<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
[X] Definitive Proxy Statement by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Rainmaker Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Rainmaker Systems, Inc.
- --------------------------------------------------------------------------------
(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.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF RAINMAKER]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 17, 2000
TO THE STOCKHOLDERS OF
RAINMAKER SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Rainmaker
Systems, Inc., a Delaware corporation (the "Company"), will be held on
Wednesday, May 17, 2000, at 1:00 p.m. Pacific Daylight Savings Time at the
Holiday Inn, 611 Ocean Street, Santa Cruz, California, 95060 for the following
purposes, as more fully described in the Proxy Statement accompanying this
Notice:
1. To elect two directors to serve on the Company's Board of Directors for
a three-year term ending in the year 2003 or until their successors are
duly elected and qualified;
2. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending December 31, 2000; and
3. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on March 24, 2000 are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books of the Company will remain open between the record date and the date of
the meeting. A list of stockholders entitled to vote at the Annual Meeting
will be available for inspection at the executive offices of the Company.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed proxy
as promptly as possible in the envelope enclosed for your convenience. Should
you receive more than one proxy because your shares are registered in
different names and addresses, each proxy should be signed and returned to
assure that all your shares will be voted. You may revoke your proxy at any
time prior to the Annual Meeting. If you attend the Annual Meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
Annual Meeting will be counted.
Sincerely,
Martin Hernandez
Secretary
Scotts Valley, California
April 10, 2000
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE
ENCLOSED ENVELOPE.
<PAGE>
[LOGO OF RAINMAKER]
Rainmaker Systems, Inc.
1800 Green Hills Road
Scotts Valley, California 95066
----------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 17, 2000
----------------
General
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of Rainmaker Systems, Inc., a Delaware corporation (the "Company"),
for use at the Annual Meeting of Stockholders to be held on Wednesday, May 17,
2000 (the "Annual Meeting"). The Annual Meeting will be held at 1:00 p.m.
Pacific Daylight Savings Time at the Holiday Inn, 611 Ocean Street, Santa
Cruz, California, 95060. These proxy solicitation materials were mailed on or
about April 10, 2000 to all stockholders entitled to vote at the Annual
Meeting.
Voting; Quorum
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice and are described in more
detail in this Proxy Statement. On March 24, 2000, the record date for
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, 38,392,441 shares of the Company's common stock, par value $0.001
(the "Common Stock"), were issued and outstanding. No shares of the Company's
Preferred Stock, par value $0.001, were outstanding. Each holder of shares of
Common Stock is entitled to one vote per share held by such holder on March
24, 2000.
In the election of directors, the two nominees receiving the highest number
of affirmative votes shall be elected. Proposal 2 must be approved by the
affirmative vote of holders of outstanding shares of Common Stock representing
a majority of the voting power present in person or represented by proxy at
the Annual Meeting and entitled to vote on the subject matter. The presence at
the Annual Meeting, either in person or by proxy, of holders of shares of
outstanding Common Stock entitled to vote and representing a majority of the
voting power of such shares shall constitute a quorum for the transaction of
business. Abstentions and shares held by brokers that are present in person or
represented by proxy but that are not voted because the brokers were
prohibited from exercising discretionary authority ("broker non-votes") will
be counted for the purpose of determining if a quorum is present. Abstentions
will be counted towards the tabulation of votes cast on proposals presented to
the stockholders and will have the same effect as negative votes, whereas
broker non-votes will not be counted for purposes of determining whether a
proposal has been approved. The inspector of election appointed for the
meeting will tabulate all votes and will separately tabulate affirmative and
negative votes, abstentions and broker non-votes.
1
<PAGE>
Proxies
If the enclosed form of Proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the Proxy does not specify how the shares
represented thereby are to be voted, the Proxy will be voted FOR the election
of each of the two nominees to the Board of Directors listed in the Proxy,
unless the authority to vote for the election of any such nominee is withheld
and, if no contrary instructions are given, the Proxy will be voted FOR the
approval of Proposal 2 described in the accompanying Notice and this Proxy
Statement. You may revoke or change your Proxy at any time before the Annual
Meeting by filing with the Secretary of the Company at the Company's principal
executive offices, located at 1800 Green Hills Road, Scotts Valley, California
95066, a notice of revocation or another signed Proxy with a later date. You
may also revoke your Company's Proxy by attending the Annual Meeting and
voting in person.
Solicitation
The Company will bear the entire cost of the solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to the stockholders.
Copies of solicitation materials will be furnished to brokerage houses,
fiduciaries and custodians holding shares in their names that are beneficially
owned by others so that they may forward this solicitation material to such
beneficial owners. The Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by a solicitation by
telephone, telegram or any other means by directors, officers or employees of
the Company. No additional compensation will be paid to these individuals for
any such services. Except as described above, the Company does not presently
intend to solicit proxies by any process other than by mail.
Deadline for Receipt of Stockholder Proposals
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at next year's Annual Meeting of Stockholders must be
received no later than January 17, 2001, in order that they may be included in
the proxy statement and form of proxy relating to that meeting. In addition,
the proxy solicited by the Board of Directors for next year's Annual Meeting
of Stockholders will confer discretionary authority to vote on any stockholder
proposal presented at that meeting, unless the Company receives notice of such
proposal on or before February 26, 2001.
2
<PAGE>
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE: ELECTION OF DIRECTORS
General
The Company's Certificate of Incorporation provides for a classified Board
of Directors consisting of three classes of directors with staggered three-
year terms, with each class consisting, as nearly as possible, of one-third of
the total number of directors. The Board currently consists of five persons.
The class whose term of office expires at the Annual Meeting currently
consists of two directors. The directors elected to this class will serve for
a term of three years, expiring at the 2003 annual meeting of stockholders or
until their successors have been duly elected and qualified. The nominees
listed below are currently directors of the Company. If this proposal is
approved, the Board will consist of five persons, with two classes consisting
of two directors each and the third class consisting of one director.
Each returned Proxy can only be voted for the number of persons
nominated(two). Unless individual stockholders specify otherwise, each
returned Proxy will be voted FOR the election of the two nominees who are
listed below. If, however, any of the nominees named herein is unable to serve
or declines to serve at the time of the Annual Meeting, the persons named in
the enclosed Proxy will exercise discretionary authority to vote for
substitutes. The nominees for election have agreed to serve if elected, and
management has no reason to believe that any of the nominees will be
unavailable to serve.
Nominees for Term Ending Upon the 2003 Annual Meeting of Stockholders
Michael Silton, 35, has served as a director of the Company since
inception. Mr. Silton has served as President and Chief Executive Officer
since October 1997 and the Company's Chairman of the Board since inception. In
1991, he founded the Company's former business UniDirect, which specialized in
the direct marketing and sales of business software.
Robert Leff, 53, has served as a director of the Company since 1996. Mr.
Leff is chairman of Hiho Technologies, Inc. which provides a web-based B2B
service that integrates Employee Resource Management. From 1980 to 1985, Mr.
Leff served as President and from 1985 to 1994 he served as Co-Chairman of
Merisel, Inc., a wholesale distributor of computer products, which he co-
founded. Mr. Leff serves on the board of directors of PC ServiceSource, a
service logistics company, and audiohighway.com, Inc., an internet company
providing free audio content for consumers.
Continuing Directors for Term Ending Upon the 2001 Annual Meeting of
Stockholders
Alok Mohan, 51, has served as a director of the Company since 1996. Mr.
Mohan has been serving as Chairman of SCO, a software company, since April
1998. From July 1995 to April 1998, Mr. Mohan served as the Chief Executive
Officer of SCO. Prior to that, Mr. Mohan served as Senior vice President,
Operations and Chief Financial officer of SCO. Prior to joining SCO, Mr. Mohan
was employed with NCR Corporation, a business software and services company,
where he served as Vice President and General Manager of the Workstation
Products Division, from January 1990 until July 1993 before assuming the
position of Vice President of Strategic Planning and Controller from July 1993
to May 1994.
Peter Silton, 68, has served as a director of the Company since 1996. From
1969 to 1987, Mr. Silton served as President of Silton Apparel Management
Systems, a company which specialized in systems, software and computer
operations for the apparel industry which he founded. Mr. Silton is the father
of Michael Silton, the Company's Chairman, President and Chief Executive
officer.
Continuing Director for Term Ending Upon the 2002 Annual Meeting of
Stockholders
Andrew Sheehan, 42, has served as a director of the Company since February
1999. Since April 1998, Mr. Sheehan has been employed by and is a managing
member of the general partner of ABS Capital Partners III, L.P. From 1985 to
1998, Mr. Sheehan held various positions at BT Alex Brown, most recently as
Managing Director.
3
<PAGE>
Board Committees and Meetings
The Board of Directors held 5 meetings during the fiscal year ended
December 31, 1999 (the "1999 Fiscal Year"). The Board of Directors has an
audit committee and a compensation committee. Each director attended or
participated in 75% or more of the aggregate of (i) the total number of
meetings of the Board of Directors and (ii) the total number of meetings held
by all committees of the Board on which such director served during the 1999
Fiscal Year. The Board of Directors also consulted informally with management
from time to time and acted by written consent seven times without a meeting
during the 1999 Fiscal Year.
Audit Committee. The audit committee consists of Andrew Sheehan, Alok Mohan
and Peter Silton. The audit committee reviews and monitors the corporate
financial reporting and external audit of the Company, including, among other
things, the Company's control functions, the results and scope of the annual
audit and other services provided by the Company's independent auditors and
the Company's compliance with legal matters that have a significant impact on
the Company's financial reports. The audit committee also consults with the
Company's management and the Company's independent auditors prior to the
presentation of financial statements to stockholders and, as appropriate,
initiates inquiries into various aspects of the Company's financial affairs.
In addition, the audit committee is responsible for considering and
recommending the appointment of, and reviewing fee arrangements with, the
Company's independent auditors. The audit committee was formed in May 1999 and
held one meeting during the 1999 Fiscal Year.
Compensation Committee. The compensation committee consists of Andrew
Sheehan, Robert Leff and Peter Silton and reviews and approves salaries,
benefits and bonuses for the Chief Executive Officer and Chief Financial
Officer. It reviews and recommends to the Board of Directors on matters
relating to employee compensation and benefit plans. The compensation
committee also administers the Company's stock plans. The compensation
committee was formed in May 1999 and held one meeting during the 1999 Fiscal
Year.
Director Compensation
Robert Leff was granted options to purchase 400,000 and 10,000 shares of
common stock at an exercise price of $0.315 and $0.435 per share in 1996 and
1998, respectively. Alok Mohan was granted options to purchase 200,000, 10,000
and 30,000 shares of common stock at an exercise price of $0.315, $0.435 and
$0.50 per share in November 1996, September 1998 and December 1998,
respectively. Peter Silton was granted options to purchase 49,000 and 10,000
shares of common stock at an exercise price of $0.06 and $0.435 per share in
August 1995 and September 1998, respectively. The Company's directors do not
receive cash compensation for their services on the Board. Alok Mohan and
Peter Silton provide consulting services to the Company for which they are
paid $1,500 and $2,500 per month, respectively. Under the Company's 1999 Stock
Incentive Plan, each person who first becomes a non-employee board member
after November 16, 1999 will receive an option grant for 10,000 shares of
common stock on the date such individual joins the Board. In addition, on the
date of each annual stockholders meeting held after November 16, 1999, each
non-employee board member who continues to serve as a non-employee board
member, including each of the Company's current non-employee board members,
will automatically be granted an option to purchase 4,000 shares of common
stock, provided such individual has served on the Board for at least six
months.
Required Vote
The two nominees receiving the highest number of affirmative votes of the
outstanding shares of Common Stock, present or represented and entitled to be
voted for them, shall be elected as directors. The Proxies cannot be voted for
a greater number of persons than two.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote FOR the
election of each of the nominees listed above.
4
<PAGE>
PROPOSAL TWO: RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Ernst & Young LLP,
independent auditors for the Company during the 1999 Fiscal Year, to serve in
the same capacity for the year ending December 31, 2000, and is asking the
stockholders to ratify this appointment. A representative of Ernst & Young LLP
is expected to be present at the Annual Meeting, will have the opportunity to
make a statement if he or she desires to do so, and will be available to
respond to appropriate questions.
Required Vote
The affirmative vote of a majority of the shares represented and voting at
the Annual Meeting is required to ratify the selection of Ernst & Young LLP.
In the event that the stockholders do not approve the selection of Ernst &
Young LLP, the appointment of the independent auditors will be reconsidered by
the Board of Directors. Even if the selection is ratified, the Board of
Directors in its discretion may direct the appointment of a different
independent auditing firm at any time during the year if the Board of
Directors believes that such a change would be in the best interests of the
Company and its stockholders.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of Ernst & Young LLP to serve as the Company's
independent auditors for the fiscal year ending December 31, 2000.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed Proxy.
OWNERSHIP OF SECURITIES
The following table sets forth certain information as of February 29, 2000
regarding the ownership of the Company's Common Stock by:
. each person who is known by the Company to own more than five percent of
the Company's Common Stock;
. each Named Executive Officer;
. each of the Company's directors;
. all of the Company's directors and executive officers as a group.
5
<PAGE>
Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. Shares subject to
options that are exercisable currently or within 60 days of February 29, 2000
are deemed to be outstanding and beneficially owned by the person for the
purpose of computing share and percentage ownership of that person. They are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person. Except as indicated in the footnotes to this
table and as affected by applicable community property laws, all persons
listed have sole voting and investment power for all shares shown as
beneficially owned by them. Unless otherwise indicated, all addresses for the
stockholders set forth below is c/o Rainmaker Systems, Inc., 1800 Green Hills
Road, Scotts Valley, California 95066.
<TABLE>
<CAPTION>
Number of Shares
Number of Shares Beneficially Owned
Beneficially Owned as a Result of
(Including the Options
Number of Shares Exercisable Within Percentage
Shown in the 60 Days of of Shares
Name of Beneficial Owner Second Column) February 29, 2000 Outstanding
------------------------ ------------------ ------------------ -----------
<S> <C> <C> <C>
ABS Capital Partners III,
L.P. ........................ 8,507,248 22.2%
101 California Street,
47th Floor
San Francisco, California
94111
Michael Silton (1)............ 5,968,778 15.5
The Santa Cruz Operation,
Inc. ........................ 3,705,767 9.6
425 Encinal Street
Santa Cruz, California 95060
Laurel James (2).............. 3,133,096 8.2
Bernard Jubb (3).............. 3,056,116 8.0
Robert Mason.................. 790,100 675,157 2.0
Richard Marotta............... 630,250 520,050 1.6
Eric Anderson................. 88,000 88,000 *
Randy Lowe.................... 547,000 372,000 1.4
Peter Silton (4).............. 887,000 59,000 2.3
Robert Leff................... 410,000 10,000 1.1
Andrew Sheehan (5)............ 8,507,248 22.2
Alok Mohan (6)................ 3,945,767 240,000 10.2
All directors and executive
officers as a group (14
persons)..................... 22,407,973 2,546,161 54.7%
</TABLE>
- --------
* Less than 1%.
(1) Includes 15,000 shares held by Michael Silton as Trustee of the Petra
Silton Children's Trust.
(2) Includes 3,133,096 shares held by Laurel F. James, Trustee of the Laurel
Ann James Grantor Trust dated July 3, 1997.
(3) Includes 3,056,116 shares held by Bernard P. Jubb, TTE UTD 11/11/97.
(4) Includes 32,000 shares held by Peter Silton as Trustee of the Anthony and
Deborah Romain Irrevocable Trust.
(5) Mr. Sheehan is a managing member of ABS Capital Partners III, LLC, which
is a general partner of ABS Capital Partners III, L.P. Mr. Sheehan
disclaims beneficial ownership of all shares held by ABS Capital Partners
III, L.P. except to the extent of his pecuniary interest therein.
(6) Mr. Mohan is the Chairman of SCO. Mr. Mohan disclaims beneficial ownership
of all shares held by SCO except to the extent of his pecuniary interest
therein.
6
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Officers
The following table provides certain information with respect to our
directors, executive officers and certain key employees:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Michael Silton.............. 35 Chairman of the Board, President and Chief
Executive Officer
Martin Hernandez............ 42 Chief Financial Officer and Secretary
Janice Wissler.............. 53 Executive Vice President, Worldwide Sales
and Marketing
Robert Mason................ 43 Senior Vice President, Service Delivery
Michael Tilson.............. 47 Senior Vice President, Technology
Development and Information Systems
Randy Lowe.................. 42 Vice President, Sales
Richard Kiely, Ph.D. ....... 45 Vice President and General Manager, Europe
Richard Marotta............. 40 Vice President, Information Technology
Tina Lally.................. 28 Vice President, Marketing Service Delivery
Winifred "Wink" Grelis...... 51 Vice President, Corporate Marketing
</TABLE>
Michael Silton has served as President and Chief Executive Officer since
October 1997 and our Chairman of the Board since inception. In 1991, he
founded Rainmaker's former business UniDirect, which specialized in the direct
marketing and sales of business software.
Martin Hernandez has served as Secretary and Chief Financial Officer since
October 1999. From May 1994 to October 1999, Mr. Hernandez held senior
positions at Silicon Graphics, Inc., most recently as Director, Finance-
Worldwide Sales and Marketing, and Director, Finance and Operations for the
company's Cosmo Software subsidiary. From April 1991 to March 1994, he served
as Director, Corporate Planning/Operations and Investor Relations for Meris
Laboratories, Inc. From October 1988 to April 1991, Mr. Hernandez was a Senior
Accountant with Price Waterhouse.
Janice Wissler has served as Executive Vice President, Worldwide Sales and
Marketing since May 1999. From July 1998 to May 1999, Ms. Wissler served as
the Executive Vice President of Global PC, a start-up computer hardware
company. From June 1994 to July 1998, she served as General Manager, Vice
President, Worldwide Sales and Marketing for Traveling Software. Prior to
joining Traveling Software, Ms. Wissler held senior positions in several
software companies, including Vice President, International for Claris,
President and Chief Executive Officer of Intelligent Graphics Corp., Director
of Marketing Services at WordStar International and Director of Marketing and
Sales for ITT Publishing.
Robert Mason has served as Senior Vice President, Service Delivery since
April 1999 and was the Chief Financial Officer and Secretary from May 1995 to
April 1999. From May 1993 to May 1995, Mr. Mason served as the Chief Financial
Officer, Chief Operating Officer and Secretary of General Micro Systems, Inc.,
a computer manufacturer. From May 1980 to May 1993, he held several positions
at MAI Systems, an enterprise solution provider, most recently as the Director
of Finance and Administration for North American sales. Mr. Mason is a CPA and
a Certified Internal Auditor.
Michael Tilson has served as Senior Vice President, Technology Development
and Information Systems since September 1999. From March 1997 to August 1999,
Mr. Tilson held executive positions at Decisive Technology Corporation
including Senior Vice President, Business Development from March 1999 to
August 1999, Chief Executive Officer from August 1998 to February 1999, and
Vice President and General Manager, Service Division from March 1997 to July
1998. From August 1995 to February 1997, Mr. Tilson was Senior Vice President
and Chief Information Officer for SCO. He also served as Senior Vice President
of Services at SCO from August 1993 to August 1995.
7
<PAGE>
Randy Lowe has served as Vice President, Sales since February 1995. From
October 1993 to February 1995, Mr. Lowe served as the General Manager of
Distribution at Rainmaker. From August 1992 to September 1993, Mr. Lowe was
employed at Specialix, a manufacturer of UNIX connectivity hardware.
Richard Kiely, Ph.D. has served as Vice President and General Manager,
Europe since September 1999. From April 1996 to September 1999, Dr. Kiely
served as General Manager Europe for Traveling Software. From December 1994 to
March 1996, he was Director, Sales Marketing and Operations for Hi Resolution,
a UK-based networking software company. From April 1991 to May 1994, Dr. Kiely
served as Managing Director for Claris International.
Richard Marotta has served as Vice President, Information Technology since
July 1995. From April 1984 to August 1997, Mr. Marotta also served as the
President of Your Way Automation, a private company which specialized in
distribution systems for commercial environments.
Tina Lally has served as Vice President, Marketing Service Delivery since
April 1999. Since joining Rainmaker in March 1994 as a member of our sales
team, Ms. Lally has held various positions, including Director of Creative
Services from February 1998 to April 1999.
Winifred "Wink" Grelis has served as Vice President, Corporate Marketing
since July 1999. From January 1995 to September 1998, she served as Senior
Director of Corporate Communications for Adobe Systems, Inc., a graphic design
and publishing software company. From March 1994 to January 1995, Ms. Grelis
served as the Director of Market Services for The Nasdaq Stock Market, Inc.
From September 1992 to March 1994, Ms. Grelis served as the Director of
Customer Marketing of EO, Inc., a hardware and software company.
8
<PAGE>
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and each of the
four other most highly compensated executive officers of the Company whose
aggregate salary and bonus for the 1999 Fiscal Year were in excess of
$100,000, for services rendered in all capacities to the Company for the
fiscal years ended December 31, 1999 and 1998. The listed individuals are
hereinafter referred to as the "Named Executive Officers." The compensation
table excludes other annual compensation in the form of perquisites and other
personal benefits that constitute the lesser of $50,000 or 10% of the total
annual salary and bonus earned by each of the Named Executive Officers in each
of the fiscal years ended December 31, 1999 and 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- ------------
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
--------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael Silton.............. 1999 $304,774 $216,344 -- $ 2,054(4)
Chairman, President and 1998 244,720 106,742 -- 194,691(1)
Chief Executive Officer
Robert Mason(2)............. 1999 233,266 33,908 50,000 --
Senior Vice President, 1998 195,010 59,492 20,100 127,134(3)
Service Delivery
Richard Marotta............. 1999 183,706 36,300 10,000 2,500(4)
Vice President, Information 1998 153,750 11,779 160,000 --
Technology
Eric Anderson............... 1999 87,846 126,794 10,100 2,389(4)
Director, Sales
Randy Lowe.................. 1999 192,767 15,500 110,000 2,500(4)
Vice President, Sales 1998 146,786 24,250 10,000 534(4)
</TABLE>
- --------
(1) Includes a relocation loan of $98,191 which was forgiven and $85,918 to
account for the income tax liability associated with the loan forgiveness,
$8,893 of life insurance premiums paid by us and $1,689 of 401(k) matching
contributions paid by us.
(2) Served as Chief Financial Officer and Secretary in 1998.
(3) Includes a relocation loan of $67,804 which was forgiven and $59,330 to
account for the income tax liability associated with the loan forgiveness.
(4) Represents 401(k) matching contributions paid by us.
9
<PAGE>
Option/SAR Grants in Last Fiscal Year
The following table contains information concerning the stock options
granted to the Named Executive Officers during the 1999 Fiscal Year. All the
grants were made under the Company's 1998 Stock Incentive Plan. No stock
appreciation rights were granted to the Named Executive Officers during such
fiscal year.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------
Potential
Realization
Value at Assumed
Annual Rates of
Number of % of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise Option Term(1)
Options Employees Price Expiration ----------------
Name Granted in 1999 Per Share(2) Date 5% 10%
---- ---------- ---------- ------------ ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael Silton.. -- -- -- -- -- --
Robert Mason.... 50,000 2% $1.64 4/8/09 $51,569 $130,687
Richard
Marotta........ 10,000 -- 1.64 4/8/09 10,314 26,137
Eric Anderson... 10,100 -- 0.83 2/22/09 5,272 13,360
Randy Lowe...... 110,000 4 2.50 6/11/09 172,946 438,279
</TABLE>
- --------
(1) Each option listed in the table above was granted under the Company's 1998
Stock Option/Stock Issuance Plan. The options shown in this table vest as
follows:
. 25% upon the completion of one year of employment from the date of
grant, and
. 2.1% upon the completion of each month of employment thereafter such
that after the next 36 months of employment all options will have
vested.
To the extent not already vested, all of these options will become vested
in the event of a merger in which more than 50% of the Company's
outstanding securities are transferred to persons different from those
persons who are the Company's stockholders prior to the merger or upon the
sale of substantially all the Company's assets in complete liquidation or
dissolution. This acceleration feature does not apply in the event that the
options are assumed by the successor corporation in the merger or are
replaced with a cash incentive program.
The potential realizable value is calculated based on the ten year term of
the option at its time of grant. It is calculated based on assumed
annualized rates of stock price appreciation from the exercise price at the
date of grant of 5% and 10% (compounded annually) over the full term of the
grant with appreciation determined as of the expiration date. The 5% and
10% assumed rates of appreciation are mandated by the rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projections of future common stock prices. Actual gains, if
any, on stock option exercises are dependent on the future performance of
the Common Stock and overall stock market conditions. The amounts reflected
in the table may not necessarily be achieved.
(2) The exercise price may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date. Alternatively, the option may
be exercised through a cashless exercise procedure pursuant to which the
optionee provides irrevocable instructions to a brokerage firm to sell the
purchased shares and to remit to the Company, out of the sale proceeds, an
amount equal to the exercise price plus all applicable withholding taxes.
The compensation committee may also assist an optionee in the exercise of
an option by (i) authorizing a loan from the Company in a principal amount
not to exceed the aggregate exercise price plus any tax liability incurred
in connection with the exercise or (ii) permitting the optionee to pay the
option price in installments over a period of years upon terms established
by the compensation committee.
10
<PAGE>
Aggregated Option Exercises and Fiscal Year End Values
The following table provides information, with respect to the Named
Executive Officers, concerning the exercise of options during the 1999 Fiscal
Year and unexercised options held by them at the end of that fiscal year. None
of the Named Executive Officers exercised any stock appreciation rights during
the 1999 Fiscal Year and no stock appreciation rights were held by the Named
Executive Officers at the end of such year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options at
Shares Options Fiscal Year End($)(2)
Acquired on Value ------------------------- -------------------------
Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael Silton.......... -- -- -- -- -- --
Robert Mason............ 114,943 237,358 608,833 66,324 12,253,424 $1,254,455
Richard Marotta......... -- -- 442,062 77,988 8,848,534 1,533,282
Eric Anderson........... -- -- 59,280 28,820 1,181,319 567,964
Randy Lowe.............. 195,000 308,100 256,583 115,417 5,178,692 2,068,438
</TABLE>
- --------
(1) Based upon the market price of the purchased shares on the exercise date
less the option exercise price paid for those shares.
(2) Based upon the market price of $20.25 per share, determined on the basis
of the closing sales price per share of the Company's Common Stock on the
Nasdaq National Market on the last day of the 1999 Fiscal Year, less the
option exercise price payable per share.
Employment Contracts, Termination of Employment and Change in Control
Arrangements
The Company does do not currently have any employment agreements with any
of the Company's Named Executive Officers. Accordingly, the Board of Directors
may terminate the employment of any such officer at any time in its
discretion.
Compensation Committee Interlocks and Insider Participation
The compensation committee of the Company's Board of Directors currently
consists of Robert Leff, Peter Silton and Andrew Sheehan. Prior to the
formation of the Company's compensation committee in May 1999, all decisions
relating to compensation of the Company's executive officers were made by the
Board of Directors.
On February 12, 1999, ABS Capital Partners III, L.P., purchased 7,926,829
shares of Series C preferred stock and currently holds more than five percent
of the Company's outstanding stock. Andrew Sheehan is a managing member of the
general partner of ABS Capital Partners , L.P and became a member of the
Company's Board of Directors.
In March 1999, we repurchased at a price of $1.64 per share:
. 2,033,222 shares from Michael Silton, the Company's Chief Executive
Officer and son of Peter Silton;
. 150,000 shares of common stock from Peter Silton;
. 58,800 shares from Petra Silton, a daughter of Peter Silton;
. 30,000 shares from Triana Silton, a daughter of Peter Silton; and
. 8,000 shares from Peter Silton, Trustee of the Anthony and Deborah
Romain Irrevocable Trust.
11
<PAGE>
In December 1996 and January 1997, we loaned approximately $98,200 to
Michael Silton, the son of Peter Silton, for relocation expenses which was
payable without interest. In June 1998, we forgave the loan amount and paid
Mr. Silton an additional $85,900 to account for the income tax liability
associated with the loan forgiveness.
None of the Company's executive officers serves as a member of the board of
directors or compensation committee of any entity that has one or more of its
executive officers serving as a member of the Company's board of directors or
compensation committee. No current member of the Company's compensation
committee has ever been an officer or employee of the Company.
Board Compensation Committee Report on Executive Compensation
It is the duty of the compensation committee to review and determine the
salaries and bonuses of executive officers of the Company, including the Chief
Executive Officer, and to establish the general compensation policies for such
individuals. The compensation committee was formed in May 1999, however,
decisions regarding the compensation of the Company's executive officers for
the 1999 Fiscal Year were made by the Company's Board of Directors prior to
the formation of the compensation committee. Such decisions have been ratified
by the compensation committee.
The compensation committee believes that the compensation programs for the
Company's executive officers should reflect the Company's performance and the
value created for the Company's stockholders. In addition, the compensation
programs should support the short-term and long-term strategic goals and
values of the Company and should reward individual contributions to the
Company's success. The Company is engaged in a very competitive industry, and
the Company's success depends upon its ability to attract and retain qualified
executives through the competitive compensation packages it offers to such
individuals.
General Compensation Policy. The compensation committee's policy is to
provide the Company's executive officers with compensation opportunities that
are based upon their personal performance, the financial performance of the
Company and their contribution to that performance, and that are competitive
enough to attract and retain highly skilled individuals. Each executive
officer's compensation package is comprised of two elements: (i) salary and
bonus that approximates market and (ii) long-term stock-based incentive awards
designed to strengthen the mutuality of interests between the executive
officers and the Company's stockholders.
Factors. The principal factors that were taken into account in establishing
each executive officer's compensation package for the 1999 Fiscal Year are
described below. The compensation committee may, however, in its discretion
apply entirely different factors, such as different measures of financial
performance, for future fiscal years.
Base Salary. The base salary for each executive officer is established on
the basis of each individual's personal performance and internal alignment
considerations. The compensation committee's policy is to target base salary
levels that approximates market for similar positions at peer companies to
reflect the fact that each executive officer's overall compensation is
primarily composed of an equity interest in the Company. The philosophy behind
this strategy is to have a substantial portion of each executive officer's
total compensation tied to the Company's performance and stock price
appreciation in order to create a greater incentive to create value for the
Company's stockholders.
Long-Term Incentives. Generally, stock option grants are made annually by
the compensation committee to certain of the Company's executive officers.
Each grant is designed to align the interests of the executive officer with
those of the stockholders and provide each individual with a significant
incentive to manage the Company from the perspective of an owner with an
equity stake in the business. Each grant allows the officer to acquire shares
of the Company's Common Stock at a fixed price per share (the market price on
the grant date) over a specified period of time (up to ten years). Each option
generally becomes exercisable in a series of installments over a four-year
period, contingent upon the officer's continued employment with the Company.
12
<PAGE>
Accordingly, the option will provide a return to the executive officer only if
he remains employed by the Company during the vesting period, and then only if
the market price of the shares appreciates over the option term.
The size of the option grant to each executive officer is set by the
compensation committee at a level that is intended to create a meaningful
opportunity for stock ownership based upon the individual's current position
with the Company, the individual's personal performance in recent periods and
his or her potential for future responsibility and promotion over the option
term. The compensation committee also takes into account the number of
unvested options held by the executive officer in order to maintain an
appropriate level of equity incentive for that individual. The relevant weight
given to each of these factors varies from individual to individual. The
compensation committee has established certain guidelines with respect to the
option grants made to the executive officers, but has the flexibility to make
adjustments to those guidelines at its discretion.
CEO Compensation. The compensation committee has set the base salary of the
CEO at levels that it believes approximates market for base salary levels of
chief executive officers of those companies with which the Company competes
for executive talent considering the substantial ownership interest of the CEO
in the Company.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code disallows a tax deduction to publicly held companies for
compensation paid to certain of their executive officers, to the extent that
compensation exceeds $1.0 million per covered officer in any fiscal year. The
limitation applies only to compensation that is not considered to be
performance-based. Non-performance-based compensation paid to the Company's
executive officers for the 1999 Fiscal Year did not exceed the $1.0 million
limit per officer, and the Compensation Committee does not anticipate that the
non-performance-based compensation to be paid to the Company's executive
officers for fiscal 2000 will exceed that limit. The Company's 1999 Stock
Incentive Plan has been structured so that any compensation deemed paid in
connection with the exercise of option grants made under that plan with an
exercise price equal to the fair market value of the option shares on the
grant date will qualify as performance-based compensation that will not be
subject to the $1.0 million limitation. Because it is unlikely that the cash
compensation payable to any of the Company's executive officers in the
foreseeable future will approach the $1.0 million limit, the compensation
committee has decided at this time not to take any action to limit or
restructure the elements of cash compensation payable to the Company's
executive officers. The compensation committee will reconsider this decision
should the individual cash compensation of any executive officer ever approach
the $1.0 million level.
It is the opinion of the compensation committee that the executive
compensation policies and plans provide the necessary total remuneration
program to properly align the interests of each executive officer and the
interests of the Company's stockholders through the use of competitive and
equitable executive compensation in a balanced and reasonable manner, for both
the short and long-term.
Submitted by the compensation committee of the Company's Board of
Directors:
Andrew Sheehan
Robert Leff
Peter Silton
13
<PAGE>
Stock Performance Graph
The graph depicted below shows a comparison of cumulative total stockholder
returns for the Company, the Nasdaq Composite Index and an index of peer
issuers selected in good faith by the Company which are in a similar line of
business as the Company.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Nov 17, 1999 Nov 30, 1999 Dec 31, 1999
<S> <C> <C> <C>
Rainmaker Systems, Inc. 100 121 109
NASDAQ Composite Index 100 102 124.50
Peer Group Index 100 96 142
</TABLE>
The graph covers the period from November 17, 1999, the commencement date
of the Company's initial public offering of shares of its Common Stock, to
December 31, 1999. The graph assumes that $100 was invested on November 17,
1999 in the Company's Common Stock at the market closing price of $18.50 per
share on November 17, 1999 and in each index, and that all dividends were
reinvested. No cash dividends have been declared on the Company's Common
Stock. Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
The companies included in the index of peer issuers for purposes of the
preceding Stock Performance Graph are: Digital Impact, Inc., Intraware, Inc.,
Digital River, Inc. and Breakaway Solutions, Inc. The returns of each
component issuer included in the index of peer issuers are weighted according
to the respective issuer's approximate market capitalization at November 17,
1999. The graph assumes that the market price per share of common stock of
Digital Impact, Inc., on November 17, 1999, was the stock's closing price on
November 23, 1999, the date of such company's initial public offering.
The preceding Stock Performance Graph and the Compensation Committee Report
are not considered proxy solicitation material and are not deemed filed with
the Commission. Notwithstanding anything to the contrary set forth in any of
the Company's previous filings made under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, that might
incorporate future filings made by the Company under those statutes, neither
the preceding Stock Performance Graph nor the compensation committee Report is
to be incorporated by reference into any such prior filings, nor shall such
graph or report be incorporated by reference into any future filings made by
the Company under those statutes.
14
<PAGE>
Certain Transactions
In addition to the transactions listed under "Compensation Committee
Interlocks and Insider Participation" the Company also entered into the
following transactions:
On February 12, 1999, we issued 8,536,585 shares of Series C convertible
participating preferred stock at $1.64 per share for cash proceeds of
approximately $14 million. ABS Capital Partners III, L.P., or ABS, purchased
7,926,829 shares of Series C preferred stock. Concurrently with the closing of
the Series C investment, we also issued 5,717,470 shares of Series D
convertible participating preferred stock to SCO in exchange for all of the
securities previously held by SCO, including a convertible debenture in the
principal amount of $995,529, warrants to purchase 2,844,370 shares of common
stock and Series A convertible preferred stock convertible into 2,873,100
shares of common stock.
We purchased products and service agreements from SCO at a cost of $15.6
million in 1997, $15.9 million in 1998 and $17.5 million in 1999. Also, during
1997, 1998, and 1999, we received marketing development fund reimbursements of
$995,000, $982,000, $992,000, respectively, from SCO. SCO holds more than five
percent of the Company's outstanding shares of common stock.
During April and May 1999, we used $7.9 million of the Series C investment
proceeds to repurchase shares of common stock at a price of $1.64 per share
from certain of the Company's stockholders, including:
. 2,033,222 shares from Michael Silton the Company's Chief Executive
Officer who holds more than five percent of the Company's outstanding
common stock;
. 1,048,904 shares from Laurel James, who holds more than five percent of
the Company's outstanding common stock;
. 1,033,884 shares from Bernard Jubb, who holds more than five percent of
the Company's outstanding common stock;
. 350,000 shares from SCO;
. 150,000 shares from Peter Silton, a director and father of Michael
Silton;
. 58,800 shares from Petra Silton, a sister of Michael Silton and a
daughter of Peter Silton;
. 43,808 shares from Jill Silton, mother of Michael Silton;
. 36,799 shares from Richard Marotta, the Company's Vice President,
Information Technology;
. 30,000 shares from Triana Silton, a sister of Michael Silton and a
daughter of Peter Silton; and
. 8,000 shares from Peter Silton, Trustee of the Anthony and Deborah
Romain Irrevocable Trust.
In connection with the repurchase of common stock, SCO elected to receive a
put right to cause us, at SCO's option, to purchase additional shares of the
Company's common stock. SCO subsequently exercised its put right, and we
repurchased from SCO 540,642 shares in June 1999 and 540,642 shares in August
1999, at a price of $1.64 per share.
In February 1999, we loaned $100,000 to Mr. Jubb as an advance of a portion
of the purchase price for the anticipated repurchase of shares of common stock
held by Mr. Jubb. The loan was secured by 60,975 shares of common stock and
was repaid in April 1999 upon the repurchase of Mr. Jubb's shares as described
above. No interest was charged on the loan.
Richard Marotta, the Company's Vice President, Information Technology, was
the President and sole stockholder of Your-Way Automation, Inc., which
provided information technology consulting services and sales of hardware to
us. For these services rendered to us, Your Way received fees of $599,355 in
1996, $774,842 in 1997 and $15,224 in 1998.
15
<PAGE>
We loaned approximately $67,800 during 1997 to Robert Mason for relocation
expenses which was payable without interest. In June 1998, we forgave the loan
amount and paid Mr. Mason an additional approximately $59,300 to account for
the income tax liability associated with the loan forgiveness. Mr. Mason is
Senior Vice President, Service Delivery and was the Company's Chief Financial
Officer and Secretary from May 1995 to April 1999.
Effective September 30, 1997, Bernard Jubb resigned as the Company's
President and Chief Executive Officer. Mr. Jubb and Rainmaker entered into a
Separation Agreement pursuant to which Mr. Jubb was engaged as a consultant
for us following his resignation. Mr. Jubb was paid consulting fees of
approximately $56,400 in 1997 and $267,600 in 1998, and his COBRA premiums
from October 1997 to March 1999. Mr. Jubb's consulting arrangement with us
terminated in February 1999. We also cancelled $21,000 of indebtedness owed by
Mr. Jubb. Mr. Jubb also served as a director from January 1991 to February
1999. Mr. Jubb owns more than five percent of the Company's outstanding shares
of common stock.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934 which require them to file reports with
respect to their ownership of the Common Stock and their transactions in such
Common Stock. Based upon (i) the copies of Section 16(a) reports which the
Company received from such persons for their 1999 Fiscal Year transactions in
the Common Stock and their Common Stock holdings, and (ii) the written
representations received from one or more of such persons that no annual Form
5 reports were required to be filed by them for the 1999 Fiscal Year, the
Company believes that all reporting requirements under Section 16(a) for such
fiscal year were met in a timely manner by its directors, executive officers
and greater than 10% beneficial owners.
Annual Report
A copy of the Annual Report of the Company for the 1999 Fiscal Year has
been mailed concurrently with this Proxy Statement to all stockholders
entitled to notice of and to vote at the Annual Meeting. The Annual Report is
not incorporated into this Proxy Statement and is not considered proxy
solicitation material.
Form 10-K
The Company filed an Annual Report on Form 10-K with the Commission on
March 30, 2000]. Stockholders may obtain a copy of this report, free of
charge, by writing to Investor Relations, Rainmaker Systems, Inc., 1800 Green
Hills Road, Scotts Valley, California 95066.
BY ORDER OF THE BOARD OF DIRECTORS
OF RAINMAKER SYSTEMS, INC.
Dated: April 10, 2000
16
<PAGE>
RAINMAKER SYSTEMS, INC.
PROXY
COMMON STOCK
Annual Meeting of Stockholders, May 17, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
RAINMAKER SYSTEMS, INC.
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders to be held May 17, 2000 and the
Proxy Statement and appoints Martin Hernandez and Michael Silton, and each of
them, the Proxy of the undersigned, with full power of substitution, to vote all
shares of Common Stock of Rainmaker Systems, Inc. (the "Company") which the
undersigned is entitled to vote, either on his or her own behalf or on behalf of
any entity or entities, at the Annual Meeting of Stockholders of the Company to
be held at the Holiday Inn, 611 Ocean Street, Santa Cruz, California, 95060,
on May 17, 2000 at 1:00 p.m. Pacific Daylight Savings Time, and at any
adjournment or postponement thereof, with the same force and effect as the
undersigned might or could do if personally present thereat. The shares
represented by this Proxy shall be voted in the manner set forth on the reverse
side.
1. To elect two directors to serve for a three-year term ending in the
year 2003 or until their successors are duly elected and qualified;
FOR WITHHOLD
AUTHORITY
TO VOTE
Michael Silton ______ ________
Robert Leff ______ ________
________ For all nominees except as noted above.
2. FOR AGAINST ABSTAIN To ratify the appointment of Ernst & Young
LLP as independent auditors of the Company
for the fiscal year ending December 31,
2000.
3. In accordance with the discretion of the
proxy holders, to act upon all matters
incident to the conduct of the meeting
and upon other matters as may properly
come before the meeting.
The Board of Directors recommends a vote IN FAVOR OF the directors listed
above and a vote IN FAVOR OF each of the listed proposals. This Proxy,
when properly executed, will be voted as specified above. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED IN FAVOR OF THE ELECTION OF
THE DIRECTORS LISTED ABOVE AND IN FAVOR OF THE OTHER PROPOSALS.
Please print the name(s) appearing on each share
certificate(s) over which you have voting authority:
___________________________________________________________________________
(Print name(s) on certificate)
Please sign your name:________________________________ Date:_______________
(Authorized Signature(s))
