROVISIONS OF THE PLAN); (3) FOR THE PROPOSAL TO APPROVE THE AMENDMENT
OF THE COMPANY'S 1999 EMPLOYEE STOCK PURCHASE PLAN (A) TO INCREASE THE
AGGREGATE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE
UNDER SUCH PLAN BY 1,000,000 SHARES, TO AN AGGREGATE OF 1,375,000
SHARES (EXCLUDING SHARES THAT MAY BE ADDED PURSUANT TO THE AUTOMATIC
ANNUAL INCREASE PROVISIONS OF THE PLAN), AND (B) TO CHANGE THE
AUTOMATIC ANNUAL INCREASE ON THE FIRST DAY OF EACH OF THE COMPANY'S
FISCAL YEARS IN 2001 THROUGH 2004 TO THE LESSER OF 500,000 SHARES OR
2% OF THE COMPANY'S OUTSTANDING COMMON STOCK ON THE LAST DAY OF THE
IMMEDIATELY PRECEDING FISCAL YEAR, OR SUCH LESSER AMOUNT DETERMINED BY
THE BOARD OF DIRECTORS; (4) FOR THE RATIFICATION OF THE APPOINTMENT OF
DELOITTE & TOUCHE LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY FOR
THE FISCAL YEAR ENDING DECEMBER 31, 2000; AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
_______________________________________
Stockholder Name (Print)
_______________________________________ Date:__________________________
Signature
_______________________________________ Date:__________________________
Signature
(This Proxy should be marked, dated, signed by the stockholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both stockholders should sign.)
