<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1999.
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
NET PERCEPTIONS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 41-1844584
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
</TABLE>
7901 FLYING CLOUD DRIVE
MINNEAPOLIS, MINNESOTA 55344
(612) 903-9424
(Address, including zip code, and telephone number, including
area code, of the Registrant's principal executive offices)
STEVEN J. SNYDER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NET PERCEPTIONS, INC.
7901 FLYING CLOUD DRIVE
MINNEAPOLIS, MINNESOTA 55344
(612) 903-9424
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
ROBERT V. GUNDERSON, JR. KENNETH L. GUERNSEY
DANIEL E. O'CONNOR MICHAEL J. SULLIVAN
GUNDERSON DETTMER STOUGH COOLEY GODWARD LLP
VILLENEUVE FRANKLIN & HACHIGIAN, LLP ONE MARITIME PLAZA
155 CONSTITUTION DRIVE 20(TH) FLOOR
MENLO PARK, CALIFORNIA 94025 SAN FRANCISCO, CALIFORNIA
(650) 321-2400 (415) 693-2000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.0001 par value per share $40,000,000 $11,120
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such Section 8(a), may determine.
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<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION) ISSUED FEBRUARY 5, 1999
[LOGO]
[ ] SHARES
COMMON STOCK
Net Perceptions, Inc. is offering shares. This is our initial public
offering and no public market currently exists for our stock. We anticipate that
the initial public offering price will be between $ and $ per share.
We have filed an application for the common stock to be quoted on the Nasdaq
National Market under the symbol "NETP."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------------- ---------------
<S> <C> <C>
Public Offering Price......................................................... $ $
Underwriting Discounts and Commissions........................................ $ $
Proceeds to the Company....................................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Net Perceptions, Inc. has granted the underwriters the right to purchase up
to an additional shares of common stock to cover over-allotments.
BancBoston Robertson Stephens expects to deliver the shares of common stock to
purchasers on , 1999.
------------------------
BANCBOSTON ROBERTSON STEPHENS
HAMBRECHT & QUIST
PIPER JAFFRAY INC.
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE>
[LOGO]
[GRAPHIC]
The Net Perceptions logo and "NET PERCEPTIONS" are centered over the graphic.
Underneath are five parts to the graphic with arrows connecting them. The first
part is a photo of a woman in front of a computer, pointing at the monitor.
Under the photo appears the caption "1. Customer visits a retailer's electronic
commerce web site that utilizes Net Perceptions for E-commerce software." An
arrow leads down to the second part. The second part consists of the title
"Client's Web Site" centered over a computer screen with the word "Welcome"
appearing on the computer screen. Under the computer screen appears the caption
"2. The customer browses the retailer's web site." An arrow leads up to the
third part. The third part consists of the title "Net Perceptions for
E-commerce" centered over an oval with the words "Net Perceptions Recommendation
Engine" contained within the oval and a hexagon with the words "Customer
Preference Database" contained within the hexagon. The oval and hexagon are
superimposed over a picture of a computer keyboard. Below the oval appears the
caption "3. The web site solicits customer preference information and tracks the
customer's browsing behaviors and purchases." Adjacent to this caption below the
hexagon is the caption "4. The recommendation engine predicts other products
likely to to be appealing to the customer." Below these captions, an arrow leads
to a picture of three computer screens superimposed on each other with the top
screen containing the words "Recommended Merchandise" and the letters "A", "B"
and "C". An arrow leads across to a picture of a computer screen containing the
letter "C" and the word "Buy". Directly below this computer screen is the
caption "5. The web site recommends products likely to be appealing to the
customer."
2
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. INFORMATION CONTAINED ON NET PERCEPTIONS' WEB SITE
IS NOT PART OF THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK. IN THIS PROSPECTUS, "NET
PERCEPTIONS," "WE," "US" AND "OUR" REFER TO NET PERCEPTIONS, INC.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 7
Use of Proceeds............................................................................................ 21
Dividend Policy............................................................................................ 21
Capitalization............................................................................................. 22
Dilution................................................................................................... 23
Selected Financial Data.................................................................................... 24
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 25
Business................................................................................................... 34
Management................................................................................................. 52
Certain Transactions....................................................................................... 60
Principal Stockholders..................................................................................... 61
Description of Capital Stock............................................................................... 63
Shares Eligible for Future Sale............................................................................ 65
Underwriting............................................................................................... 67
Legal Matters.............................................................................................. 68
Experts.................................................................................................... 68
Additional Information..................................................................................... 69
Index to Financial Statements.............................................................................. F-1
</TABLE>
We have the following registered trademarks:
GroupLens-Registered Trademark-. We also have the following unregistered
trademarks: Net Perceptions and the Net Perceptions logo. This prospectus also
includes trademarks of other companies.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION AND OUR
FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS
SUMMARY IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. NET PERCEPTIONS' ACTUAL RESULTS COULD DIFFER
SIGNIFICANTLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION
CONTAINED IN THIS PROSPECTUS (A) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT
OPTION IS NOT EXERCISED, (B) ASSUMES THE CONVERSION OF ALL OUTSTANDING PRINCIPAL
AND ACCRUED INTEREST ON A $4.0 MILLION CONVERTIBLE PROMISSORY NOTE INTO COMMON
STOCK UPON THE CLOSING OF THIS OFFERING, AND (C) EXCEPT IN THE FINANCIAL
STATEMENTS, REFLECTS THE CONVERSION OF ALL OUTSTANDING PREFERRED STOCK INTO
COMMON STOCK UPON THE CLOSING OF THIS OFFERING.
THE COMPANY
Net Perceptions is a leading provider of real-time relationship marketing
solutions that enable Internet retailers to market to customers on a
personalized, one-to-one basis. With our software solutions, a retailer learns
from each customer interaction and, based on the information received, adjusts
marketing messages and product offerings to that customer in real time. We
believe that retailers that implement our solutions can attract more customers,
generate more products per order and increase customer loyalty. To date, we have
focused on providing solutions to electronic commerce retailers. Our customers
currently include barnesandnoble.com, CDnow, Egghead.com, Preview Travel,
Ticketmaster and Value America.
With the size and growth of electronic commerce, the opportunity for
one-to-one marketing on the Internet is potentially large. International Data
Corporation estimates that the amount of Internet commerce worldwide will
increase from $32 billion in 1998 to over $400 billion in 2002. Electronic
commerce retailers must find ways to compete more effectively and distinguish
themselves in this rapidly-growing market. As a result, these retailers are
beginning to personalize the online shopping experiences of their customers. A
Jupiter Communications survey conducted in June 1998 reported that 40% of online
retailers used some form of personalization and 93% of the remaining online
retailers planned to implement the practice in the next 12 months.
Our products enable effective real-time relationship marketing by analyzing
past and current customer behavior, including purchase history, stated
preferences, demographic information and Internet browsing behavior. Based on
this analysis, our products use proprietary collaborative filtering technology
and other predictive technologies to anticipate other merchandise or information
a customer is likely to be interested in purchasing or viewing. Our product
suite consists of:
- NET PERCEPTIONS FOR E-COMMERCE, which is a leading real-time relationship
marketing solution for electronic commerce retailers;
- NET PERCEPTIONS FOR AD TARGETING, which is designed to enable web sites to
target advertisements to each visitor;
- NET PERCEPTIONS FOR CALL CENTERS, which is designed to provide call center
operators with caller-specific recommendations to deliver during customer
interactions; and
- NET PERCEPTIONS RECOMMENDATION ENGINE, which is a general-purpose
relationship marketing platform that can be used to leverage data across
multiple customer points of contact.
We design each of our products to provide high recommendation accuracy while
reliably meeting the real-time and volume requirements of large retailers. In
addition, we base our solutions on a
4
<PAGE>
distributed architecture that is flexible enough to integrate with our
customers' new or existing marketing implementations, including web site, call
center and Internet advertising software.
We also provide our customers with a comprehensive array of services,
including training and consulting services, software updates, documentation
updates, telephone support and web-based support. We market our products and
services through our direct sales organization and through indirect distribution
channels, including value-added resellers, systems integrators and original
equipment manufacturers.
Our objective is to extend our leadership position in providing real-time
marketing solutions to Internet and traditional retailers. To achieve this
objective, we intend to: (a) maintain and extend our technological leadership in
real-time relationship marketing solutions through continued investment in the
development of our proprietary recommendation engine and other predictive
technologies; (b) leverage this technology investment into additional online and
traditional markets; (c) continuously increase the value of our solutions to
customers by offering additional and improved professional services; (d)
aggressively develop our international presence to address the global adoption
of the Internet and to address international demand for real-time relationship
marketing solutions; and (e) expand our indirect distribution channels by
recruiting additional resellers, systems integrators and original equipment
manufacturers.
Net Perceptions was incorporated in Delaware on July 3, 1996. Our principal
sales, marketing, research and development and administrative facility is in
Minneapolis, and we lease sales and support offices in San Francisco and New
York. Our telephone number is (612) 903-9424.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered.............. shares
Common stock to be outstanding
after this offering............. shares(1)
Over-allotment option............. shares
Use of proceeds................... For working capital and general corporate purposes.
Dividend policy................... We do not intend to pay dividends on our common stock.
We plan to retain any earnings for use in the operation
of our business and to fund future operations.
Proposed Nasdaq National Market
symbol.......................... NETP
</TABLE>
- ---------
(1) Based on 8,651,004 shares outstanding as of December 31, 1998. Also includes
shares of common stock issuable upon conversion of a convertible
promissory note upon the closing of this offering. This number does not
include (A) 704,282 shares of common stock subject to outstanding options
under our 1996 Stock Plan as of December 31, 1998, and (B) 5,991 shares of
common stock issuable upon exercise of an outstanding warrant. Subsequent to
December 31, 1998, we granted options to purchase an additional 146,468
shares of common stock. See "Capitalization," "Management--1999 Equity
Incentive Plan," "--Employee Stock Purchase Plan," "--1999 Non-Employee
Director Option Plan" and Note 7 of Notes to Financial Statements.
5
<PAGE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
JULY 3, 1996 DECEMBER 31,
(INCEPTION) TO ------------------
DECEMBER 31, 1996 1997 1998
----------------- ------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues......................................... $ 4 $ 317 $ 4,477
Gross margin........................................... 2 273 4,052
Operating expenses..................................... 1,042 5,020 8,947
Loss from operations................................... (1,040) (4,747) (4,895)
Net loss............................................... (1,027) (4,722) (4,831)
Pro forma basic and diluted net loss per share......... $ (0.68)
Shares used in computing pro forma basic and diluted
net loss per share(1)................................ 7,056
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
----------------------------
ACTUAL AS ADJUSTED(2)
--------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 972 $
Working capital...................................................................... 468
Total assets......................................................................... 5,637
Long-term liabilities, net of current portion........................................ 538 538
Redeemable convertible preferred stock............................................... 650 --
Total stockholders' equity........................................................... 421
</TABLE>
- ---------
(1) See Note 2 of Notes to Financial Statements for an explanation of the method
used to determine the number of shares used in computing pro forma basic and
diluted net loss per share.
(2) Adjusted to reflect the conversion of preferred stock into 5,334,350 shares
of common stock, the issuance of shares of common stock upon
conversion of a convertible promissory note upon the closing of this
offering at an assumed conversion price of $ per share, and the sale of
shares of common stock in this offering at an assumed initial
public offering price of $ per share and the application of the estimated
net proceeds therefrom. See "Use of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE INVESTING IN OUR COMMON
STOCK. ALL STATEMENTS, TREND ANALYSIS AND OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS RELATING TO MARKETS FOR OUR PRODUCTS AND TRENDS IN TOTAL REVENUES,
GROSS MARGIN AND ANTICIPATED EXPENSE LEVELS, AS WELL AS OTHER STATEMENTS
INCLUDING WORDS SUCH AS "ANTICIPATE," "BELIEVE," "PLAN," "ESTIMATE," "EXPECT"
AND "INTEND" AND OTHER SIMILAR EXPRESSIONS, ARE FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO BUSINESS AND ECONOMIC RISKS, AND
OUR ACTUAL RESULTS OF OPERATIONS MAY DIFFER SUBSTANTIALLY FROM THOSE ANTICIPATED
IN THE FORWARD-LOOKING STATEMENTS. THE CAUTIONARY STATEMENTS MADE IN THIS
PROSPECTUS APPLY TO ALL FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS
PROSPECTUS.
NET PERCEPTIONS IS AN EARLY-STAGE COMPANY
Net Perceptions was founded in July 1996. We began shipping product in the
first quarter of 1997. The market for our products is unproven. Our limited
operating history makes an evaluation of our future prospects very difficult. We
will encounter risks and difficulties frequently encountered by early-stage
companies in new and rapidly evolving markets. These risks include our:
- Dependence on our Net Perceptions for E-commerce product, which currently
has only limited market acceptance;
- Unproven ability to successfully market our recently introduced Net
Perceptions for Ad Targeting and Net Perceptions for Call Centers
products;
- Limited number of customers that have implemented and are currently using
our products;
- Dependence on key, high-profile customers;
- Need to expand our sales, professional services and product development
organizations;
- Need to develop and market new products that achieve market acceptance;
- Need to compete in a highly competitive market;
- Need to manage rapidly expanding operations; and
- Need to attract and retain key personnel.
We may not successfully address any of these risks. If we do not
successfully address these risks, our business, financial condition and results
of operations would be seriously harmed.
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT
Our quarterly operating results have varied in the past and may vary
significantly in the future. Our quarterly operating results will vary depending
on a number of factors, including:
- Demand for our products and services;
- Amount and timing of sales transactions for our products and services;
- Actions taken by our competitors, including new product introductions;
- Our ability to develop, introduce and market new products and enhancements
to our existing products on a timely basis;
- Market readiness for our products;
- Changes in our pricing policies or those of our competitors;
7
<PAGE>
- Our ability to expand our sales and marketing operations, including hiring
additional sales personnel;
- Our success in developing indirect sales channels;
- The deferral of significant revenues until acceptance of software or
delivery of services as required by an individual license transaction;
- Our ability to control costs;
- Technological changes in our markets;
- The mix of sales among our direct and indirect channels and between
domestic and international markets;
- Deferrals of customer orders in anticipation of product enhancements or
new products;
- The rate of growth in the use of the Internet for commerce and
communication;
- Customer budget cycles and changes in these budget cycles;
- Difficulties experienced by our customers or us as a result of Year 2000
issues; and
- General economic factors.
We cannot predict our future quarterly revenues with any degree of certainty
for several reasons, including:
- Product revenues in any quarter are substantially dependent on orders
booked and shipped in that quarter, because we operate with very little
order backlog;
- The market in which we compete is relatively new and rapidly evolving;
- We expect that, for the foreseeable future, revenues will come from
licenses to a small number of customers, so delays or cancellations of
orders by a few customers can significantly impact revenues within a
quarter;
- Our sales cycle varies substantially from customer to customer; and
- The timing of large orders can significantly affect revenues within a
quarter.
Historically, we have recognized a substantial portion of our revenues in
the last month of a quarter, with these revenues frequently concentrated in the
last two weeks of the quarter. Accordingly, we cannot predict our financial
results for any quarter until very late in the quarter. A delay in an
anticipated sale near the end of a quarter can seriously harm our operating
results for that quarter.
Our expense levels are relatively fixed in the short term and are based, in
part, on our expectations as to our future revenues. As a result, any delay in
generating or recognizing revenues could cause significant variations in our
operating results from quarter to quarter and could result in increased
operating losses.
Because our operating results are volatile and difficult to predict, we
believe that period-to-period comparisons of our results of operations are not a
good indication of our future performance. It is likely that in some future
quarter or quarters our operating results will be below the expectations of
public market analysts and investors. In such event, the market price of our
common stock may fall significantly.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE
We had net losses of $4.7 million in 1997 and $4.8 million in 1998. As of
December 31, 1998, we had an accumulated deficit of $10.6 million. We have not
had a profitable quarter and do not expect to
8
<PAGE>
have a profitable quarter in 1999 or 2000. We expect that our losses will
continue to increase in 1999. We expect to continue to incur significant sales
and marketing, research and development and general and administrative expenses.
As a result, we will need to generate significant quarterly revenues to achieve
profitability. We may never achieve profitability. Although our revenues have
grown in recent quarters, we do not believe that we can sustain these growth
rates, or that such growth rates are indicative of future revenue growth rates.
See "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
WE DEPEND ON OUR NET PERCEPTIONS FOR E-COMMERCE PRODUCT
We currently derive a substantial portion of our revenues from our Net
Perceptions for E-commerce product. Our Net Perceptions for E-commerce product
accounted for all of our product revenues in 1998. We anticipate that Net
Perceptions for E-commerce will continue to account for a substantial portion of
our revenues for the foreseeable future. Consequently, a decline in the price of
or demand for Net Perceptions for E-commerce, or its failure to achieve broad
market acceptance, would seriously harm our business, financial condition and
results of operations.
WE FACE INTENSE COMPETITION
The market for our products is intensely competitive, evolving and subject
to rapid technological change. We expect the intensity of competition to
increase in the future. Competitors vary in size and in the scope and breadth of
the products and services offered. In the license of electronic commerce
products, we primarily encounter competition from the LikeMinds division of
Andromedia, the Aptex division of HNC Software and Personify. Microsoft
Corporation recently acquired FireFly Network Inc., a company with collaborative
filtering technology and, as a result, we expect that we will encounter
competition from Microsoft in the future. We expect that if we are successful in
our strategy to leverage our technology into new vertical markets, we will
encounter many additional, market-specific competitors. In addition, because
there are relatively low barriers to entry in the software market, we expect
additional competition from other established and emerging companies as the
Internet software market continues to develop and expand.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition and a larger installed base of customers than us. In
addition, many of our competitors have well-established relationships with
current and potential customers of ours, have extensive knowledge of our
industry and are capable of offering a single-vendor solution. As a result, our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
development, promotion and sale of their products than we can. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. We also expect that competition will increase as a
result of software industry consolidations.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could seriously harm our
business, financial condition and results of operations. We may not be able to
compete successfully against current and future competitors.
OUR PRODUCTS HAVE A LENGTHY SALES AND IMPLEMENTATION CYCLE
We are one of the first companies to market real-time relationship marketing
software. As a result, we must educate potential customers on the use and
benefits of our products. In addition, we believe that the purchase of our
products is relatively discretionary and involves a significant commitment of
9
<PAGE>
capital and other resources by a customer. As a result, it usually takes our
sales organization several months to finalize a sale. This makes it difficult to
predict the quarter in which a sale may occur. In addition, the implementation,
including application design and deployment of our products, requires a
significant commitment of resources by our customers. The time required for
implementation of Net Perceptions for E-commerce has varied depending on the
customer's application of the product. Additionally, implementation often does
not begin until a customer otherwise undertakes to update its web site, which
generally occurs only once or twice per year. We expect Net Perceptions for Ad
Targeting will have an implementation cycle similar to Net Perceptions for
E-commerce. We anticipate that implementation of our Net Perceptions for Call
Centers product will take substantially longer due to more extensive integration
requirements.
We have currently licensed our products to more than 80 customers. However,
only a small number of these customers has a deployed and operating application
utilizing our products. Because most of our customers have not yet fully
implemented and deployed our products, we cannot be certain that our products
will:
- Perform as designed;
- Deliver the desired level of economic benefit to our customers;
- Meet the other expectations and needs of our customers;
- Achieve any significant degree of market acceptance; or
- Perform to the level necessary to generate good customer references and
repeat customers.
If implementation services constitute a significant part of a product sales
transaction, we recognize a substantial portion of our revenues from such sales
transaction upon the delivery of these services. As a result, delays in service
delivery could cause significant reduction in our license revenues and operating
results for any particular period. The occurrence of any of these events could
seriously harm our business, financial condition and results of operations.
WE NEED TO INCREASE OUR DIRECT SALES CAPABILITIES
We need to substantially expand our direct sales operations if we are to
increase market awareness and sales of our products and services. Our products
and services require a sophisticated sales effort targeted at senior management
of our prospective customers. We have recently expanded our direct sales force
and plan to hire additional sales personnel. As of January 31, 1999, our direct
sales organization consisted of 22 employees. Competition for qualified sales
personnel is intense, and we might not be able to hire the kind and number of
sales personnel we are targeting. New hires will require extensive training and
typically take several months to achieve productivity. We cannot be certain that
our recent hires will be as productive as necessary. If we fail to increase our
direct sales capabilities as we have planned, our business, financial condition
and results of operations would be seriously harmed.
WE ARE DEPENDENT ON OUR PROFESSIONAL SERVICES ORGANIZATION
Customers that license our software typically engage our professional
services organization to assist with support, training, consulting and
implementation. We believe that growth in our product sales depends on our
ability to provide our clients with these services and to educate resellers on
how to use our products. As a result, we plan to increase the number of service
personnel to meet these needs. As of January 31, 1999, our professional services
organization consisted of ten employees. We are in a new market and there are a
limited number of people who have the skills needed to provide the services that
our customers demand. Competition for qualified service personnel is intense. We
cannot be
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certain that we can attract or retain a sufficient number of the
highly-qualified service personnel that our business needs.
From time to time, we receive customer complaints about the timeliness and
accuracy of our customer support. We plan to add more customer support personnel
in order to address current customer support needs. If we are not successful
hiring such personnel, our business, financial condition and results of
operations could be seriously harmed.
WE COULD BE IMPACTED BY PRIVACY CONCERNS
Typically, our Net Perceptions for E-commerce product captures customer
preference and profile information each time a customer visits a web site or
volunteers information in response to survey questions. Privacy concerns may
cause visitors to resist providing the personal data necessary to support this
profiling capability. More importantly, even the perception of privacy concerns,
whether or not valid, may indirectly inhibit market acceptance of our products.
In addition, legislative or regulatory requirements may heighten such concerns
if web site users must be notified that the data captured after visiting web
sites may be used by marketing entities to unilaterally direct product promotion
and advertising to that user. We are not aware of any such legislation or
regulatory requirements currently in effect in the United States. Various other
countries and political entities, such as the European Economic Community, have
adopted such legislation or regulatory requirements. The United States may adopt
similar legislation or regulatory requirements. If customer privacy concerns are
not adequately addressed or if restrictive legislation is adopted in the United
States, our business, financial condition and results of operations could be
seriously harmed.
Our Net Perceptions for E-commerce product can use data captured with
"cookies" to track demographic information and user preferences. A "cookie" is a
bit of information keyed to a specific server, file pathway or directory
location that is stored on a computer user's hard drive, possibly without the
user's knowledge, but generally removable by the user. Some countries have
imposed laws limiting the use of cookies, and a number of Internet commentators,
advocates and governmental bodies in the United States and other countries have
urged passage of laws limiting or abolishing the use of cookies. If such laws
are passed, our business, financial condition and results of operations could be
seriously harmed.
WE RECENTLY ANNOUNCED NEW PRODUCTS THAT MAY NOT ACHIEVE MARKET ACCEPTANCE
We announced the commercial launch of Net Perceptions for Ad Targeting in
October 1998 and made our initial product shipment in December 1998. We did not
recognize any product revenues in 1998 related to that shipment. We announced
the commercial launch of Net Perceptions for Call Centers in November 1998 and
expect to make our initial shipments in 1999. Neither Net Perceptions for Ad
Targeting nor Net Perceptions for Call Centers has received any degree of market
acceptance. There are significant risks inherent in product introductions such
as those of Net Perceptions for Ad Targeting or Net Perceptions for Call
Centers. These products may not address some or all of the needs of customers
and may contain undetected errors or failures. A lack of necessary features or
errors or failures in these products will likely result in loss or delay of
market acceptance for these products. We expect that our future financial
performance will depend significantly on the successful sales, implementation
and market acceptance of Net Perceptions for Ad Targeting and Net Perceptions
for Call Centers, which may not occur on a timely basis or at all.
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WE ARE DEPENDENT ON POTENTIAL NEW PRODUCTS
We currently have plans to introduce and market potential new products in
1999. Our potential new products are:
- Net Perceptions for Marketing Campaigns, which is being designed to be a
tool for producing targeted promotional electronic mail messages; and
- Net Perceptions for Knowledge Management, which is being designed to apply
the real-time relationship management capabilities of our recommendation
platform to knowledge management.
Our potential new products are subject to significant technical risks. We
may fail to introduce or deploy such potential new products on a timely basis,
or at all. In the past, we have experienced significant delays in the
commencement of commercial shipments of our new releases and new products. These
delays caused customer frustrations and delay or loss of product revenues. Some
of our competitors currently offer products with features and functionality
similar to those that may be offered in our potential new products. If new
releases or potential new products are delayed or do not achieve market
acceptance, our business, financial condition and results of operations would be
seriously harmed. In the past, we have also experienced delays in purchases of
our products by customers anticipating our launch of new releases or new
products. Our business, financial condition and results of operations would be
seriously harmed if customers defer material orders in anticipation of new
releases or new product introductions.
The software products we offer are complex and may contain undetected errors
or failures when first introduced or as new versions are released. We have in
the past discovered software errors in our new releases and new products after
their introduction. We experienced delays in release or lost revenues during the
period required to correct these errors. We may discover errors in new releases
or new products after the commencement of commercial shipments, despite testing
by our personnel and our current and potential customers. This may result in
loss of or delay in market acceptance of our products, which could seriously
harm our business, financial condition and results of operations.
WE DEPEND UPON THE GROWTH OF OUR CUSTOMER BASE
Our success is dependent on the continued growth of our customer base and
the retention of our current customers. Our ability to attract new customers
will depend on a variety of factors, including the accuracy, scalability,
reliability and cost-effectiveness of our products and services and our ability
to effectively market such products and services. In the past, we have lost
potential customers to competitors for various reasons, including lower prices
and other incentives not matched by us. Many of our current customers initially
purchase a limited license for our products and services for evaluation. If such
evaluation is successful, the customer may purchase a license to expand the use
of our products in its organization or license additional products and services.
If we fail to generate repeat and expanded business from our current and future
customers, our business, financial condition and results of operations would be
seriously harmed.
THE MARKETS FOR OUR PRODUCTS ARE CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE
The life cycles of our products are difficult to predict because the markets
for our products are characterized by:
- Rapid technological change;
- Changing customer needs;
- Frequent new software product introductions; and
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- Evolving industry standards.
The introduction of products embodying new technologies and the emergence of
new industry standards could render our existing products obsolete and
unmarketable.
To be successful, we need to develop and introduce new software products and
enhancements to existing products on a timely basis that:
- Keep pace with technological developments and emerging industry standards;
and
- Address the increasingly sophisticated needs of our customers.
We may:
- Fail to develop and market new products and enhancements to existing
products that respond to technological changes or evolving industry
standards;
- Experience difficulties that could delay or prevent the successful
development, introduction and marketing of these new products and
enhancements to existing products; and
- Fail to develop new products and enhancements to existing products that
adequately meet the requirements of the marketplace or achieve market
acceptance.
In such event, our business, financial condition and results of operations would
be seriously harmed.
WE RELY ON RESELLERS AND NEED TO DEVELOP THIS SALES CHANNEL
We intend to increase the proportion of our customers licensed through our
reseller channels, which include distributors, value-added resellers and systems
integrators. Our failure to achieve this could seriously harm our business,
financial condition and results of operations. Our agreements with such
resellers are generally not exclusive and in many cases may be terminated by
either party without cause. Many of these resellers do not have minimum purchase
or resale requirements. Many of these resellers carry product lines that are
competitive with our product lines. These resellers may not give a high priority
to the marketing of our products or may not continue to carry our products. They
may give a higher priority to other products, including the products of
competitors. We may not retain any of our current resellers or successfully
recruit new resellers. Events or occurrences of this nature could seriously harm
our business, financial condition and results of operations. In addition, any
sales through resellers will have lower gross margins than direct sales.
WE RELY ON ORIGINAL EQUIPMENT MANUFACTURERS AND NEED TO DEVELOP THIS SALES
CHANNEL
We intend to increase sales through original equipment manufacturers. We may
fail to implement this strategy, which could seriously harm our business,
financial condition and results of operations. We are currently investing, and
intend to continue to invest, resources to develop this sales channel. Such
investments could seriously harm our operating margins. We depend on our
original equipment manufacturers' abilities to develop product enhancements or
new products on a timely and cost-effective basis that will meet changing
customer needs and respond to emerging industry standards and other
technological changes. Our original equipment manufacturers may not effectively
meet these technological challenges. These original equipment manufacturers:
- Are not within our control;
- May incorporate into their products the technologies of other companies in
addition to or in place of our technologies; and
- Are not obligated to purchase our products.
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Our original equipment manufacturers may not continue to carry our products. Our
inability to recruit, or our loss of, important original equipment manufacturers
could seriously harm our business, financial condition and results of
operations. In addition, any sales through original equipment manufacturers will
have lower gross margins than direct sales.
WE DEPEND ON INTERNATIONAL SALES, WHICH ARE SUBJECT TO NUMEROUS RISKS
We recognized 13% of our total revenues in 1998 through licenses and
services sold to customers located outside of the United States. We expect
international revenues to account for a significant percentage of total revenues
in the future, and we believe that we must continue to expand our international
sales and marketing activities in order to be successful. To successfully expand
international sales, we must:
- Establish international operations;
- Hire international personnel; and
- Recruit additional international resellers.
This will require significant management attention and financial resources
and could seriously harm our operating margins. We have very limited experience
in marketing, selling and distributing our products and services
internationally. We currently have no employees located outside of the United
States and Canada. The acceptance and use of the Internet in international
markets are in earlier stages of development than in the United States,
particularly with the Internet as a method for conducting commerce. If the
Internet or electronic commerce fail to gain sufficient acceptance in
international markets or we fail to further expand our international operations
in a timely manner, our business, financial condition and results of operations
could be seriously harmed. In addition, we may fail to maintain or increase
international market demand for our products. Our international sales are
generally denominated in U.S. dollars. An increase in the value of the U.S.
dollar relative to foreign currencies could make our products more expensive
and, therefore, potentially less competitive in those markets.
Additional risks inherent in our international business activities include:
- Government regulation regarding privacy issues for Internet users;
- Currency exchange rate fluctuations;
- Seasonal fluctuations in purchasing activity;
- Unexpected changes in regulatory requirements;
- Tariffs, export controls and other trade barriers;
- Longer accounts receivable payment cycles and difficulties in collecting
such accounts receivable;
- Difficulties in managing and staffing international operations;
- Potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
- The burdens of complying with a wide variety of foreign laws;
- The recent global economic turbulence and adverse economic circumstances
in Asia; and
- Political instability.
Such risks could seriously harm our international sales and, consequently,
our business, financial condition and results of operations.
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WE DEPEND ON TECHNOLOGY LICENSED FROM OTHER PARTIES
We license personalization screening and collaborative filtering technology
known as the "GroupLens" technology from the University of Minnesota pursuant to
an exclusive, worldwide, license agreement. The exclusive rights granted are
subject to non-exclusive rights retained by:
- AT&T Corporation, for portions of the technology funded by AT&T;
- The United States government, for government-funded aspects of the
technology, but solely for government purposes; and
- The University of Minnesota, for its own educational and research
purposes.
The license agreement also provides that for the three academic years ending
in the spring of 2000, we will pay research fees to the University of Minnesota
for exclusive rights to commercial applications that the research may produce
related to improvements to the GroupLens technology. If the agreement is
terminated prior to the end of the 1999-2000 academic year or if we are unable
to renew the agreement, we will no longer have access to the research conducted
by the University of Minnesota, which could result in an increased burden on our
product development department, as well as a reduction in improvements to our
core technology. We may not be able to renew the agreement, hire adequate
personnel to meet any increased demands on our product development department,
or continue to advance our technology on a timely basis. If we are unable to
renew the agreement, hire sufficient personnel or develop product improvements
in a timely manner, our business, financial condition and results of operations
would be seriously harmed.
We integrate third-party software in our software products. For instance, we
license Aegis neural networking and other technologies from Neural Applications
Corporation for our Net Perceptions for Ad Targeting product. Under the license
agreement, Neural Applications Corporation is obligated to deliver future
products and product enhancements to us, including the UNIX version of its
technology. If Neural Applications Corporation fails to deliver such products or
enhancements or if such deliveries are delayed, the market opportunity for our
Net Perceptions for Ad Targeting product will be significantly reduced and our
business, financial condition and results of operations could be seriously
harmed. The agreement expires in October 2001. Additionally, we license the
Orbix object request broker from IONA Technologies for use in our Net
Perceptions for E-commerce, Net Perceptions for Call Centers and Net Perceptions
Recommendation Engine products. The agreement expires in July 2001. The
third-party software may not continue to be available to us on commercially
reasonable terms. We may not be able to renew these agreements or develop
alternative technology. If we cannot maintain licenses to key third-party
software, such as Aegis and Orbix, develop similar technology or license similar
technology from another source on a timely or commercially feasible basis, our
business, financial condition and results of operations could be seriously
harmed.
WE ARE DEPENDENT UPON KEY PERSONNEL
Our future success depends on the continued service of our senior
management, product development and sales personnel. None of these persons is
bound by an employment agreement. We only carry key person life insurance on
Steven J. Snyder, our President and Chief Executive Officer. The amount of such
policy is $1,000,000. The loss of the services of one or more of our key
personnel could seriously harm our business, financial condition and results of
operations. Our future success also depends on our continuing ability to
attract, hire, train and retain a substantial number of highly skilled
managerial, technical, sales, marketing and customer support personnel.
Competition for such personnel is intense, and we may fail to retain our key
employees, or attract, assimilate or retain other highly qualified personnel in
the future. If so, our business, financial condition and results of operations
could be seriously harmed.
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WE DEPEND ON INCREASING USE OF THE INTERNET AND ON THE GROWTH OF ELECTRONIC
COMMERCE
Our future revenues depend upon the increased acceptance and use of the
Internet and other online services as a medium of commerce. Rapid growth in the
use of the Internet, the web and online services is a recent phenomenon.
Acceptance and use may not continue to develop at historical rates and a
sufficiently broad base of customers may not adopt or continue to use the
Internet and other online services as a medium of commerce. Demand and market
acceptance for recently-introduced services and products over the Internet are
subject to a high level of uncertainty and few proven services and products
exist.
In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. To the extent that the
Internet continues to experience significant expansion in the number of users,
frequency of use or bandwidth requirements, the infrastructure for the Internet
may be unable to support the demands placed upon it. In addition, the Internet
could lose its viability as a commercial medium due to delays in the development
or adoption of new standards and protocols required to handle increased levels
of Internet activity, or due to increased governmental regulation. Changes in,
or insufficient availability of, telecommunications services to support the
Internet also could result in slower response times and adversely affect usage
of the Internet generally.
Our business, financial condition and results of operations would be
seriously harmed if:
- Use of the Internet, the web and other online services does not continue
to increase or increases more slowly than expected;
- The infrastructure for the Internet, the web and other online services
does not effectively support expansion that may occur; or
- The Internet, the web and other online services do not become a viable
commercial marketplace, which would inhibit the development of electronic
commerce and of the need for our Net Perceptions for E-commerce and Net
Perceptions for Ad Targeting products.
WE DEPEND SIGNIFICANTLY ON PROPRIETARY TECHNOLOGY
We depend significantly on proprietary technology. To protect our
proprietary technology, we rely primarily on a combination of:
- Patents;
- Copyright and trademark laws;
- Trade secrets;
- Confidentiality procedures; and
- Contractual provisions.
We license our software and require our customers to enter into license
agreements, which impose restrictions on our customers' ability to utilize the
software. In addition, we seek to avoid disclosure of our trade secrets,
including but not limited to requiring those persons with access to our
proprietary information to execute confidentiality agreements with us and
restricting access to our source code. We seek to protect our software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection.
We have four pending U.S. patent applications. We also have license rights
to one issued U.S. patent and two pending U.S. patent applications from the
University of Minnesota. We have no issued foreign patents, nor do we have any
pending foreign patent applications. It is possible that no patents
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will issue from the currently pending patent applications. It is also possible
that our current patents or potential future patents may be found invalid or
unenforceable, or otherwise be successfully challenged. It is also possible that
any patent issued to us may not provide us with any competitive advantages. It
is also possible that we may not develop future proprietary products or
technologies that are patentable, and that the patents of others may seriously
limit our ability to do business. In this regard, we have not performed any
comprehensive analysis of patents of others that may limit our ability to do
business.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around patents issued to us or our other intellectual property.
There has been a substantial amount of litigation in the software industry
regarding intellectual property rights. We have from time to time received
claims that we are infringing third parties' intellectual property rights. It is
possible that in the future third parties may claim that our current or
potential future products infringe their intellectual property. We expect that
software developers will increasingly be subject to infringement claims as the
number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require us to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to us or at all, which could seriously harm our
business, financial condition and results of operations.
WE NEED TO MANAGE EXPANDING OPERATIONS
We have recently experienced a period of significant expansion of our
operations that has placed a significant strain upon our management systems and
resources. In addition, we have recently hired a significant number of employees
and plan to further increase our total headcount. We also plan to expand the
geographic scope of our customer base and operations. This expansion has
resulted and will continue to result in substantial demands on our management
resources. Our ability to compete effectively and to manage future expansion of
our operations, if any, will require us to continue to improve our financial and
management controls, reporting systems and procedures on a timely basis, and
expand, train and manage our employee work force. Our failure to do so could
seriously harm our business, financial condition and results of operations.
OUR BUSINESS COULD BE AFFECTED BY YEAR 2000 ISSUES
"Year 2000 Issues" refer generally to the problems that some software may
have in determining the correct century for the year. For example, software with
date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results.
We have defined Year 2000 compliant as the ability to:
- Correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
- Function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
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- Respond to two-digit date input in a way that resolves the ambiguity as to
century in a disclosed, defined and predetermined manner;
- Store and provide output of date information in ways that are unambiguous
as to century if the date elements in interfaces and data storage specify
the century; and
- Recognize the Year 2000 as a leap year.
We designed our current products to be Year 2000 compliant when configured
and used in accordance with the related documentation, and provided that the
underlying operating system of the host machine and any other software used with
or in the host machine or our products are Year 2000 compliant. However, we have
not tested our products for Year 2000 compliance. We continue to respond to
customer questions about prior versions of our products on a case-by-case basis.
We have not tested software obtained from third parties. However, we are
seeking assurances from our vendors that licensed software is Year 2000
compliant. Despite assurances from developers of products incorporated into our
products, our products may contain undetected errors or defects associated with
Year 2000 date functions. Known or unknown errors or defects in our products
could result in delay or loss of revenues, diversion of development resources,
damage to our reputation, or increased service and warranty costs, any of which
could seriously harm our business, financial condition and results of
operations. Some commentators have predicted significant litigation regarding
Year 2000 compliance issues, and we are aware of such lawsuits against other
software vendors. Because of the unprecedented nature of such litigation, it is
uncertain whether or to what extent we may be affected by it.
We are assessing our material internal information technology systems,
including both our own software products and third-party software and hardware
technology, but we have not initiated an assessment of our non-information
technology systems. We expect to complete testing of our information technology
systems in 1999. To the extent that we are not able to test the technology
provided by third-party vendors, we are seeking assurances from such vendors
that their systems are Year 2000 compliant. We are not currently aware of any
significant operational issues or costs associated with preparing our internal
information technology and non-information technology systems for the Year 2000.
However, we may experience significant unanticipated problems and costs caused
by undetected errors or defects in the technology used in our internal
information technology and non-information technology systems.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. Our current or future customers may incur significant
expenses to achieve Year 2000 compliance. If our customers are not Year 2000
compliant, they may experience material costs to remedy problems, they may face
litigation costs and they may delay purchases or implementation of our products.
Year 2000 issues could reduce or eliminate the budgets that current or potential
customers could have for purchases of our products and services. As a result,
our business, financial condition and results of operations could be seriously
harmed.
We have funded our Year 2000 plan from cash balances and have not separately
accounted for these costs in the past. To date, these costs have not been
significant. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. In addition, we may experience material problems and costs with
Year 2000 compliance that could seriously harm our business, financial condition
and results of operations.
We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and implementing such a plan may itself be
significant. Finally, we are also subject to external forces that
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might generally affect industry and commerce, such as utility or transportation
company interruptions caused by Year 2000 compliance failures.
WE MAY BE AFFECTED BY CHANGES IN ACCOUNTING STANDARDS
The American Institute of Certified Public Accountants issued Statement of
Position ("SOP") 97-2, "Software Revenue Recognition," in October 1997 and
amended it by Statement of Position 98-4. We adopted SOP 97-2 effective January
1, 1998. We believe our current revenue recognition policies and practices are
consistent with SOP 97-2 and SOP 98-4. However, full implementation guidelines
for these standards have not yet been issued. Once available, our current
revenue accounting practices may need to change and such changes could seriously
harm our future revenues and earnings. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
INCREASING GOVERNMENT REGULATION COULD AFFECT OUR BUSINESS
As Internet commerce evolves, we expect that federal, state or foreign
agencies will adopt regulations covering issues such as user privacy, pricing,
content and quality of products and services. Although many of these regulations
may not apply to our business directly, we expect that laws regulating the
solicitation, collection or processing of personal/customer information could
indirectly affect our business. The Telecommunications Act of 1996 prohibits
some types of information and content from being transmitted over the Internet.
The prohibition's scope and the liability associated with a Telecommunications
Act violation are currently unsettled. In addition, although substantial
portions of the Communications Decency Act were held to be unconstitutional, we
cannot be certain that similar legislation will not be enacted and upheld in the
future. It is possible that such legislation could expose companies involved in
Internet commerce to liability, which could limit the growth of Internet
commerce generally. Legislation like the Telecommunications Act and the
Communications Decency Act could dampen the growth in web usage and decrease its
acceptance as a communications and commercial medium. If enacted, such laws,
rules or regulations could limit the market for our products and services, which
could seriously harm our business, financial condition and results of
operations.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE
We expect that the net proceeds from this offering will be sufficient to
meet our working capital and capital expenditure needs for at least the next 12
months. After that, we may need to raise additional funds and we cannot be
certain that we will be able to obtain additional financing on favorable terms,
if at all. If we cannot raise funds, if needed, on acceptable terms, we may not
be able to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements,
which could seriously harm our business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
AN ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP OR BE SUSTAINED
AFTER THIS OFFERING
Prior to this offering, you could not buy or sell our common stock on a
public market. An active public market for our common stock may not develop or
be sustained after this offering. The initial offering price may vary
significantly from the market price after this offering.
WE ARE SUBJECT TO POTENTIAL PRODUCT LIABILITY CLAIMS
Because our customers use our products for mission-critical applications
such as electronic commerce, errors or defects in or other performance problems
with our products could result in financial or other damages to our customers.
Our customers could seek damages for losses from us.
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Although our license agreements typically contain provisions designed to limit
our exposure to product liability claims, existing or future laws or unfavorable
judicial decisions could negate such limitation of liability provisions. We have
not experienced any product liability claims to date. However, a product
liability claim brought against us, even if not successful, would likely be
time-consuming and costly. A product liability claim could seriously harm our
business, financial condition and results of operations.
WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS
Provisions of our certificate of incorporation and bylaws, as well as
provisions of Delaware law, could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. See
"Description of Capital Stock--Antitakeover Effects of Provisions of the
Certificate of Incorporation and Delaware Law."
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK
PRICE VOLATILITY
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could seriously harm our business, financial condition and
results of operations.
OUR STOCK PRICE COULD BE AFFECTED BY SHARES BECOMING AVAILABLE FOR SALE
Sales of a substantial number of shares of common stock after this offering
could adversely affect the market price of the common stock and could impair our
ability to raise capital through the sale of additional equity securities. For a
description of shares of our common stock that are available for future sale,
see "Shares Eligible for Future Sale."
PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE, SUBSTANTIAL DILUTION
The initial public offering price of our common stock will be substantially
higher than the book value per share of the outstanding common stock. As a
result, investors purchasing common stock in this offering will incur immediate
and substantial dilution.
THE EXISTING EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS CONTROL
NET PERCEPTIONS
Upon completion of this offering, executive officers, directors and
principal stockholders will beneficially own, in the aggregate, approximately
% of our outstanding common stock. As a result, these stockholders will be
able to exercise control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions, which could have the effect of delaying or preventing a change of
control of Net Perceptions. See "Principal Stockholders."
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USE OF PROCEEDS
The net proceeds to Net Perceptions from the sale of the shares of
common stock offered hereby are estimated to be $ , assuming an initial
public offering price of $ per share, and after deducting estimated
underwriting discounts and commissions and estimated offering expenses. The net
proceeds of this offering are estimated to be $ if the underwriters'
over-allotment option is exercised in full. The primary purposes of this
offering are to obtain additional equity capital, create a public market for our
common stock, and facilitate future access to public markets. We expect to use
the net proceeds for general corporate purposes, including working capital. A
portion of the net proceeds may also be used for the acquisition of businesses,
products and technologies that are complementary to ours. We have no current
plans, agreements or commitments and are not currently engaged in any
negotiations with respect to any such transaction. Pending such uses, we will
invest the net proceeds of this offering in investment grade, interest-bearing
securities.
DIVIDEND POLICY
We have not paid any cash dividends since our inception and do not intend to
pay any cash dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998,
on a pro forma basis after giving effect to the conversion of all outstanding
shares of preferred stock into common stock and the filing of an amended and
restated certificate of incorporation upon the closing of this offering, and as
adjusted to reflect the receipt of the estimated net proceeds from the sale by
us of shares of common stock pursuant to this offering at an assumed
initial offering price of $ per share (after deducting the estimated
underwriting discounts and commissions and estimated offering expenses) and the
issuance of shares of common stock upon the conversion of a convertible
promissory note on the closing of this offering at an assumed conversion price
of $ per share:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
PRO FORMA AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term liabilities, less current portion(1)...................... $ 538 $ 538
Stockholders' equity:
Preferred stock, $.0001 par value per share, 5,000,000 shares
authorized; no shares issued or outstanding pro forma or as
adjusted........................................................ -- --
Common stock, $.0001 par value per share, 50,000,000 shares
authorized, 8,651,004 shares issued and outstanding pro forma,
shares issued and outstanding as adjusted(2).............. 1
Additional paid-in capital........................................ 11,650
Accumulated deficit............................................... (10,580) (10,580)
----------- -----------
Total stockholders' equity...................................... 1,071
----------- -----------
Total capitalization.......................................... $ 1,609 $
----------- -----------
----------- -----------
</TABLE>
- ---------
(1) See Note 6 of Notes to Financial Statements.
(2) Excludes 704,282 shares of common stock issuable upon exercise of stock
options outstanding under our 1996 Stock Plan as of December 31, 1998 at a
weighted average exercise price of $1.04 per share, and 529,064 shares of
common stock reserved for grant of future options under our 1996 Stock Plan.
Also excludes 5,991 shares of common stock issuable upon the exercise of a
warrant outstanding as of December 31, 1998 at an exercise price of $3.07
per share. Subsequent to December 31, 1998, we granted options to purchase
146,468 shares of common stock. On February 4, 1999, we adopted, subject to
stockholder approval, our 1999 Equity Incentive Plan as a successor plan to
replace our 1996 Stock Plan, whereby an additional 400,000 shares were
reserved for issuance thereunder. In addition, on February 4, 1999, we
adopted, subject to stockholder approval, our Employee Stock Purchase Plan
and reserved 500,000 shares of common stock for issuance under such plan and
our 1999 Non-Employee Director Stock Option Plan and reserved 250,000 shares
of common stock for issuance under such plan. See "Management--1999 Equity
Incentive Plan," "--Employee Stock Purchase Plan," "--1999 Non-Employee
Director Stock Option Plan," and Note 7 of Notes to Financial Statements.
22
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of December 31,
1998 was $1,071,000, or approximately $0.12 per share. Pro forma net tangible
book value per share represents the amount of our stockholders' equity, less
intangible assets, divided by 8,651,004 shares of common stock outstanding after
giving effect to the conversion of all outstanding shares of preferred stock
into shares of common stock upon completion of this offering.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the pro forma net tangible book value per share of
common stock immediately after completion of this offering. After giving effect
to the sale by us of shares of common stock in this offering at an assumed
initial offering price of $ per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses and the
application of the estimated net proceeds therefrom and after giving effect to
the issuance of shares of common stock upon conversion of a convertible
promissory note at the closing of this offering at an assumed conversion price
of $ per share, our pro forma net tangible book value as of December 31,
1998, would have been $ , or $ per share. This represents an immediate
increase in net tangible book value of $ per share to existing stockholders
and an immediate dilution in net tangible book value of $ per share to
purchasers of common stock in this offering, as illustrated in the following
table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......... $
Pro forma net tangible book value per share as of
December 31, 1998................................... $ 0.12
Increase per share attributable to new investors......
---------
Pro forma net tangible book value per share after this
offering..............................................
---------
Net tangible book value dilution per share to new
investors............................................. $
---------
---------
</TABLE>
The following table sets forth as of December 31, 1998, after giving effect
to the conversion of all outstanding shares of preferred stock into common stock
upon completion of this offering, the difference between the existing
stockholders and the purchasers of shares in this offering (at the assumed
initial offering price of $ per share) with respect to the number of shares
purchased from us, the total consideration paid and the average price per share
paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......................... 8,651,004 % $ 11,856,579 % $ 1.37
New stockholders............................... $
---------- --------- ------------- -----
Totals..................................... 100.0% $ 100.0%
---------- --------- ------------- -----
---------- --------- ------------- -----
</TABLE>
As of December 31, 1998, there were options outstanding to purchase a total
of 704,282 shares of common stock at a weighted average exercise price of $1.04
per share under our 1996 Stock Plan. In addition, as of December 31, 1998, there
was a warrant outstanding to purchase a total of 5,991 shares of common stock at
an exercise price of $3.07 per share. Subsequent to December 31, 1998, we
granted options to purchase 146,468 shares of common stock. To the extent
outstanding options or warrants are exercised, there will be further dilution to
new investors. In addition, subsequent to December 31, 1998, we issued a $4.0
million convertible promissory note, which note will convert into common stock
upon the closing of this offering. See "Management--1999 Equity Incentive Plan,"
"--Employee Stock Purchase Plan," "--1999 Non-Employee Director Stock Option
Plan" and Note 7 of Notes to Financial Statements.
23
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and the notes to the financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," which
are included elsewhere in this prospectus. The statement of operations data for
the period from July 3, 1996 (inception) to December 31, 1996, and for each of
the two years in the period ended December 31, 1998, and the balance sheet data
at December 31, 1997 and 1998, are derived from, and are qualified by reference
to, the audited financial statements included in this prospectus. The balance
sheet data at December 31, 1996 are derived from audited financial statements
not included in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
JULY 3, 1996 DECEMBER 31,
(INCEPTION) TO --------------------
DECEMBER 31, 1996 1997 1998
----------------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product................................................................ $ -- $ 284 $ 3,955
Maintenance and service................................................ 4 33 522
------- --------- ---------
Total revenues....................................................... 4 317 4,477
------- --------- ---------
Cost of revenues:
Product................................................................ -- 14 52
Maintenance and service................................................ 2 30 373
------- --------- ---------
Total cost of revenues............................................... 2 44 425
------- --------- ---------
Gross margin............................................................. 2 273 4,052
------- --------- ---------
Operating expenses:
Sales and marketing.................................................... 454 3,063 5,150
Research and development............................................... 378 1,372 2,347
General and administrative............................................. 210 585 1,450
------- --------- ---------
Total operating expenses............................................. 1,042 5,020 8,947
------- --------- ---------
Loss from operations..................................................... (1,040) (4,747) (4,895)
Other income (expense), net.............................................. 13 25 64
------- --------- ---------
Net loss................................................................. $ (1,027) $ (4,722) $ (4,831)
------- --------- ---------
------- --------- ---------
Pro forma basic and diluted net loss per share........................... $ (0.68)
Shares used in computing pro forma basic and diluted net loss per
share(1)............................................................... 7,056
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1997 1998
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................ $ 2,064 $ 1,407 $ 972
Working capital.................................................................. 3,554 4,442 468
Total assets..................................................................... 4,099 5,575 5,637
Long-term liabilities, net of current portion.................................... 87 345 538
Redeemable convertible preferred stock........................................... 650 650 650
Total stockholders' equity....................................................... 2,950 3,879 421
</TABLE>
- ---------
(1) See Note 2 of Notes to Financial Statements for an explanation of the method
used to determine the number of shares used in computing pro forma basic and
diluted net loss per share.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF NET PERCEPTIONS SHOULD BE READ IN CONJUNCTION WITH "SELECTED
FINANCIAL DATA" AND NET PERCEPTIONS' FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND ANALYSIS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS.
OUR ACTUAL RESULTS MAY DIFFER SUBSTANTIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS INCLUDING, BUT NOT
LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
We develop, market and support real-time relationship marketing software
solutions. We were incorporated in Delaware in July 1996. In connection with our
formation, we licensed technology that had been developed at the University of
Minnesota. From inception through December 31, 1996, we were considered to be in
the development stage, with activities primarily relating to raising capital,
recruiting personnel, conducting research and development, developing our
initial product, establishing the market for our initial product and purchasing
operating assets. During 1997 and 1998, we continued to invest in research and
development, built sales channels, expanded marketing activities and developed
administrative operations. We began shipping our first product in the first
quarter of 1997.
All of our product revenues through December 31, 1998 have been attributable
to our Net Perceptions for E-commerce product. Net Perceptions for E-commerce
was originally marketed under the name "GroupLens Recommendation Engine," which
we launched in the first quarter of 1997. We anticipate that Net Perceptions for
E-commerce will continue to account for a substantial portion of our product
revenues for the foreseeable future. Consequently, a decline in the price of or
demand for Net Perceptions for E-commerce, or its failure to achieve broad
market acceptance, would seriously harm our business, financial condition and
results of operations. We began shipping our Net Perceptions for Ad Targeting
product in December 1998 and expect to deliver our Net Perceptions for Call
Centers product in 1999.
We market the majority of our products through our direct sales force. Sales
derived through indirect channels, which consist of value-added resellers,
systems integrators and original equipment manufacturers, accounted for
approximately 8% of our total revenues in 1998. We expect that sales derived
through indirect channels will increase as a percentage of total revenues. Sales
through indirect channels have lower average selling prices and gross margins
than direct sales. As a result, we expect that our gross margins on product
sales will decline if sales through indirect channels increase.
We license our products to our customers on a perpetual or annual basis. Net
Perceptions for E-commerce is licensed based on the number of web sites the
product supports and the number of user profiles the recommendation engine
stores. To date, we have licensed the Net Perceptions for E-commerce product
primarily on a perpetual basis. We are currently transitioning our license
arrangements for the Net Perceptions for E-commerce product to allow for
increased recurring revenues on an annual basis. We may not be successful in
this transition. Net Perceptions for Ad Targeting is licensed on an annual basis
based on the number of web sites the product supports and the average number of
banner advertisements served at a customer web site. Net Perceptions for Call
Centers is licensed on a perpetual basis based on the number of call center
operators utilizing the product. Net Perceptions Recommendation Engine is
licensed based on the number of user profiles the recommendation engine stores.
Selling prices for our products have typically ranged from $40,000 to several
hundred thousand dollars. Annual support and maintenance contracts, which can be
purchased in conjunction with the licensing of all products, are sold separately
and entitle customers to telephone support and some upgrade rights. The price
for the support and maintenance program is based on a percentage of the list
price of the software the customer has licensed. Consulting fees for
25
<PAGE>
implementation services and training are charged at a per diem rate or on a
fixed fee basis for a package of services.
License revenues are generally recognized upon product delivery to
customers, provided there are no significant post-delivery obligations or
uncertainties and collection of the related account receivable is probable.
Where multiple products or services are sold together under one contract,
revenues are allocated to each element based on its relative fair value, with
fair value being determined using the price charged when that element is sold
separately. An allowance for estimated future returns is recorded at the time
revenues are recognized based on our return policy. Service revenues are
recognized as services are rendered or ratably over the term of the service
agreement.
Deferred compensation related to stock options granted below fair market
value through December 31, 1998 was approximately $850,000 and during the first
quarter of 1999 was approximately $310,000. Of these amounts, we amortized
$229,000 in 1998. Amortization of deferred stock compensation expense is
allocated to all operating expense lines identified in the statement of
operations. These amounts represent the difference between the exercise price of
certain stock option grants and the deemed fair value of the common stock at the
time of such grants. Deferred stock compensation expense is amortized over the
vesting period of the options, generally four years. As a result, the
amortization of deferred compensation will impact our reported results of
operations through 2003.
We have sustained losses on a quarterly and an annual basis since inception.
As of December 31, 1998, we had an accumulated deficit of $10.6 million. Our net
loss was $4.7 million in 1997 and $4.8 million in 1998. These losses resulted
from significant costs incurred in the development and sale of our products and
services. We expect to experience significant growth in our operating expenses
for the foreseeable future in order to execute our business plan, particularly
research and development and sales and marketing expenses. As a result, we
anticipate that such operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. As a result,
we expect to incur additional losses and continued negative cash flow from
operations for the foreseeable future, and such losses are anticipated to
increase significantly from current levels. We do not expect to achieve
profitability in 1999 or 2000.
Our limited operating history makes the prediction of future operating
results very difficult. We believe that period-to-period comparisons of our
operating results should not be relied upon as predictive of future performance.
Our prospects must be considered in light of the risks, expenses and
difficulties encountered by companies at an early state of development,
particularly companies in new and rapidly evolving markets. We may not be
successful in addressing these risks and difficulties. We have experienced
significant percentage growth in revenues in recent periods; however, we do not
believe that prior growth rates are sustainable or indicative of future growth
rates.
26
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenues, statement of
operations data for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Revenues:
Product.................................................................................. 90 % 88 %
Maintenance and service.................................................................. 10 12
------ ---
Total revenues......................................................................... 100 100
Cost of revenues:
Product.................................................................................. 4 1
Maintenance and service.................................................................. 9 8
------ ---
Total cost of revenues................................................................. 13 9
------ ---
Gross margin............................................................................... 87 91
Operating expenses:
Sales and marketing...................................................................... 966 115
Research and development................................................................. 433 52
General and administrative............................................................... 185 32
------ ---
Total operating expenses............................................................... 1,584 199
------ ---
Loss from operations....................................................................... (1,497) (108)
Other income (expense), net................................................................ 7 1
------ ---
Net loss................................................................................... (1,490)% (107)%
------ ---
------ ---
</TABLE>
PERIODS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUES
Total revenues were $4,000 for the period from inception to December 31,
1996, $317,000 in 1997 and $4.5 million in 1998.
PRODUCT REVENUES. Revenues from product licenses were $284,000 in 1997 and
$4.0 million in 1998. We had no product revenues in 1996. The majority of the
period-to-period growth in product revenues was due to higher unit sales
volumes. We anticipate that revenues from product licenses will continue to
represent a substantial majority of our revenues for the foreseeable future. We
expect that prior percentage growth rates of our product revenues will not be
sustainable in the future.
Revenues from international sales were $85,000 in 1997 and $603,000 in 1998,
which accounted for 27% of total revenues in 1997 and 13% of total revenues in
1998. The majority of international sales were made in Canada, Europe and Asia
by our direct sales force located in the United States. Our international sales
are generally denominated in U.S. dollars
MAINTENANCE AND SERVICE REVENUES. Maintenance and service revenues were
$4,000 for the period from inception to December 31, 1996, $33,000 in 1997 and
$522,000 in 1998. This growth is primarily due to increased licensing activity,
which has resulted in increased revenues from services related to maintenance
and support, training and consulting. We expect that prior percentage growth
rates of our maintenance and service revenues will not be sustainable in the
future.
27
<PAGE>
COST OF REVENUES
Gross margins increased from 87% in 1997 to 91% in 1998, primarily as a
result of increased product sales. In the future, we expect that royalties paid
to third parties will increase. In addition, we expect that sales derived
through indirect channels will increase as a percentage of total revenues. Sales
through indirect channels have lower average selling prices and gross margins
than direct sales. We also expect that maintenance and service revenues will
increase as a percentage of total revenues. Maintenance and service revenues
have lower gross margins than product revenues. For all of these reasons, we
expect that our gross margins will decline.
COST OF PRODUCT REVENUES. Cost of product revenues consists primarily of
royalties paid to third parties, the cost of manuals and product media, and
shipping costs. Cost of product revenues was $14,000 in 1997 and $52,000 in
1998. We had no cost of product revenues in 1996. The increase in the dollar
amount of cost of product revenues from 1997 to 1998 reflects the higher volumes
of product shipped in 1998. The decrease in costs as a percentage of the related
product revenues from 1997 to 1998 is primarily due to economies of scale
realized as a result of shipping greater quantities of product in 1998. Because
all development costs incurred in the research and development of software
products and enhancements to existing software products have been expensed as
incurred, cost of product revenues includes no amortization of capitalized
software development costs.
COST OF MAINTENANCE AND SERVICE REVENUES. Cost of maintenance and service
revenues consists primarily of personnel-related costs incurred in providing
support, consulting services and training to customers. Cost of maintenance and
service revenues was $2,000 for the period from inception to December 31, 1996,
$30,000 in 1997 and $373,000 in 1998, representing 91% of the related
maintenance and service revenues in 1997 and 71% in 1998. Cost of maintenance
and service revenues increased significantly from 1997 to 1998 as a result of
increased personnel-related costs as we began to build our customer support,
education and training, and consulting services organizations. We believe that
the cost of maintenance and service revenues will increase in dollar amounts but
decrease as a percentage of maintenance and service revenues in the future.
OPERATING EXPENSES
Operating expenses were $1.0 million for the period from inception to
December 31, 1996, $5.0 million in 1997 and $8.9 million in 1998.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses of sales and marketing personnel, and
promotional expenses. Sales and marketing expenses were $454,000 for the period
from inception to December 31, 1996, $3.1 million in 1997 and $5.2 million in
1998. The increases in sales and marketing expenses were primarily attributable
to increased headcount in our sales and marketing organizations. We also
incurred increased marketing expenses relating to trade shows and promotions. We
believe that sales and marketing expenses will increase in dollar amount but
decrease as a percentage of total revenues in the future.
RESEARCH AND DEVELOPMENT. Research and development expenses were $378,000
for the period from inception to December 31, 1996, $1.4 million in 1997 and
$2.3 million in 1998. The increases in research and development expenses were
primarily attributable to increased staffing and associated support for software
engineers required to expand and enhance our product line. We believe that
research and development expenses will increase in dollar amount but decrease as
a percentage of total revenues in the future.
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on our product development
process,
28
<PAGE>
technological feasibility is established upon completion of a working model. The
costs incurred between completion of the working model and the point at which
the product is ready for general release have been insignificant. Through
December 31, 1998, all research and development costs have been expensed.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$210,000 for the period from inception to December 31, 1996, $585,000 in 1997
and $1.5 million in 1998. The increases in general and administrative expenses
were primarily the result of increased staffing and associated expenses
necessary to manage and support our growth and an increase in allowances for
doubtful accounts receivable. We believe that general and administrative
expenses will increase in dollar amount as we continue to increase staffing to
manage expanding operations and facilities and incur the additional expenses
associated with operating as a public company. However, we believe that general
and administrative expenses will decrease as a percentage of total revenues in
the future.
OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of interest income, income expense and
other expense. Other income (expense), net was $13,000 for the period from
inception to December 31, 1996, $25,000 in 1997 and $64,000 in 1998.
PROVISION FOR INCOME TAXES
As of December 31, 1998, we had net operating loss carryforwards of
approximately $9.1 million available to reduce future taxable income expiring at
various dates beginning in 2011. In addition, as of December 31, 1998, we had
$258,000 of tax credit carryforwards expiring at various dates beginning in
2011. Under the provisions of the Internal Revenue Code, certain substantial
changes in our ownership may limit in the future the amount of net operating
loss and tax credit carryforwards that could be utilized annually to offset
future taxable income.
We have recorded a valuation allowance for the full amount of our net
deferred tax assets, as the future realization of the tax benefit is not
currently likely.
29
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth statement of operations data for the eight
quarters ended December 31, 1998, as well as the percentage of our total
revenues represented by each item. This information has been derived from our
unaudited financial statements. The unaudited financial statements have been
prepared on the same basis as the audited financial statements contained in this
prospectus and include all adjustments, consisting only of normal recurring
accruals, that we consider necessary for a fair presentation of such information
when read in conjunction with our annual audited financial statements and notes
thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS AND AS A PERCENTAGE OF REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product............................... $ 86 $ 23 $ 55 $ 120 $ 617 $ 889 $ 993 $ 1,456
Maintenance and service............... 7 4 4 18 53 100 163 206
--------- -------- --------- -------- --------- -------- --------- --------
Total revenues...................... 93 27 59 138 670 989 1,156 1,662
--------- -------- --------- -------- --------- -------- --------- --------
Cost of revenues:
Product............................... 4 1 3 6 6 9 10 27
Maintenance and service............... 7 3 4 16 35 65 106 167
--------- -------- --------- -------- --------- -------- --------- --------
Total cost of revenues.............. 11 4 7 22 41 74 116 194
--------- -------- --------- -------- --------- -------- --------- --------
Gross margin............................ 82 23 52 116 629 915 1,040 1,468
Operating expenses:
Sales and marketing................... 653 906 740 764 936 1,145 1,199 1,870
Research and development.............. 290 345 391 346 371 513 617 846
General and administrative............ 129 141 163 152 227 297 391 535
--------- -------- --------- -------- --------- -------- --------- --------
Total operating expenses............ 1,072 1,392 1,294 1,262 1,534 1,955 2,207 3,251
--------- -------- --------- -------- --------- -------- --------- --------
Loss from operations.................... (990) (1,369) (1,242) (1,146) (905) (1,040) (1,167) (1,783)
Other income (expense), net............. 33 14 2 (24) 28 38 24 (26)
--------- -------- --------- -------- --------- -------- --------- --------
Net loss................................ $ (957) $(1,355) $(1,240) $(1,170) $ (877) $(1,002) $(1,143) $(1,809)
--------- -------- --------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- -------- --------- --------
PERCENT OF TOTAL REVENUES:
Revenues:
Product............................... 93% 85% 93% 87% 92% 90% 86% 88%
Maintenance and service............... 8 15 7 13 8 10 14 12
--------- -------- --------- -------- --------- -------- --------- --------
Total revenues...................... 100 100 100 100 100 100 100 100
Cost of revenues:
Product............................... 4 4 5 4 1 1 1 2
Maintenance and service............... 8 11 7 12 5 7 9 10
--------- -------- --------- -------- --------- -------- --------- --------
Total cost of revenues.............. 12 15 12 16 6 8 10 12
--------- -------- --------- -------- --------- -------- --------- --------
Gross margin............................ 88 85 88 84 94 92 90 88
Operating expenses:
Sales and marketing................... 702 3,356 1,254 554 140 116 104 113
Research and development.............. 312 1,278 663 251 55 52 53 51
General and administrative............ 139 522 276 110 34 30 34 32
--------- -------- --------- -------- --------- -------- --------- --------
Total operating expenses............ 1,153 5,156 2,193 915 229 198 191 196
--------- -------- --------- -------- --------- -------- --------- --------
Loss from operations.................... (1,065) (5,071) (2,105) (831) (135) (106) (101) (108)
Other income (expense), net............. 35 52 3 (17) 4 4 2 (2)
--------- -------- --------- -------- --------- -------- --------- --------
Net loss................................ (1,030)% (5,019)% (2,102)% (848)% (131)% (102)% (99)% (110)%
--------- -------- --------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- -------- --------- --------
</TABLE>
Our quarterly operating results are expected to vary significantly from
quarter to quarter and are difficult to predict. See "Risk Factors--Our
quarterly operating results are volatile and difficult to predict."
30
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through private sales of
preferred stock, with net proceeds of $11.3 million, bank loans and equipment
leases. We used $802,000 of cash in operations for the period from inception to
December 31, 1996, $4.6 million in 1997 and $4.4 million in 1998. We used cash
primarily to fund our net losses from operations. At December 31, 1998, we had
$972,000 in cash and cash equivalents and $468,000 in working capital.
In 1998, $3.0 million of cash was provided by investing activities. We had
sales of short-term investments of $3.4 million, offset by purchases of property
and equipment of $442,000. In 1996 and 1997, our investing activities consisted
of net purchases of short-term investments. We used $1.8 million net cash in
investing activities in 1996 and $1.7 million in 1997. We expect that, in the
future, cash in excess of current requirements, if any, will be invested in
investment grade, interest-bearing securities.
On February 4, 1999, we borrowed $4.0 million from a foreign corporate
investor pursuant to a convertible promissory note. The note is due January 31,
2000 and bears interest at the rate of 8% per annum. The note will automatically
convert into our equity securities upon our next equity financing at the price
per share in such financing. Accordingly, at the closing of this offering, all
principal and accrued but unpaid interest on the note will convert into our
common stock at a conversion price equal to the price per share in this
offering.
Capital expenditures, including capital leases, were $117,000 for the period
from inception to December 31, 1996, $414,000 in 1997 and $914,000 in 1998. Our
capital expenditures consisted of purchases of property and equipment, primarily
computer equipment and software. We expect that our capital expenditures will
continue to increase in the future. Since inception, we have generally funded
the purchase of property and equipment with capital leases. We have an equipment
loan agreement that allows us to borrow up to $1.0 million for the purchase of
property and equipment through December 1999. The initial term of the loan is 42
months from the borrowing date. The loan has an effective interest rate of 14%.
At December 31, 1998, the entire $1.0 million was available under the loan. As
of December 31, 1998, our primary commitments consisted of obligations
outstanding under operating leases and $794,000 of capital lease obligations.
We expect to experience significant growth in our operating expenses for the
foreseeable future in order to execute our business plan, particularly research
and development and sales and marketing expenses. As a result, we anticipate
that such operating expenses, as well as planned capital expenditures, will
constitute a material use of our cash resources. In addition, we may utilize
cash resources to fund acquisitions or investments in complementary businesses,
technologies or product lines. We believe that the net proceeds from the sale of
the common stock in this offering will be sufficient to meet our working capital
and capital expenditure requirements for at least the next 12 months.
Thereafter, we may find it necessary to obtain additional equity or debt
financing. In the event additional financing is required, we may not be able to
raise it on acceptable terms or at all.
YEAR 2000 READINESS
"Year 2000 Issues" refer generally to the problems that some software may
have in determining the correct century for the year. For example, software with
date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results.
We have defined Year 2000 compliant as the ability to:
- Correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
- Function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
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- Respond to two-digit date input in a way that resolves the ambiguity as to
century in a disclosed, defined and predetermined manner;
- Store and provide output of date information in ways that are unambiguous
as to century if the date elements in interfaces and data storage specify
the century; and
- Recognize the Year 2000 as a leap year.
We designed our current products to be Year 2000 compliant when configured
and used in accordance with the related documentation, and provided that the
underlying operating system of the host machine and any other software used with
or in the host machine or our products are Year 2000 compliant. However, we have
not tested our products for Year 2000 compliance. We continue to respond to
customer questions about prior versions of our products on a case-by-case basis.
We have not tested software obtained from third parties. However, we are
seeking assurances from our vendors that licensed software is Year 2000
compliant. Despite assurances from developers of products incorporated into our
products, our products may contain undetected errors or defects associated with
Year 2000 date functions. Known or unknown errors or defects in our products
could result in delay or loss of revenues, diversion of development resources,
damage to our reputation, or increased service and warranty costs, any of which
could seriously harm our business, financial condition and results of
operations. Some commentators have predicted significant litigation regarding
Year 2000 compliance issues, and we are aware of such lawsuits against other
software vendors. Because of the unprecedented nature of such litigation, it is
uncertain whether or to what extent we may be affected by it.
We are assessing our material internal information technology systems,
including both our own software products and third-party software and hardware
technology, but we have not initiated an assessment of our non-information
technology systems. We expect to complete testing of our information technology
systems in 1999. To the extent that we are not able to test the technology
provided by third-party vendors, we are seeking assurances from such vendors
that their systems are Year 2000 compliant. We are not currently aware of any
significant operational issues or costs associated with preparing our internal
information technology and non-information technology systems for the Year 2000.
However, we may experience significant unanticipated problems and costs caused
by undetected errors or defects in the technology used in our internal
information technology and non-information technology systems.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. Our current or future customers may incur significant
expenses to achieve Year 2000 compliance. If our customers are not Year 2000
compliant, they may experience material costs to remedy problems, they may face
litigation costs and they may delay purchases or implementation of our products.
Year 2000 issues could reduce or eliminate the budgets that current or potential
customers could have for purchases of our products and services. As a result,
our business, financial condition and results of operations could be seriously
harmed.
We have funded our Year 2000 plan from cash balances and have not separately
accounted for these costs in the past. To date, these costs have not been
significant. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. In addition, we may experience material problems and costs with
Year 2000 compliance that could seriously harm our business, financial condition
and results of operations.
We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and implementing such a plan may itself be
significant. Finally, we are also subject to external forces that
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might generally affect industry and commerce, such as utility or transportation
company interruptions caused by Year 2000 compliance failures.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
We do not expect SFAS No. 133 to have a significant effect on our financial
condition or results of operations.
In November 1998, the FASB cleared for issuance SOP 98-9, "Modification of
SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions,"
which will retain the limitations of SOP 97-2 on what constitutes vendor
specific objective evidence of fair value. SOP 98-9 will be effective for
transactions entered into in fiscal years beginning after March 15, 1999. We
believe that our current revenue recognition policies and practices are
consistent with the provisions of the new guidance.
In February 1998, the AcSEC issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 establishes
the accounting for costs of software products developed or purchased for
internal use, including when such costs should be capitalized. We do not expect
SOP 98-1, which is effective for us beginning January 1, 1999, to have a
significant effect on our financial condition or results of operations.
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BUSINESS
INTRODUCTION
Net Perceptions is a leading provider of real-time relationship marketing
solutions that enable Internet retailers to market to customers on a
personalized, one-to-one-basis. With our software solutions, a retailer learns
from each customer interaction and, based on the information received, adjusts
marketing messages and product offerings to that customer in real time. We
believe that retailers that implement our solutions can attract more customers,
generate more products per order and increase customer loyalty. To date, we have
focused on providing solutions to electronic commerce retailers. Our customers
currently include barnesandnoble.com, CDnow, Egghead.com, Preview Travel,
Ticketmaster and Value America.
Our products enable effective real-time relationship marketing by analyzing
past and current customer behavior, including purchase history, stated
preferences, demographic information and Internet browsing behavior. Based on
this analysis, our products use proprietary collaborative filtering technology
and other predictive technologies to anticipate other merchandise or information
a customer is likely to be interested in purchasing or viewing.
INDUSTRY BACKGROUND
MARKETING IN RETAIL INDUSTRIES
Over the past several decades, the retail industry has experienced
significant consolidation, which has been accompanied by a change in how
retailers market their goods and services to customers. Prior to the emergence
of national chain stores and other large retailers, many retailers knew their
customers personally. By learning the unique needs, tastes and preferences of
each customer, the retailer could deliver a high level of personalized service.
In many cases the retailer was able to recommend goods and services specifically
tailored to the needs of a particular customer, providing value and saving time
for the customer and increasing sales for the retailer. In addition, by knowing
customer tastes, the retailer was able to buy more efficiently, resulting in
less wasted or unsold inventory.
Customers now make many of their purchases at national chain stores and
other large retailers. These retailers compete primarily on the basis of price,
convenience, location and selection. The personalized service delivered by the
traditional retailer is often too expensive for large, modern retailers because
the service delivery cost conflicts with the price savings the retailer aims to
provide customers. Many large retailers communicate with their customers through
unfocused mass marketing channels, such as television and print advertisements,
direct mail and coupons. These mass marketing techniques provide an inexpensive
way of reaching a large group of potential customers. However, these approaches
are impersonal and do not allow for personalized communications with potential
customers. Furthermore, they are inefficient in that the messages are received
by large groups of people who are not likely customers of a given retailer or
buyers of a particular product.
ONE-TO-ONE MARKETING OPPORTUNITIES
In recent years, competition for the attention of customers has intensified.
Customers are confronted with a variety of purchase choices, in many cases at
similar prices. As a result, many retailers now seek to distinguish themselves
by satisfying the unique needs of each customer through one-to-one marketing.
Instead of selling one product at a time to as many customers as possible in a
particular sales period, one-to-one marketing uses customer databases, computer
technology and interactive communications to sell to each customer as many
products and services as possible. This approach requires companies to manage
customers individually rather than managing only products, sales channels and
programs. One-to-one marketing is designed to increase the number of products
sold by helping customers find the products they want to purchase and by
generating repeat sales. The
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challenge is to automate one-to-one marketing so it can be implemented
effectively and inexpensively across large customer populations.
ONE-TO-ONE MARKETING FOR ELECTRONIC COMMERCE. Because the Internet has
emerged as an interactive and individually addressable communications and
commerce medium, retailers now have the opportunity to implement one-to-one
marketing on a mass basis. One-to-one marketing can occur on the Internet each
time a customer interacts with a retailer's electronic commerce web site. The
retailer can observe and record customer behavior on its web site and solicit
preference information. This data can be processed to generate an understanding
of the customer's interests and recommend appropriate products and services,
often referred to as "personalization." With the size and tremendous growth of
electronic commerce, the opportunity for one-to-one marketing on the Internet is
potentially large. International Data Corporation estimates that the amount of
Internet commerce worldwide will increase from $32 billion in 1998 to over $400
billion in 2002. A Jupiter Communications survey conducted in June 1998 reported
that 40% of online retailers used some form of personalization and 93% of the
remaining online retailers planned to implement the practice in the following 12
months.
ONE-TO-ONE INTERNET ADVERTISING. One-to-one marketing can also be used to
make advertising on the Internet more successful. An Internet advertiser
ultimately pays the host company that displays the advertisements based in part
on the number of customers who "click-through" to the advertiser's web site. The
host company can use one-to-one marketing to target advertisements to customers
who are more likely to purchase those products, resulting in more sales. The
targeted advertisements are more valuable to the advertiser, who will in turn
pay the host company a higher price for displaying the advertisements to the
targeted customers. We believe the opportunity for one-to-one marketing of
online advertisements is large. Forrester Research estimates that the amount of
online advertising spending worldwide will increase from $1.5 billion in 1998 to
more than $15 billion in 2003.
ONE-TO-ONE MARKETING IN TRADITIONAL CHANNELS. The one-to-one marketing
model on the Internet creates new opportunities in more traditional sales
channels, such as in retail stores and in outbound or inbound call centers.
One-to-one marketing can occur each time a customer interacts with a retailer.
In a retail store or call center, a retailer can use technology to track
customer behavior and develop an understanding of the customer's tastes and
preferences. The retailer can then recommend products and services that match
those tastes and preferences. For example, point-of-sale terminals in retail
stores can print personalized coupons. For inbound call centers, software can
collect data about current and past purchases, and suggest, through the sales
agent, additional products to recommend to the customer. In outbound call
centers, data can be leveraged to recommend which customers should be called for
a particular product offering, based on products those customers have purchased
in the past.
ONE-TO-ONE MARKETING ACROSS MULTIPLE TOUCH-POINTS. A touch-point is a point
of contact between a retailer and a customer, such as a retail store, web site
or call center. Those retailers that interact with customers through multiple
channels or touch-points have the opportunity to learn about their customers
through these interactions. We believe that retailers that are most successful
in learning from all of their touch-point interactions will build the strongest
relationships with their customers. Retailers need a means of sharing this
learning across multiple touch-points so that activity on one touch-point can be
used in recommendations produced for another touch-point.
Realizing the potential of one-to-one marketing requires software that is:
- ACCURATE: Recommendations generated by the software, whether for products
to promote or advertisements to display, must accurately reflect customer
preferences. The more accurate the recommendations, the more effective
they will be in driving customer behavior.
- REAL-TIME: The response time for producing recommendations must be
virtually unnoticeable to customers. Customers may not wait for the
recommendations if they slow the interaction.
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- SCALABLE: The software must scale to allow retailers to market millions
of products to millions of customers.
- RELIABLE: The software must be reliable, so it can run 24 hours a day, 7
days a week.
- EASY TO INTEGRATE: The software must integrate easily and effectively
with external systems, including web servers, electronic commerce servers,
on-line ad servers and customer management systems in call centers.
Existing one-to-one marketing tools have not been able to maximize the full
potential of one-to-one marketing. They are unable to automatically learn from
customers or to deliver recommendations in real time, thus they are unable to
provide real-time relationship marketing for a retailer. In real-time
relationship marketing, a retailer learns a customer's preferences during each
interaction and adjusts the marketing message in real-time based on the
information received. A real-time relationship marketing solution must allow for
retailers to leverage the learning from all customer interactions to serve each
individual customer better.
THE NET PERCEPTIONS SOLUTION
Net Perceptions is a leading provider of real-time relationship marketing
solutions that enable Internet retailers to market to customers on a
personalized, one-to-one basis. With our software solutions, a retailer learns
from each customer interaction and, based on the information received, can
adjust marketing messages and product offerings to that customer in real time.
We believe that retailers that implement our solutions can achieve the following
results:
- MORE CUSTOMERS. More of the visitors who interact with the retailer may
decide to purchase, as the visitors are better able to navigate the
retailer's large product offerings, and retailers can present more
personalized product offerings.
- MORE PRODUCTS PER ORDER. Because the retailer is able to present
personalized product offerings to each customer, customers may purchase
more products during each interaction.
- INCREASED CUSTOMER LOYALTY. Customers value the recommendations that help
them find products they like, so they may come back to the retailer that
has built the relationship with them by catering to their individual
tastes. The retailer benefits because the cost of keeping an existing
customer is lower than the cost of acquiring a new customer.
Our products enable effective real-time relationship marketing by analyzing
past and current customer behavior, including purchase history, stated
preferences, demographic information and Internet browsing behavior. Based on
this analysis, our products use proprietary collaborative filtering and other
predictive technologies to anticipate other merchandise or information a
customer would be most interested in purchasing or viewing. Our product suite
consists of the following:
- NET PERCEPTIONS FOR E-COMMERCE. Our Net Perceptions for E-commerce
product is a leading real-time relationship marketing solution for
electronic commerce. It offers retailers the ability to automatically
target their merchandise to customers who visit their web sites based on
each customer's individual tastes, preferences and behavior.
- NET PERCEPTIONS FOR AD TARGETING. Our Net Perceptions for Ad Targeting
product is designed to enable host sites to target ads on web sites to
each visitor based on the visitor's individual tastes and preferences,
increasing the probability that the visitor will see an ad for a product
or web site he or she wants to purchase or visit. In turn, the host sites
may be able to charge a higher rate for presenting the targeted ads.
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- NET PERCEPTIONS FOR CALL CENTERS. Our Net Perceptions for Call Centers
product is designed to provide personalized recommendations to the call
center operator for products a caller is likely to purchase based on the
caller's individual tastes and preferences.
- NET PERCEPTIONS RECOMMENDATION ENGINE. Our recommendation engine provides
a robust platform for implementing real-time relationship marketing
solutions. We leverage our development effort by investing in this
general-purpose relationship marketing platform that supports the analysis
and prediction requirements of all of our market-specific products. This
platform can be used to leverage data across multiple customer
touch-points.
Each of our products has the following characteristics:
- ACCURACY. We design our products to provide high recommendation accuracy
for our customers.
- REAL-TIME. Our solutions are designed to meet the real-time requirements
of large web sites, call centers and other retailers.
- SCALABILITY. We design our products to satisfy the volume requirements of
the large web sites, call centers and other retailers.
- RELIABILITY. We design our products to provide high reliability,
including support for online database backups, and rapid database
restoration, if necessary.
- INTEGRATION. We base our solutions on a distributed architecture that is
flexible enough to integrate with new or existing marketing
implementations, including web site, call center and Internet advertising
software.
Our solutions provide real-time relationship marketing both on the Internet
and in traditional marketing applications.
STRATEGY
Our objective is to extend our leadership position in providing real-time
relationship marketing solutions to Internet and traditional retailers. Key
elements of our strategy to achieve this objective include the following:
MAINTAIN AND EXTEND TECHNOLOGY LEADERSHIP. We intend to maintain and extend
our technological leadership in real-time relationship marketing solutions
through continued investment in the development of our proprietary
recommendation engine and other predictive technologies. We believe that we are
currently a technology leader in collaborative filtering and in real-time
relationship marketing because of the accuracy, real-time functionality,
scalability, reliability and ease of integration of our products. We intend to
maintain an open architecture so that our recommendation engine will continue to
integrate with major platforms and technologies as they evolve. We believe that
maintaining and enhancing our products and services is critical to solidifying
our technology leadership and strengthening our customer relationships.
LEVERAGE TECHNOLOGY INVESTMENTS IN NEW VERTICAL APPLICATION SOLUTIONS. We
intend to leverage our investment in our recommendation platform into additional
on-line and traditional markets, including applications for corporate intranets,
direct marketing and retail environments. We believe that there are
complementary vertical applications of our technology beyond our current
offerings in electronic commerce, ad targeting and call center systems. We
believe many of our customers will use our technology across many of their
customer touch-points, leveraging both our recommendation platform as well as
our existing vertical applications.
PROVIDE VALUE-ADDED PROFESSIONAL SERVICES. We intend to continuously
increase the value of our solutions to customers by offering additional and
improved professional services. We provide our
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customers with a comprehensive array of services, including training and
consulting services, software updates, documentation updates, telephone support
and web-based support. We believe the relationships developed with our customers
by providing services are critical to understanding customer needs and
thereafter designing our solutions to satisfy these needs. In addition, by
providing superior professional services, we can heighten customer awareness of
real-time relationship marketing, which creates opportunities for us to sell new
products and services to existing customers.
BUILD GLOBAL PRESENCE. We intend to aggressively develop our international
presence to address the global adoption of the Internet and to address
international demand for real-time relationship marketing solutions. We believe
that international markets present an attractive growth opportunity and that an
early presence in international markets will enhance our long-term competitive
position in these regions. We intend to increase our international sales
capabilities by developing a direct sales and support presence in selected
European and Asian markets, adding international distributors in targeted
countries, developing joint marketing programs with distributors and developing
localized versions of our product.
BROADEN DISTRIBUTION CHANNELS AND BUILD STRATEGIC ALLIANCES. We intend to
expand our indirect distribution channels by recruiting additional resellers,
systems integrators, original equipment manufacturers and strategic alliance
partners. Over time, we expect that indirect sales will represent a higher
percentage of total sales. We believe that designing our products to interface
with the products of leading vendors of web site software, call center software
and Internet advertising software will make our products more attractive to
strategic alliance partners, resellers, systems integrators and original
equipment manufacturers. We believe these distribution partners will provide an
additional sales and marketing channel and facilitate the successful deployment
of our products.
PRODUCTS
Our product line includes the following: Net Perceptions for E-commerce, Net
Perceptions for Ad Targeting, Net Perceptions for Call Centers and Net
Perceptions Recommendation Engine.
NET PERCEPTIONS FOR E-COMMERCE
Net Perceptions for E-commerce allows on-line retailers to create a
personalized shopping environment using real-time relationship marketing. Net
Perceptions for E-commerce can be used to dynamically predict which products to
recommend to each customer browsing an electronic commerce site, based on past
and current customer behavior, including purchase history, stated preferences,
demographic information and Internet browsing behavior. These recommendations
are presented to the customer, who may find additional appealing products and
purchase them.
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The following graphic shows a typical customer interacting with a commerce
web site that is using Net Perceptions for E-commerce.
[GRAPHIC]
There are five parts to the graphic with arrows connecting them. The first part
is a photo of a woman in front of a computer, pointing at the monitor. The
caption "1. Customer visits a retailer's electronic commerce web site that
utilizes Net Perceptions for E-commerce software." appears under the photo. An
arrow leads down to the second part. The second part consists of the title
"Client's Web Site" centered over a computer screen with the word "Welcome"
appearing on the computer screen. The caption "2. The customer browses the
retailer's web site." appears under the computer screen. An arrow leads up to
the third part. The third part consists of the title "Net Perceptions for
E-commerce" centered over an oval with the words "Net Perceptions Recommendation
Engine" contained within the oval and a hexagon with the words "Customer
Preference Database" contained within the hexagon. The oval and hexagon are
superimposed over a picture of a computer keyboard. The caption "The web site
solicits customer preference information and tracks the customer's browsing
behaviors and purchases." appears below the oval. Adjacent to this caption below
the hexagon is the caption "The recommendation engine predicts other products
likely to to be appealing to the customer." Below these captions, an arrow leads
to a picture of three computer screens superimposed on each other with the top
screen containing the words "Recommended Merchandise" and the letters "A", "B"
and "C". An arrow leads across to a picture of a computer screen containing the
letter "C" and the word "Buy". Directly below this computer screen is the
caption "The web site recommends products likely to be appealing to the
customer."
Net Perceptions for E-commerce can also be used in many other ways,
including the following:
- PERSONALIZED SPECIAL OFFERS. A "special offers" list can be personalized
to include products likely to appeal to the customer.
- PRODUCT RECOMMENDATION CENTER. A product recommendation center can allow
customers to express opinions about products and receive recommendations
of other products likely to be appealing.
- GIFT CENTER. A gift center can help customers choose gifts for others by
allowing the customer to name a few items liked by the intended recipient
of the gift. The gift center recommends other products the recipient will
like based on the stated preferences.
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NET PERCEPTIONS FOR AD TARGETING
Net Perceptions for Ad Targeting enables web sites to target interactive
advertisements to customers who will be most interested in the advertisement.
The advertisement to be shown is chosen based on a set of variables, including
the ads available, the page on which the ad is to be shown, other pages the
customer has looked at, other ads the customer has been shown or clicked on,
keywords the customer has used in a search, time of day and demographic
information. Net Perceptions for Ad Targeting continuously analyzes all of the
above variables and presents an ad that is likely to appeal to a customer and
result in the customer clicking on the ad to visit the advertiser's web site.
Net Perceptions for Ad Targeting is designed to increase click-throughs for
advertisers, thereby enabling web sites to charge higher advertising rates. Net
Perceptions for Ad Targeting includes an interactive, graphical visualization
and reporting tool that allows the ad server manager to easily assess the
performance of various advertisements on the manager's web site and any change
in click-through rates attributable to targeting. Net Perceptions for Ad
Targeting relies on technology licensed from Neural Applications Corporation.
See "Risk Factors--We depend on technology licensed from other parties."
The following graphic shows how Net Perceptions for Ad Targeting operates on
a typical web site.
[GRAPHIC]
Graphic depicting Net Perception for Ad Targeting. There are five parts to the
graphic with arrows connecting them. The first part is a photo of a man in front
of a computer. Under the photo appears the caption "1. Customer visits a web
site that utilizes Net Perceptions for Ad Targeting software." An arrow leads
down to the second part. This consists of the title "Client's Web Site" centered
over a computer screen with the word "Advertisement" and the letter "A"
appearing on the computer screen. Under the computer screen appears the caption
"2. The customer browses the web site viewing ads served by the client's ad
server." An arrow leads up to the third part. The third part consists of the
title "Net Perceptions for Ad Targeting" centered over an oval with the words
"Net Perceptions Ad Targeting Software" contained within the oval and a hexagon
with the words "Customer Preference Database" contained within the hexagon. The
oval and hexagon are superimposed over a picture of a computer keyboard. Below
the oval appears the caption "3. The web site customer's browsing behavior."
Adjacent to this caption, below the hexagon is the caption "The Ad Targeting
engine predicts." Below these captions, an arrow leads to a square containing
the words "Web Site Ad Server." Directly below the square is the caption "The ad
server displays ads the customer is likely to be interested in and click on." An
arrow leads to a picture of three computer screens superimposed on each other
with the top screen containing the word "Advertisement" and the letters "A", "B"
and "C".
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We announced the commercial launch of Net Perceptions for Ad Targeting in
October 1998 and made our initial product shipment in December 1998. We did not
recognize any product revenues in 1998 related to that shipment. Net Perceptions
for Ad Targeting has not received any degree of market acceptance. See "Risk
Factors--We recently announced new products that may not achieve market
acceptance."
NET PERCEPTIONS FOR CALL CENTERS
Net Perceptions for Call Centers allows call center retailers to recommend
products to customers using real-time relationship marketing. Net Perceptions
for Call Centers can be used to create product recommendations for customers
based on their past and present interaction with the call center, including past
purchases and customer inquiries. Net Perceptions for Call Centers is more
powerful than a traditional cross-sell table, because the recommendations are
created in real time and updated based on the interests of a particular
customer.
The following graphic illustrates the operation of Net Perceptions for Call
Centers.
[GRAPHIC]
Graphic depicting Net Perceptions for Call Centers. Underneath are four parts to
the graphic with arrows connecting them. The first part is a photo of a woman
using a telephone. The caption "1. Customer phones a call center supported by
Net Perceptions for Call Centers to place an order." appears under the photo. An
arrow leads down to the second part. The second part consists of the title
"Client's Call Center" centered over a photo of an operator pointing at a
computer monitor. A caption to the bottom right of the photo reads "2. The
operator takes the order and enters it into the order processing system (OPS)."
An arrow leads from part two to a black square with the words "Client's Order
Processing System" in white text in the black square. An arrow runs from the
black square back to part two. Under this arrow is the caption "5. The products
recommended by the Recommendation Engine are displayed on the operator's
screen." Another arrow leads up from the black square to the third part. This
consists of the title "Net Perceptions for Call Centers" centered over an oval
with the words "Net Perceptions Recommendation Engine" contained within the oval
and a hexagon with the words "Customer Preference Database" contained within the
hexagon. The oval and hexagon are superimposed over a picture of a computer
keyboard. The caption "3. The OPS forwards the content of the current order to
the Net Perceptions Recommendation Engine" appears below the oval. Below the
hexagon is the caption "4. The recommendation engine predicts other products
likely to to be appealing to the customers." An arrow runs from the oval back
down to the black square.
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We announced the commercial launch of Net Perceptions for Call Centers in
November 1998 and expect to make our initial shipments in 1999. Net Perceptions
for Call Centers has not received any degree of market acceptance. See "Risk
Factors--We recently announced new products that may not achieve market
acceptance."
Net Perceptions for Call Centers can be integrated with other parts of call
center systems for more sophisticated applications, including:
- The inventory database, so only products with sufficient inventory levels
are recommended;
- The product database, so recommendations can be based on additional
information about the products; and
- The pricing database, so only products with sufficient profit margins are
recommended.
NET PERCEPTIONS RECOMMENDATION ENGINE
The Net Perceptions Recommendation Engine allows customers to deploy the
recommendation engine technology within their own, unique applications. The Net
Perceptions Recommendation Engine evolved from our original GroupLens
Recommendation Engine, which was a general-purpose tool for real-time
relationship marketing. The Net Perceptions Recommendation Engine has evolved
into a general platform that supports Net Perceptions for E-commerce and Net
Perceptions for Call Centers. In addition, we license the Net Perceptions
Recommendation Engine separately to customers who would prefer to apply the
functionality of the recommendation engine in markets for which we do not yet
have a specific vertical product. For example, customers have incorporated the
Net Perceptions Recommendation Engine into:
- Content-based applications, for helping customers find the news and
information in which they are most interested; and
- Original equipment manufacturer software applications, in which the
recommendation engine is embedded.
PRODUCTS UNDER DEVELOPMENT
We are developing new products planned for introduction later in 1999. These
products consist of Net Perceptions for Marketing Campaigns and Net Perceptions
for Knowledge Management.
NET PERCEPTIONS FOR MARKETING CAMPAIGNS. Net Perceptions for Marketing
Campaigns is being designed as a tool for managing and personalizing outbound
promotional electronic mail campaigns. It is being designed to analyze past
customer responses and purchase behavior to select a personalized set of
products to target to each set of customers, or to select a set of customers to
target for a particular product. The set of products can then be recommended to
the customers through promotional e-mail. Net Perceptions for Marketing
Campaigns is being designed to include a graphical user interface that visually
shows the effectiveness of the ongoing promotional campaign. We believe that the
ability of the recommendation engine to better tailor message content to the
recipient on a one-to-one basis should yield higher response rates per mailing
and will provide a core competitive advantage.
NET PERCEPTIONS FOR KNOWLEDGE MANAGEMENT. Net Perceptions for Knowledge
Management is being designed to apply the real-time relationship management
capabilities of the recommendation platform to knowledge management. Knowledge
Management means proactively planning and managing a company's process for
leveraging information and employee knowledge to achieve a competitive advantage
in a marketplace. Net Perceptions for Knowledge Management is being designed to
integrate with existing information management systems, such as search engines,
document management systems, Lotus Notes and the web, and to track the everyday
interactions between these systems and their users. Using the interaction
information, Net Perceptions for Knowledge Management is being designed to
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automatically locate documents and data repositories containing relevant
information for each user. It is also being designed to help users locate other
users with knowledge and interest in specific subject areas. We believe these
applications will improve the efficiency of employees in working with an
enterprise's existing knowledge database.
Software products as complex as those currently under development by us are
subject to frequent delays, and we may encounter difficulties that could delay
or prevent the successful and timely development, introduction and marketing of
these products under development. Moreover, even if such products under
development are completed and introduced, they may never achieve any significant
degree of market acceptance. Failure to release these products under development
on a timely basis, or failure of these products under development, if and when
released, to achieve any degree of market acceptance, could seriously harm our
business, financial condition and results of operations.
PROFESSIONAL SERVICES
Our professional services organization provides consulting services,
education and training and customer support. We believe that providing a high
level of customer service and technical support is critical to the satisfaction
of our customers and our own success. As of January 31, 1999, our professional
services staff consisted of ten employees.
CONSULTING SERVICES. We offer a variety of solution-oriented professional
services delivered either by our specialists or through one of our regional or
national partners trained in the use and implementation of our products. These
services include project management, in-depth application design and
implementation. Fees for professional services are typically charged separately
from our software license fees. We believe consulting services are strategically
valuable to our customers because they provide customers with a source of
technical and personalization expertise to support the timely and efficient
implementation of our products.
EDUCATION AND TRAINING. We offer extensive education and training programs
to our customers. Training classes are offered at our offices in Minneapolis,
San Francisco and New York. We also provide training at our customers'
facilities upon their request. Fees for education and training services are
typically charged separately from our software license fees.
CUSTOMER SUPPORT. We provide our customers with an array of support
services, including telephone support, web-based support and updates to our
products and documentation. Our web-based support is available 24 hours a day
and provides answers to frequently asked questions, technical advice and an area
for downloading product updates. We enter into maintenance and support contracts
separate from our product license agreements. Fees are typically 18% of the
license fees for the associated software product. These contracts are renewable
for an annual fee typically equivalent to 18% of the current list price of the
software licensed by the customer.
TECHNOLOGY
REAL-TIME RECOMMENDATION PLATFORM
The Net Perceptions real-time recommendation platform is the foundation of
our real-time relationship marketing solutions. Our platform is designed to
integrate easily and effectively with external systems, such as web servers,
electronic commerce servers, on-line ad servers and call center software
systems. Our platform is designed to provide accurate customer recommendations
and to exploit the performance and scalability advantages of modern,
multiple-processor, shared memory computers.
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The platform contains the recommendation engine, a database of customer
preferences and an application programmer's interface. The customer preference
database is a specially structured database in a commercial database management
system, such as Microsoft SQL server or Oracle databases. The recommendation
engine in the platform is independent from the customer interaction environment.
Vertical applications are built on the platform to leverage the technology
investment. The figure below shows our three current products, two of which
utilize the Real-Time Recommendation Platform. The third, Net Perceptions for Ad
Targeting, relies on technology licensed from Neural Applications Corporation.
See "Risk Factors--We depend on technology licensed from other parties."
[GRAPHIC]
The graphic consists of three levels of shapes arranged vertically. The top
level is an oval containing the words "Client Applications" above the words "web
servers - call centers - ad servers." The second level is directly below the
first level and contains three smaller ovals adjacent to one another. The first
oval contains the words "Net Perceptions for E-commerce." The second oval
contains the words "Net Perceptions for Call Centers." The third oval contains
the words "Net Perceptions for Ad Targeting." The third level is located
directly below the first and second ovals from the second level. The third level
contains a rectangle containing the words "Application Programmer's Interface."
The rectangle is located directly above an oval containing the words "Net
Perceptions Recommendation Engine." The oval is located above a hexagon
containing the words "Customer Preference Database." The oval and hexagon are
separated by a two-way arrow pointing at each of the oval and hexagon. A dotted
line runs the length of the third level. The dotted line is intersected in the
middle with the words "Real-Time Recommendation Platform."
The customer preference database stores customer preference data used by the
recommendation engine to produce recommendations. The data may include customer
purchasing behavior, statements of preference explicitly made by the customer,
demographic information about the customer and behavioral information about the
customer. The preference database may also contain information supplied by a
marketer, for example groups of products the marketer explicitly wants to be
recommended together or products that are substitutes for one another.
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The engine responds to requests for recommendations and applies a series of
predictive algorithms to produce recommendations in real time. Examples of the
types of questions the analytical engine can be used to answer include:
- What is the customer's likely opinion of a specific product?
- What is the customer's propensity to purchase any of the following ten
products?
- Given the contents of his or her shopping basket, what else is this
customer likely to buy?
- Who are other customers similar to this customer?
The application programmer's interface provides the link between the
recommendation engine and other applications and allows applications such as web
servers and call center systems to "ask questions" of the recommendation engine,
which provides answers to drive the interaction with customers.
COLLABORATIVE FILTERING
Our core predictive technology resides in the recommendation engine and
incorporates a base of research and development in collaborative filtering
initiated in 1992 at the University of Minnesota. Collaborative filtering
compares selected attributes of a customer's preferences, opinions and behavior
to the attributes of large customer populations. Groups of customers exhibiting
similar attributes to the customer are analyzed to determine the likely
preferences of the customer. The following figure illustrates the process of
producing product recommendations using collaborative filtering:
[GRAPHIC]
Four part graphic depicting the process of producing product recommendations
using collaborative filtering. The first part is a photo of a man's face with a
caption underneath that reads "1. Information about the customer is gathered." A
large arrow points from the photo to part two, a photo of numerous faces, with
three of the faces separated from the group by an encircling line. Underneath
part two, the caption read, "2. A "neighborhood" of similar customers is
identified." A large arrow points to part three. Part three is a photo of the
encircled three faces from part two, but without the background of additional
faces. The caption under part three reads, "3. The "neighborhood" is analyzed."
A large arrow leads from part three to part four, a fuzzy photo of the three
faces without the encircling line, with the text "Recommendations", "A", "B" and
"C" printed over the faces. The caption under part four reads, "4.
Recommendations based on the analysis of the neighborhood are made."
Collaborative filtering is driven by information about customer preferences,
such as explicit statements of preference, and implicit statements of
preference, such as time spent looking at an item and purchasing behavior. Known
user preference information is used to identify a group or "neighborhood" of
other users who share preferences with the user in question. The collective
preferences of the neighborhood are used to predict unknown preferences of the
user in question, such as which products the user is most likely to purchase.
OTHER PREDICTIVE TECHNOLOGIES
We also employ other predictive technologies, such as neural networks and
fuzzy logic, in some of our products. A neural network is a technology that
mimics the learning behavior of biological systems, such as neurons in a human
brain. It utilizes large numbers of simple computational elements connected
together to model a specific real-world phenomenon. The interconnections between
the elements are continuously adjusted based on how well the system models the
chosen phenomenon. The resulting system exhibits "learning" because it is able
to automatically adjust over time. Our ad
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targeting product uses neural networks to discover associations between web
pages and advertisements. Fuzzy logic is a mathematical concept allowing
computers to deal with uncertain and partial information.
CUSTOMERS
As of December 31, 1998, we had licensed products to more than 80 customers.
These customers are in various stages of deployment of our products. The
following is a representative list of our customers that accounted for at least
$25,000 in bookings to us during the period from January 1, 1997 to December 31,
1998:
<TABLE>
<CAPTION>
BOOKS MUSIC GENERAL RETAIL
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Audio Book Club CDnow Bluefly
barnesandnoble.com Musicland/Sam Goody iMall
Bertlesmann (MLG Internet) JCP Internet Commerce Solutions
Chapters MuZic Depot Petters Company
Computer Book Shops Launch Media Skymall
Indigo Books Seneca Media Group Value America
Soundstone Entertainment
Tower Records
MOVIES GROCERIES/FOOD SOFTWARE/COMPUTERS
- ------------------------------------ ------------------------------------ ------------------------------------
Digital Courier Technologies Digital Chef Buy.com
DVD Express HomeGrocer.com Egghead.com
Millenium Communications Let's Eat Out Chumbo.com
Trans World Entertainment TechWave
Wherehouse.com
ENTERTAINMENT AD TARGETING OTHER
- ------------------------------------ ------------------------------------ ------------------------------------
Billboard TalentNet Business Week Online Action World
City Online Jubii A/S Art.com
Ticketmaster Los Angeles Times ASKUL Corporation
MarketWatch.com Bass Pro
Star Tribune Bid.com
BrainPlay.com
iVillage
Preview Travel
</TABLE>
An example of the manner in which our products may be used to address
specific application needs is set forth below.
CDNOW. CDnow is an online music store that wanted to provide its electronic
shoppers with item suggestions quickly and easily. In the fall of 1997, CDnow
presented us with the challenge of personalizing its large inventory for each
single visitor. CDnow selected the Net Perceptions Recommendation Engine because
of its collaborative filtering technology and ease of implementation. The CDnow
Gift Selector was created utilizing the Net Perceptions Recommendation Engine
with CDnow's existing customer purchase history data. Visitors to the CDnow site
are able to enter the names of musical artists to obtain a list of corresponding
gift recommendations. This feature was launched in November 1997. Shortly after
the holidays, it was renamed "Album Advisor" and made a permanent part of the
CDnow site. "Album Advisor" became one of the most popular pages on the CDnow
site. In the fall of 1998, CDnow expanded its use of personalization technology
when it launched the "My CDnow" section of its site. These personalized pages,
which use the Net Perceptions
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for E-commerce product, allow visitors to combine their personalized music
recommendations with order history and wish list for a satisfying shopping
experience.
SALES AND MARKETING
We market our software and services through our direct sales organization
and through indirect distribution channels, including value-added resellers,
systems integrators and original equipment manufacturers. We have sales offices
in Minneapolis, San Francisco and New York.
As of January 31, 1999, our direct sales organization included 22 sales
representatives, managers, business development representatives and support
personnel. We intend to increase our North American sales force as demand
requires by opening additional field sales offices. However, competition for
such personnel is intense, and we may not be able to attract highly qualified
sales and marketing personnel. Additionally, we intend to expand our presence in
international markets by building our international sales force. We believe that
this will be necessary in order to grow our revenues. We may also need to
localize our products in various markets. However, we have limited experience in
developing localized versions of our products and marketing and distributing our
products internationally. Accordingly, we may not be successful in international
markets. See "Risk Factors--We are dependent upon key personnel" and "--We
depend on international sales, which are subject to numerous risks."
Our sales organization is complemented by distribution partners, including
value added resellers, systems integrators and original equipment manufacturers.
These partners license our products at a discount for re-licensing, and may
provide training, support and customer service to end users. In 1998, our
distribution partners were responsible for 8% of our product revenues. We
anticipate that the percentage of our total revenues derived from indirect sales
will increase in the future. However, we may not be able to attract or retain
value added resellers, systems integrators and original equipment manufacturers.
We expect that a material increase in our indirect sales as a percentage of
revenues will adversely affect our average selling prices and gross margins due
to the lower unit prices that we receive when selling through indirect channels.
See "Risk Factors--We rely on resellers and need to develop this sales channel"
and "--We rely on original equipment manufacturers and need to develop this
sales channel."
As of January 31, 1999, our marketing organization consisted of 12 employees
primarily engaged in marketing research, producing marketing materials, product
planning, managing press coverage and other public relations, identifying
potential customers, attending and exhibiting at trade shows, seminars and
conferences, creating presentations and sales tools, establishing and
maintaining close relationships with industry analysts and maintaining our web
site. In addition, we rely on various outside consultants to supplement our
marketing organization for various public relations and market research
requirements.
RESEARCH AND DEVELOPMENT
Our research and development organization is responsible for product
architecture, core technology, product testing and quality assurance, writing
product user documentation, and expanding the ability of our products to operate
with the leading hardware platforms, operating systems and database management
systems. In addition, this organization supports some pre-sale and customer
support activities. Our research and development organization is divided into
teams consisting of development engineers, product managers, quality assurance
engineers and technical writers.
As of January 31, 1999, our research and development staff consisted of 27
employees. Our total expenses for research and development were $378,000 in
1996, $1.4 million in 1997 and $2.3 million in 1998. We believe that research
and development expenses will continue to increase in the future. To date, our
development efforts have not resulted in any capitalized software development
costs.
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We believe that our future performance will depend in large part on our
ability to maintain and enhance our current product line, develop new products
that achieve market acceptance, maintain technological competitiveness and meet
an expanding range of customer requirements. We currently plan to introduce and
market several potential new products later in 1999. These potential new
products are subject to significant technical risks. We may experience delays in
the commencement of commercial shipments of potential new products, resulting in
delay or loss of product revenues. If the potential new products do not achieve
market acceptance, or we are unable, for technological or others reasons, to
develop, introduce and sell such potential new products in a timely manner, our
business, financial condition and results of operations will be seriously
harmed. Software products as complex as those we offer may contain undetected
errors or failures when first introduced or when new versions are released. We
have in the past discovered software errors in our new products after their
introduction. Although we have not experienced serious harm from any such errors
to date, we may, despite testing by us and by current and potential customers,
discover errors in new versions of existing products or potential new products
after commencement of commercial shipments, resulting in loss of or delay in
market acceptance, which could seriously harm our business, financial condition
and results of operations. See "Risk Factors--We are dependent on potential new
products" and "--We recently introduced new products that may not achieve market
acceptance."
COMPETITION
The market for our products is intensely competitive, evolving and subject
to rapid technological change. We expect the intensity of competition to
increase in the future. Competitors vary in size and in the scope and breadth of
the products and services offered. In the license of electronic commerce
products, we primarily encounter competition from the LikeMinds division of
Andromedia, the Aptex division of HNC Software and Personify. Microsoft
Corporation recently acquired FireFly Network Inc., a company with collaborative
filtering technology and, as a result, we expect that we will encounter
competition from Microsoft in the future. We expect that if we are successful in
our strategy to leverage our technology into new vertical markets, we will
encounter many additional, market-specific competitors. In addition, because
there are relatively low barriers to entry in the software market, we expect
additional competition from other established and emerging companies as the
Internet software market continues to develop and expand.
We believe that the principal competitive factors affecting our market
include core technology, product features, product quality and performance,
customer service and price. Although we believe that our products currently
compete favorably with respect to such factors, our market is relatively new and
is rapidly evolving. We may not be able to maintain our competitive position
against current and potential competitors, especially those with significantly
greater financial, marketing, service, support, technical and other resources.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition and a larger installed base of customers than us. In
addition, many of our competitors have well-established relationships with
current and potential customers of ours, have extensive knowledge of our
industry and are capable of offering a single-vendor solution. As a result, our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
development, promotion and sale of their products than we can. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address customer needs. Accordingly, it is possible
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that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share. We also expect that competition will increase
as a result of software industry consolidations.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could seriously harm our
business, financial condition and results of operations. We may not be able to
compete successfully against current and future competitors.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
We depend significantly on proprietary technology. To protect our
proprietary technology, we rely primarily on a combination of:
- Patents;
- Copyright and trademark laws;
- Trade secrets;
- Confidentiality procedures; and
- Contractual provisions.
We license our software and require our customers to enter into license
agreements, which impose restrictions on our customers' ability to utilize the
software. In addition, we seek to avoid disclosure of our trade secrets,
including but not limited to requiring those persons with access to our
proprietary information to execute confidentiality agreements with us and
restricting access to our source code. We seek to protect our software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection.
We have four pending U.S. patent applications. We also have license rights
to one issued U.S. patent and two pending U.S. patent applications from the
University of Minnesota. We have no issued foreign patents, nor do we have any
pending foreign patent applications. It is possible that no patents will issue
from the currently pending patent applications. It is also possible that our
current patents or potential future patents may be found invalid or
unenforceable, or otherwise be successfully challenged. It is also possible that
any patent issued to us may not provide us with any competitive advantages. It
is also possible that we may not develop future proprietary products or
technologies that are patentable, and that the patents of others may seriously
limit our ability to do business. In this regard, we have not performed any
comprehensive analysis of patents of others that may limit our ability to do
business.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around patents issued to us or our other intellectual property.
There has been a substantial amount of litigation in the software industry
regarding intellectual property rights. We have from time to time received
claims that we are infringing third parties' intellectual property rights. It is
possible that in the future third parties may claim that our current or
potential future products infringe their intellectual property. We expect that
software developers will increasingly be subject to infringement claims as the
number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product
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shipment delays or require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all, which could seriously harm our business, financial
condition and results of operations.
We license personalization screening and collaborative filtering technology
known as the "GroupLens" technology from the University of Minnesota pursuant to
an exclusive, worldwide, license agreement. The exclusive rights granted are
subject to non-exclusive rights retained by:
- AT&T Corporation, for portions of the technology funded by AT&T;
- The United States government, for government-funded aspects of the
technology, but solely for government purposes; and
- The University of Minnesota, for its own educational and research
purposes.
The license agreement also provides that for the three academic years ending
in the spring of 2000, we will pay research fees to the University of Minnesota
for exclusive rights to commercial applications that the research may produce
related to improvements to the GroupLens technology. If the agreement is
terminated prior to the end of the 1999-2000 academic year or if we are unable
to renew the agreement, we will no longer have access to the research conducted
by the University of Minnesota, which could result in an increased burden on our
product development department, as well as a reduction in improvements to our
core technology. We may not be able to renew the agreement, hire adequate
personnel to meet any increased demands on our product development department,
or continue to advance our technology on a timely basis. If we are unable to
renew the agreement, hire sufficient personnel or develop product improvements
in a timely manner, our business, financial condition and results of operations
would be seriously harmed.
We integrate third-party software in our software products. For instance, we
license Aegis neural networking and other technologies from Neural Applications
Corporation for our Net Perceptions for Ad Targeting product. Under the license
agreement, Neural Applications Corporation is obligated to deliver future
products and product enhancements to us, including the UNIX version of its
technology. If Neural Applications Corporation fails to deliver such products or
enhancements or if such deliveries are delayed, the market opportunity for our
Net Perceptions for Ad Targeting product will be significantly reduced and our
business, financial condition and results of operations could be seriously
harmed. The agreement expires in October 2001. Additionally, we license the
Orbix object request broker from IONA Technologies for use in our Net
Perceptions for E-commerce, Net Perceptions for Call Centers and Net Perceptions
Recommendation Engine products. The agreement expires in July 2001. The
third-party software may not continue to be available to us on commercially
reasonable terms. We may not be able to renew these agreements or develop
alternative technology. If we cannot maintain licenses to key third-party
software, such as Aegis and Orbix, develop similar technology or license similar
technology from another source on a timely or commercially feasible basis, our
business, financial condition and results of operations could be seriously
harmed.
EMPLOYEES
As of January 31, 1999, we had a total of 83 employees, including 34 in
sales and marketing, 27 in research and development, 10 in customer support and
12 in administration. Of these employees, 82 were located in the United States
and 1 was located in Canada. None of our employees is represented by a
collective bargaining agreement, nor have we experienced any work stoppage. We
consider our relations with our employees to be good.
FACILITIES
Our principal sales, marketing, research and development, and administrative
facility occupies approximately 23,000 square feet in Minneapolis, pursuant to a
lease that expires in December 31,
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2003. In addition, we also lease sales and support offices in the metropolitan
areas of San Francisco and New York. We believe that our existing facilities are
adequate for our current needs and that suitable additional or alternative space
will be available in the future on commercially reasonable terms.
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MANAGEMENT
OFFICERS AND DIRECTORS
The executive officers and directors of Net Perceptions, and their ages as
of January 31, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- --------------------------------------------------------
<S> <C> <C>
Steven J. Snyder.............. 44 President, Chief Executive Officer and Director
Paul Bieganski................ 34 Chief Technical Officer
Thomas M. Donnelly............ 34 Chief Financial Officer and Secretary
P. Stephen Larsen............. 48 Vice President of Marketing and Business Development
Bradley N. Miller............. 34 Vice President of Product Development
George E. Moser............... 43 Vice President of Worldwide Sales
John T. Riedl................. 37 Director and Chief Scientist
Douglas J. Burgum(1)(2)....... 42 Director
Ann L. Winblad(1)(2).......... 48 Director
</TABLE>
- ---------
(1) Member of audit committee
(2) Member of compensation committee
Dr. Snyder co-founded Net Perceptions in July 1996 and since such time has
served as our President and Chief Executive Officer and as a director. From
January 1996 to July 1996, Dr. Snyder served as an independent consultant. From
July 1993 to December 1995, Dr. Snyder served as Vice President of Software
Development at Personnel Decisions International, Inc., a human resources
consulting firm. Dr. Snyder pursued his doctorate in psychology from 1988 to
1994. From 1983 to 1988 Dr. Snyder was employed by Microsoft Corporation, a
software company, where he held several posts including IBM Account Manager and
General Manager of the Language Business Unit. Dr. Snyder holds a B.S. in
mathematics from Drexel University, an M.B.A. from Harvard University and an
M.A. and a Ph.D. in psychology from the University of Minnesota.
Dr. Bieganski joined Net Perceptions in August 1997, as its Director of
Algorithm Development, and in November 1998 became Net Perceptions' Chief
Technical Officer. From September 1995 to August 1997, Dr. Bieganski was the
Vice President of Research and Development at Signum Systems, a manufacturer of
embedded systems software and hardware development tools. From January 1994 to
September 1995, Dr. Bieganski co-founded and served as President at TeleMedical,
Inc., a medical services company. From June 1990 to January 1994, Dr. Bieganski
served as Vice President of Research and Development of Advanced Medical
Systems, a manufacturer of medical diagnostic devices. From September 1988 to
June 1990, Dr. Bieganski served as Chief Engineer of Advanced Medical Systems.
Dr. Bieganski holds a B.S., an M.S. and a Ph.D. in computer science from the
University of Minnesota.
Mr. Donnelly joined Net Perceptions in March 1997 as our Controller, and in
March 1998 became Net Perceptions' Chief Financial Officer. In February 1999,
Mr. Donnelly was appointed Secretary. From March 1995 to March 1997, Mr.
Donnelly served as a financial and management consultant in the capacity of
chief financial officer or corporate controller for various public and private
companies and partnerships, including Net Perceptions from September 1996 to
March 1997. From December 1994 to March 1995, Mr. Donnelly was the Chief
Financial Officer of Medical Documenting Systems, Inc., a medical software
company. Prior to 1994, Mr. Donnelly was employed by Marshall Financial Group,
Inc., a merchant banking company, and Staats International, Inc., an
architectural company. Mr. Donnelly holds a B.A. in economics from St. Olaf
College.
Mr. Larsen joined Net Perceptions in June 1997 as our Vice President of
Marketing and Business Development. From August 1996 to June 1997, Mr. Larsen
served as Vice President of Business
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Development for CitySearch, Inc., a community-based information service. From
July 1995 to August 1996, Mr. Larsen was President and Managing Partner of
Digital Dynamics, a consulting company. Previously, Mr. Larsen led new business
units at Prodigy Services Company, an Internet company, and at AT&T Corporation,
a telecommunications company. Mr. Larsen holds an A.A. from Rochester State
College.
Mr. Miller co-founded Net Perceptions in July 1996 and since such time has
served as our Vice President of Product Development. From September 1992 to July
1996, Mr. Miller was a Ph.D. candidate in Computer Science at the University of
Minnesota. From August 1990 to July 1992, Mr. Miller was a project leader at
Apertus Technologies, Inc., a software company, for an enterprise database
synchronization product. From June 1986 to August 1990, Mr. Miller was an
engineer in the artificial intelligence research group at the energy management
systems division of Control Data, a software company. Mr. Miller holds a B.A. in
physics and computer science from Luther College, and an M.S. in computer
science from the University of Minnesota.
Mr. Moser joined Net Perceptions in January 1997 as our Regional Director of
Sales, East Region. In September 1997, Mr. Moser was appointed Vice President of
Worldwide Sales. From March 1993 to December 1996, Mr. Moser was the Director,
East Region for Autodesk, Inc., a software company. From February 1983 to
February 1993, Mr. Moser was employed by the technology division of Schlumberger
Inc., an oil field services company, as Director of Worldwide Major Accounts.
Mr. Moser holds a B.S. in management and an M.B.A. from the University of
Hartford.
Dr. Riedl co-founded Net Perceptions in July 1996 and since such time has
served as a director. In November 1998, Dr. Riedl became our Chief Scientist.
From July 1996 until November 1998, Dr. Riedl served as our Chief Technical
Officer. Dr. Riedl has been a professor in the computer science department at
the University of Minnesota since March 1990. Dr. Riedl holds a B.S. in
mathematics from the University of Notre Dame and an M.S. and a Ph.D. in
computer science from Purdue University.
Mr. Burgum became a director of Net Perceptions in January 1999. Mr. Burgum
has served as President of Great Plains Software, Inc., a software company,
since March 1984, Chief Executive Officer since September 1991 and Chairman of
the Board since January 1996. Mr. Burgum served as Vice President and a director
of Great Plains Software from March 1983 to March 1984. Before joining Great
Plains Software, Mr. Burgum was a management consultant in the Chicago office of
McKinsey & Company, Inc. Mr. Burgum holds a B.U.S. from North Dakota State
University and an M.B.A. from Stanford University.
Ms. Winblad became a director of Net Perceptions in August 1996. Ms. Winblad
has been a General Partner of Hummer Winblad Venture Partners, a venture capital
investment firm, since 1989. Ms. Winblad is also a director of Hyperion
Solutions, Inc., a software company. Ms. Winblad holds a B.A. in mathematics and
business administration from the College of Saint Catherine and an M.A. in
education with an economics focus from the University of St. Thomas.
Net Perceptions currently has authorized four directors. Each director holds
office until the next annual meeting of stockholders or until a successor is
duly elected and qualified. The officers serve at the discretion of the board of
directors. There are no family relationships among the directors and officers of
Net Perceptions.
BOARD COMMITTEES
The audit committee consists of Mr. Burgum and Ms. Winblad. The audit
committee makes recommendations to the board of directors regarding the
selection of independent accountants, reviews the results and scope of audit and
other services provided by our independent accountants and reviews and evaluates
our audit and control functions.
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The compensation committee consists of Mr. Burgum and Ms. Winblad. The
compensation committee makes recommendations regarding our stock plans and makes
decisions concerning salaries and incentive compensation for our employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee is currently or has been,
at any time since the formation of Net Perceptions, an officer or employee of
Net Perceptions. No member of our compensation committee serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of our board of directors or
compensation committee.
DIRECTOR COMPENSATION
We do not currently provide our directors with cash compensation for their
services as members of the board of directors, although members are reimbursed
for some expenses in connection with attendance at board and committee meetings.
Mr. Burgum received an option to purchase 15,000 shares of common stock at an
exercise price of $11.00 per share. The option is immediately exercisable. The
shares purchasable thereunder are subject to repurchase by us at the original
exercise price paid per share upon the optionee's cessation of service prior to
vesting in such shares. The repurchase right lapses as to the option shares in a
series of 24 equal monthly installments from the grant date, but will become
fully vested if the board deems it desirable to avoid adverse accounting
treatment with respect to the option. Directors are eligible to participate in
our stock plans, and beginning in 1999, employee directors will also be able to
participate in our 1999 Equity Incentive Plan, and non-employee directors will
receive periodic option grants under our 1999 Non-Employee Director Option Plan.
See "Management--1999 Equity Incentive Plan."
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation we
paid in 1998 for services to us by our Chief Executive Officer and our four
other highest-paid executive officers whose total salary and bonus for such
fiscal year exceeded $100,000. Such officers are referred to in this prospectus
as the "Named Executive Officers."
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
--------------
NUMBER OF
ANNUAL SHARES OF
COMPENSATION(1) COMMON STOCK
-------------------- UNDERLYING ALL OTHER
SALARY($) BONUS($) OPTIONS COMPENSATION($)(4)
--------- -------- -------------- ---------------
<S> <C> <C> <C> <C>
Steven J. Snyder ....................... 130,000 10,000 -- (3) --
President and Chief Executive Officer
P. Stephen Larsen ...................... 175,000 23,500 70,000 --
Vice President of Marketing and
Business Development
Bradley N. Miller ...................... 105,000 10,000 -- (3) --
Vice President of Product Development
Paul Bieganski ......................... 120,000 20,000 -- 9,000
Chief Technical Officer
George E. Moser ........................ 122,500 82,500(2) 70,000 50,000
Vice President of Worldwide Sales
</TABLE>
- ---------
(1) Includes amounts deferred under our 401(k) plan.
(2) Includes commissions of $72,500.
(3) Dr. Snyder holds 396,416 shares of restricted stock purchased on July 3,
1996. Mr. Miller holds 303,141 shares of restricted stock purchased on July
3, 1996.
(4) Represents relocation expenses.
54
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options in 1998 to each
of the Named Executive Officers. No stock appreciation rights were granted
during such fiscal year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
---------------------------------------------------------------- RATES OF
NUMBER OF STOCK PRICE
SHARES OF PERCENT OF TOTAL APPRECIATION
COMMON STOCK OPTIONS GRANTED TO FOR OPTION
UNDERLYING EMPLOYEES IN EXERCISE PRICE TERM (4)
OPTIONS 1998 ($/SHARE) EXPIRATION --------------------
GRANTED (1) (2) (3) DATE 5%($) 10%($)
------------- ------------------- --------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Steven J. Snyder.............. -- -- -- -- -- --
P. Stephen Larsen............. 50,000 8.4% 0.50 5/26/08 15,722 39,844
20,000 3.3% 2.25 11/15/08 28,300 71,718
Bradley N. Miller............. -- -- -- -- -- --
Paul Bieganski................ -- -- -- -- -- --
George E. Moser............... 50,000 8.4% 0.50 5/26/08 15,722 39,844
20,000 3.3% 1.00 7/8/08 12,578 31,875
</TABLE>
- ---------
(1) Each of the options listed in the table is immediately exercisable. The
shares purchasable thereunder are subject to repurchase by us at the
original exercise price paid per share upon the optionee's cessation of
service prior to vesting in such shares. The repurchase right lapses and the
optionee vests in a series of 48 equal monthly installments. The option
shares will vest upon an acquisition of Net Perceptions by merger or asset
sale, unless our repurchase right with respect to the unvested option shares
is transferred to the acquiring entity. Each of the options has a ten year
term, subject to earlier termination in the event of the optionee's
cessation of service with us.
(2) Based on an aggregate of 598,282 options granted to employees of Net
Perceptions under the 1996 Stock Plan during the 12 months ended December
31, 1998.
(3) The exercise price was equal to the fair market value of our common stock as
valued by the board of directors on the date of grant. The exercise price
may be paid in cash, in shares of our common stock valued at fair market
value on the exercise date or through a cashless exercise procedure
involving a same-day sale of the purchased shares. We may also finance the
option exercise by loaning the optionee sufficient funds to pay the exercise
price for the purchased shares, together with any federal and state income
tax liability incurred by the optionee in connection with such exercise.
(4) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years). Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent our prediction of our stock price
performance. The potential realizable values at 5% and 10% appreciation are
calculated by assuming that the exercise price on the date of grant
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of
its term at the appreciated price.
In addition to the options listed in the table, in 1999 Dr. Bieganski
received an option to purchase 20,000 shares of common stock at an exercise
price of $11.00 per share. The option is immediately exercisable. The shares
purchasable thereunder are subject to repurchase by us at the original exercise
price paid per share upon the optionee's cessation of service prior to vesting
in such shares. The repurchase right lapses and optionee vests in a series of 48
equal monthly installments.
55
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth for each of the Named Executive Officers
options exercised in 1998 and the number and value of the shares of common stock
underlying unexercised options that are held by the Named Executive Officers as
of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, DECEMBER 31,
NUMBER OF VALUE 1998(2) 1998($)(3)
SHARES ACQUIRED REALIZED ------------------- ------------------
NAME ON EXERCISE ($)(1) VESTED UNVESTED VESTED UNVESTED
- ------------------------- --------------- ------------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Steven J. Snyder......... -- -- -- -- -- --
P. Stephen Larsen........ -- -- 7,707 62,293 41,660 308,339
Bradley N. Miller........ -- -- -- -- -- --
Paul Bieganski........... -- -- 23,333 46,667 134,164 268,335
George E. Moser.......... 60,000 93,000 14,583 80,417 80,988 437,762
</TABLE>
- ---------
(1) Equal to the fair market value of the purchased shares on the option
exercise date, less the exercise price paid for such shares.
(2) The options are immediately exercisable for all the option shares, but any
shares purchased under those options will be subject to repurchase by us, at
the original exercise price paid per share, upon the optionee's cessation of
service with us, prior to the vesting in such shares. The heading "Vested"
refers to shares no longer subject to repurchase as of December 31, 1998;
the heading "Unvested" refers to shares subject to repurchase as of December
31, 1998.
(3) Based on the fair market value of our common stock at the end of 1998 as
determined by our board of directors, $6.00, less the exercise price payable
for such shares.
CHANGE OF CONTROL ARRANGEMENTS/EMPLOYMENT AGREEMENTS
The compensation committee of the board of directors, as administrator of
the 1999 Equity Incentive Plan, can provide for accelerated vesting of the
shares of common stock subject to outstanding options held by any employee or
director of Net Perceptions in connection with certain changes in control of Net
Perceptions. The accelerated vesting may be conditioned on the termination of
the individual's employment following the change in control event.
On January 23, 1999, we entered into a severance agreement with George E.
Moser whereby we agreed to pay Mr. Moser three months salary if his employment
with us is terminated without cause on or before October 31, 1999.
All of our executive officers are eligible to participate in our Change in
Control Severance Plan. Under the Change in Control Severance Plan, if an
officer's employment is involuntarily terminated within 18 months after a change
in control or the officer declines a position with the acquiror in a change in
control, we will pay the officer severance benefits equal to six months of
salary.
1999 EQUITY INCENTIVE PLAN
Net Perceptions' 1999 Equity Incentive Plan was adopted by the board of
directors on February 4, 1999 and our stockholders will also be asked to approve
the adoption of the plan. We have reserved 400,000 shares of common stock for
issuance under the 1999 Equity Incentive Plan. Any shares not yet issued under
our 1996 Stock Plan as of the date of this offering will also be available for
grant under the 1999 Equity Incentive Plan. No additional shares or options will
be issued under our 1996 Stock Plan after the completion of this offering. As of
January 1 of each year, commencing with the year
56
<PAGE>
2000 and ending with the year 2002, the number of shares reserved for issuance
under the 1999 Equity Incentive Plan will be increased automatically by 5% of
the total number of shares of common stock then outstanding or, if less, by
750,000 shares. Under the 1999 Equity Incentive Plan, the eligible individuals
are: employees, non-employee members of the board of directors and consultants.
The types of awards that may be made under the 1999 Equity Incentive Plan are
options to purchase shares of common stock, stock appreciation rights,
restricted shares and stock units. Options may be incentive stock options that
qualify for favorable tax treatment for the optionee under Section 422 of the
Internal Revenue Code of 1986 or nonstatutory stock options not designed to
qualify for such favorable tax treatment. With limited restrictions, if shares
awarded under the 1999 Equity Incentive Plan or the 1996 Stock Plan are
forfeited, then those shares will again become available for new awards under
the 1999 Equity Incentive Plan.
Outstanding options under the 1996 Stock Plan will be incorporated into the
1999 Equity Incentive Plan at the time of this offering and no further option
grants will be made under the 1996 Stock Plan. The incorporated options will
continue to be governed by their existing terms, unless the committee elects to
extend one or more features of the 1999 Equity Incentive Plan to those options
or to other outstanding shares. The committee has elected to extend the change
in control acceleration feature of the 1999 Equity Incentive Plan to all
outstanding options and unvested shares. Previously, options granted under the
1996 Stock Plan provided that the shares would accelerate upon an acquisition
only if not assumed by the acquiring entity. The outstanding options under the
1996 Stock Plan contain substantially the same terms and conditions as specified
below for options granted under the 1999 Equity Incentive Plan.
The compensation committee of our board of directors administers the 1999
Equity Incentive Plan. The committee has complete discretion to make all
decisions relating to the interpretation and operation of the 1999 Equity
Incentive Plan, including the discretion to determine which eligible individuals
are to receive any award, and to determine the type, number, vesting
requirements and other features and conditions of each award.
The exercise price for incentive stock options granted under the 1999 Equity
Incentive Plan may not be less than 100% of the fair market value of the common
stock on the option grant date. The exercise price for non-qualified options
granted under the 1999 Equity Incentive Plan may not be less than 85% of the
fair market value of the common stock on the option grant date. The exercise
price may be paid in cash or in outstanding shares of common stock. The exercise
price may also be paid by using a cashless exercise method, a pledge of shares
to a broker or promissory note. The purchase price for newly issued restricted
shares awarded under the 1999 Equity Incentive Plan may be paid in cash, by
promissory note or by the rendering of past or future services.
The committee may reprice options and may modify, extend or assume
outstanding options and stock appreciation rights. The committee may accept the
cancellation of outstanding options or stock appreciation rights in return for
the grant of new options or stock appreciation rights. The new option or right
may have the same or a different number of shares and the same or a different
exercise price.
Upon certain defined events causing a change in control of Net Perceptions,
an option or other award under the 1999 Equity Incentive Plan will become fully
exercisable or fully vested if the option or award is not assumed by the
surviving corporation or its parent or if the surviving corporation or its
parent does not substitute another award on substantially the same terms. An
option or award will become fully exercisable or fully vested if the holder's
employment or service is involuntarily terminated within 18 months following the
change in control. Change in control includes:
- A merger or consolidation of Net Perceptions after which our then current
stockholders own less than 50% of the surviving corporation;
- Sale of all or substantially all of the assets of Net Perceptions;
57
<PAGE>
- A proxy contest that results in replacement of more than one-third of the
directors over a 24-month period; or
- An acquisition of 50% or more of Net Perceptions' outstanding stock by a
person other than by a person related to Net Perceptions, such as a
corporation owned by the stockholders of Net Perceptions.
In the event of a merger or other reorganization, the agreement of merger or
reorganization may provide that outstanding options and other awards under the
1999 Equity Incentive Plan shall be assumed by the surviving corporation or its
parent, shall be continued by us if we are a surviving corporation, shall have
accelerated vesting and then expire early or shall be cancelled for a cash
payment.
The board of directors may amend or terminate the 1999 Equity Incentive Plan
at any time. If the board of directors amends the plan, stockholder approval of
the amendment will be sought only if required by an applicable law. The 1999
Equity Incentive Plan will continue in effect indefinitely unless the board of
directors decides to terminate the plan.
EMPLOYEE STOCK PURCHASE PLAN
The board of directors adopted our Employee Stock Purchase Plan on February
4, 1999, and our stockholders will also be asked to approve the adoption of the
plan. We have reserved 500,000 shares of common stock for issuance under the
Employee Stock Purchase Plan. As of January 1 each year, the number of shares
reserved for issuance under the Employee Stock Purchase Plan will be increased
automatically by 2% of the total number of shares of common stock outstanding
or, if less, 300,000 shares. The Employee Stock Purchase Plan is intended to
qualify under Section 423 of the Internal Revenue Code. Two overlapping offering
periods each with a duration of 24 months will commence on May 1 and November 1
each calendar year. However, the first offering period will commence on the
effective date of this offering and end on April 30, 2001. Purchases of common
stock will occur on April 30 and October 31 each calendar year during an
offering period. The Employee Stock Purchase Plan will be administered by the
compensation committee of the board of directors. Each employee of Net
Perceptions is eligible to participate if he or she is employed by us for at
least 20 hours per week and for more than five months per year.
The Employee Stock Purchase Plan permits each eligible employee to purchase
common stock through payroll deductions. Each employee's payroll deductions may
not exceed 15% of the employee's cash compensation. The initial period during
which payroll deductions will be accumulated will begin on the effective date of
this offering and end on October 31, 1999. No more than 2,000 shares may be
purchased on any purchase date. The price of each share of common stock
purchased under the Employee Stock Purchase Plan will be 85% of the lower of (A)
the fair market value per share of common stock on the date immediately before
the first date of the applicable offering period or (B) the fair market value
per share of common stock on the purchase date. In the case of the first
offering period, the price per share under the plan will be 85% of the price
offered to the public in this offering. Employees may end their participation in
the Employee Stock Purchase Plan at any time. Participation ends automatically
upon termination of employment with us.
In the event of a change in control of Net Perceptions, the Employee Stock
Purchase Plan will end and shares will be purchased with the payroll deductions
accumulated to date by participating employees. The board of directors may amend
or terminate the Employee Stock Purchase Plan at any time. If the board of
directors increases the number of shares of common stock reserved for issuance
under the Employee Stock Purchase Plan, it must seek the approval of our
stockholders.
58
<PAGE>
1999 NON-EMPLOYEE DIRECTOR OPTION PLAN
Our 1999 Non-Employee Director Option Plan was adopted by the board of
directors on February 4, 1999, and our stockholders will also be asked to
approve the adoption of the plan. Under the 1999 Non-Employee Director Option
Plan, non-employee members of the board of directors will be eligible for
automatic option grants.
A maximum of 250,000 shares of common stock has been authorized for issuance
under the 1999 Non-Employee Director Option Plan. No shares have been issued yet
under the 1999 Non-Employee Director Option Plan.
The compensation committee of the board of directors will make any
administrative determinations under the 1999 Non-Employee Director Option Plan.
The exercise price for options granted under the 1999 Non-Employee Director
Option Plan may be paid in cash or in outstanding shares of common stock.
Options may also be exercised on a cashless basis through the same-day sale of
the purchased shares.
Each individual who first joins the board of directors as a non-employee
director on or after the effective date of this offering will receive at that
time an option grant for 10,000 shares of common stock. Each 10,000-share option
will vest over 24 months from the grant date, but vesting will accelerate to the
extent the Board deems it necessary to avoid adverse accounting treatment for
these options. Immediately prior to this offering, each non-employee director
will automatically be granted a stock option to purchase 5,000 shares of common
stock at the offering price. In addition, at each annual stockholders meeting,
beginning in 2000, each non-employee director will automatically be granted at
that meeting, whether or not he or she is standing for re-election at that
particular meeting, a stock option to purchase 5,000 shares of common stock.
Each 5,000-share option will become exercisable for 100% of the shares at grant.
Each option will have an exercise price equal to the fair market value of the
common stock on the automatic grant date. Each option will have a maximum term
of ten years, but will terminate earlier if the optionee ceases to be a member
of the board of directors. Each option will fully vest automatically upon a
change in control.
The board of directors may amend or modify the 1999 Non-Employee Director
Option Plan at any time. The 1999 Non-Employee Director Option Plan will
terminate on February 3, 2009, unless the board of directors decides to
terminate the plan sooner.
59
<PAGE>
CERTAIN TRANSACTIONS
Since July 3, 1996 (inception), we have issued and sold preferred stock to
the following persons who are our principal stockholders or directors.
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
SERIES A SERIES B SERIES C
PREFERRED PREFERRED PREFERRED
INVESTOR(1) STOCK(2) STOCK(3) STOCK(4)
- --------------------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Entities affiliated with Hummer Winblad Venture
Partners(5)............................................ 1,017,399 386,474 203,584
Vulcan Ventures Inc...................................... -- 966,184 203,584
Entities affiliated with St. Paul Fire & Marine Insurance
Company................................................ -- 579,710 244,300
London Pacific Life & Annuity Company.................... -- -- 1,302,932
Entities affiliated with JAFCO Co. Ltd................... -- -- 325,731
</TABLE>
- ---------
(1) Shares held by all affiliated persons and entities have been aggregated. See
"Principal Stockholders" for more detail on shares held by these purchasers.
(2) The per share purchase price for the Series A Preferred Stock was $0.60 on
August 2, 1996.
(3) The per share purchase price for the Series B Preferred Stock was $2.07 on
December 4, 1996.
(4) The per share purchase price for the Series C Preferred Stock was $3.07 on
December 18, 1997 and February 20, 1998.
(5) Ann L. Winblad, one of our directors, is an affiliate of each of the
entities affiliated with Hummer Winblad Venture Partners.
On January 23, 1999, we entered into a severance agreement with George E.
Moser whereby we agreed to pay Mr. Moser three months salary if his employment
with us is terminated without cause on or before October 31, 1999.
In addition, we have granted options to some of our directors and executive
officers. See "Management--Option Grants in the Last Fiscal Year" and "Principal
Stockholders."
We have entered into an indemnification agreement with each of our officers
and directors.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested outside directors on the board of directors, and will continue to
be on terms no less favorable to us than could be obtained from unaffiliated
third parties.
60
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
our common stock as of December 31, 1998, and as adjusted to reflect the sale of
shares offered hereby by (A) each person who we know to own beneficially more
than five percent of our common stock and one additional investor, (B) each of
the Named Officers, (C) each of our directors, and (D) all current directors and
executive officers as a group.
<TABLE>
<CAPTION>
PERCENT
SHARES BENEFICIALLY
BENEFICIALLY OWNED(1)(2)(3)
OWNED(1)(2) --------------
5% STOCKHOLDERS, NAMED OFFICERS, DIRECTORS, ---------- BEFORE AFTER
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER OFFERING OFFERING
- ------------------------------------------------------------ ---------- ----- ----
<S> <C> <C> <C>
Entities Affiliated with Hummer Winblad Venture 1,607,457 18.6% --%
Partners(4) ..............................................
Two South Park, 2nd Floor
San Francisco, California 94107
London Pacific Life & Annuity Company ...................... 1,302,932 15.1% --
3109 Poplarwood Court, Suite 108
Raleigh, North Carolina 27604
Vulcan Ventures Inc.(5) .................................... 1,169,768 13.5% --
10 110th Avenue, N.E., Suite 550
Bellevue, Washington 98004
Steven J. Snyder ........................................... 1,001,472 11.6% --
7901 Flying Cloud Drive
Minneapolis, Minnesota 55344
Entities Affiliated with St. Paul Fire & Marine Insurance 824,010 9.5% --
Company(6) .
8500 Normandale Lake Blvd.
Suite 1940
Bloomington, Minnesota 55437
Bradley N. Miller .......................................... 765,831 8.9% --
7901 Flying Cloud Drive
Minneapolis, Minnesota 55344
John T. Riedl .............................................. 559,647 6.5% --
7901 Flying Cloud Drive
Minneapolis, Minnesota 55344
Entities affiliated with JAFCO Co. Ltd.(7) ................. 325,731 3.8% --
1 Boston Place, Suite 3320
Boston, Massachusetts 02108
P. Stephen Larsen(8)........................................ 210,000 2.4% --
George E. Moser(9).......................................... 155,000 1.8% --
Paul Bieganski(10).......................................... 70,000 * --
Ann L. Winblad(4)........................................... 1,607,457 18.6% --
Kevin Ober(5)............................................... 1,169,768 13.5% --
All directors and executive officers as a group(11) (9 5,619,175 62.9% --
persons)..................................................
</TABLE>
- ---------
* Less than 1%.
61
<PAGE>
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock.
(2) The number of shares of common stock deemed outstanding prior to this
offering includes the shares issuable pursuant to stock options and warrants
that may be exercised within 60 days after December 31, 1998. The number of
shares of common stock outstanding after this offering includes the
shares of common stock we are offering in this offering and the
shares of common stock issuable upon conversion of a convertible
promissory note as of the closing of this offering. Douglas J. Burgum joined
our board of directors on January 26, 1999 and was granted options
immediately exercisable for 15,000 shares. The principal stockholders table
does not reflect Mr. Burgum's stock options.
(3) Assumes no exercise of the underwriters' over-allotment option.
(4) Consists of 1,347,717 shares held by Hummer Winblad Venture Partners II,
L.P., 47,732 shares held by Hummer Winblad Technology Fund II, L.P., 8,424
shares held by Hummer Winblad Technology Fund IIA, L.P., 193,405 shares held
by Hummer Winblad Venture Partners III, L.P., and 10,179 shares held by
Hummer Winblad Technology Fund III, L.P. Ms. Winblad, one of our directors,
is an affiliate of Hummer Winblad Venture Partners. Ms. Winblad disclaims
beneficial ownership of the shares held by the entities affiliated with
Hummer Winblad Venture Partners, except to the extent of her pecuniary
interest therein.
(5) Mr. Ober is an affiliate of Vulcan Ventures Inc. Mr. Ober resigned from our
board of directors in January 1999. Mr. Ober disclaims beneficial ownership
of the shares held by Vulcan Ventures Inc., except to the extent of his
pecuniary interest therein.
(6) Consists of 579,710 shares held by St. Paul Fire & Marine Insurance Company
and 244,300 shares held by St. Paul Venture Capital IV, LLC.
(7) Includes 260,584 shares held by U.S. Information Technology No. 2 Investment
Partnership, 26,059 shares held by JAFCO G-6(B) Investment Partnership, and
26,059 shares held by JAFCO G-6(A) Investment Partnership.
(8) Includes options immediately exercisable for 70,000 shares.
(9) Includes options immediately exercisable for 95,000 shares.
(10) Includes options immediately exercisable for 70,000 shares. Excludes
options immediately exercisable for 20,000 shares, which were granted in
January 1999.
(11) Includes options immediately exercisable for 283,000 shares.
62
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock,
$.0001 par value, and 5,000,000 shares of preferred stock, $.0001 par value,
after giving effect to the amendment and restatement of our certificate of
incorporation to delete references to Series A, Series B and Series C Preferred
Stock, which will occur upon conversion of such preferred stock into common
stock upon the closing of this offering, and the subsequent authorization of
shares of undesignated preferred stock, as described below.
COMMON STOCK
As of December 31, 1998, there were 8,651,004 shares of common stock
outstanding that were held of record by approximately 41 stockholders after
giving effect to the conversion of our Series A, Series B and Series C Preferred
Stock into common stock at a one-to-one ratio. There will be shares of
common stock outstanding (assuming no exercise of the underwriters'
over-allotment option and assuming no exercise after December 31, 1998 of
outstanding options) after giving effect to the sale of the shares of common
stock to the public offered hereby, the issuance of shares of common
stock upon conversion of a convertible promissory note as of the closing of this
offering and the conversion of our Series A, Series B and Series C Preferred
Stock into common stock at a one-to-one ratio.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available therefor. See
"Dividend Policy." In the event of the liquidation, dissolution or winding up of
Net Perceptions, the holders of our common stock are entitled to share ratably
in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. The common
stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
On the closing of this offering, our amended and restated certificate of
incorporation will authorize 5,000,000 shares of preferred stock. The board of
directors has the authority to issue the preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of Net
Perceptions without further action by the stockholders. For example, the board
of directors could issue preferred stock that has the power to prevent a change
of control transaction. The issuance of preferred stock with voting and
conversion rights may adversely affect the voting power of the holders of common
stock, including the loss of voting control to others. We currently have no
plans to issue any of the preferred stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
DELAWARE LAW
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Amended and Restated Certificate of Incorporation provides that all
stockholder actions must be effected at a duly called meeting and not by a
consent in writing. This provision could discourage
63
<PAGE>
potential acquisition proposals and could delay or prevent a change of control
of Net Perceptions because a potential acquisition of Net Perceptions could not
be approved by the stockholders without a duly called meeting. See "Risk
Factors--Effect of certain charter provisions; antitakeover effects of
certificate of incorporation and Delaware law."
DELAWARE TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to various exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless: (A) prior to such date, the board of directors
of the corporation approved either the business combination or the transaction
that resulted in the stockholder becoming an interested stockholder; (B) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (1) by persons who are directors and also
officers and (2) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (C) on or subsequent to
such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (A) any merger or
consolidation involving the corporation and the interested stockholder; (B) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (C) subject to various
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (D)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (E) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
REGISTRATION RIGHTS
After this offering, the holders of shares of common stock will be
entitled to rights with respect to the registration of such shares under the
Securities Act of 1933. The holders of registration rights are those investors
that purchased shares of our Series A, Series B and Series C Preferred Stock,
and the holder of a convertible promissory note, as well as some of our present
and former officers and founders. Under the terms of the agreements between us
and the holders of such registrable securities, if we propose to register any of
our securities under the Securities Act, either for our own account or for the
account of other security holders exercising registration rights, such holders
are entitled to notice of such registration and are entitled to include shares
of such common stock in such registration. Some of such stockholders benefiting
from these rights may also require us to file a registration statement under the
Securities Act at our expense with respect to their shares of common stock, and
we are required to use our diligent reasonable efforts to effect such
registration. Further, holders may require us to file additional registration
statements on Form S-3 at our expense. These rights are subject to conditions
and limitations, among them the right of the underwriters of an offering to
limit the number of shares included in such registration in certain
circumstances.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is Norwest Bank
Minnesota, N.A.
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Therefore, future sales of substantial amounts of our common stock in the public
market could adversely affect market prices prevailing from time to time.
Furthermore, since only a limited number of shares will be available for sale
shortly after this offering because of existing contractual and legal
restrictions on resale (as described below), sales of substantial amounts of our
common stock in the public market after the restrictions lapse could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.
Upon completion of this offering, we will have shares of common
stock outstanding assuming no exercise of options and warrants outstanding as of
December 31, 1998, the conversion of all outstanding shares of preferred stock
and the conversion of a convertible promissory note upon the closing of this
offering. Of these shares, shares sold in this offering will be freely
transferable without restriction or registration under the Securities Act,
except for any shares purchased by one of our existing "affiliates," as that
term is defined by the Securities Act, which shares will be subject to the
resale limitations of Rule 144 adopted under the Securities Act. The remaining
shares of common stock existing are "restricted shares" as defined in Rule
144. Restricted shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144 or 701 of the
Securities Act. As a result of the contractual restrictions described below and
the provisions of Rules 144 and 701, additional shares will be available for
sale in the public market as follows: (A) no restricted shares will be eligible
for immediate sale on the date of this prospectus, (B) 8,651,004 restricted
shares will be eligible for sale upon expiration of lock-up agreements 180 days
after the date of this prospectus subject to Rule 144 and (C) restricted
shares will be eligible for sale one year after the date of this prospectus,
subject to Rule 144.
All officers, directors and stockholders have agreed not to offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock, or enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the common stock, for a
period of 180 days after the date of this prospectus, without the prior written
consent of BancBoston Robertson Stephens. However, these contractual
restrictions may be released prior to expiration of the lock-up period.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person (or persons whose shares are
aggregated) who owns shares that were purchased from us (or any affiliate) at
least one year previously, is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of our then-outstanding
shares of common stock ( shares immediately after this offering) or the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission. Sales under Rule 144 are also
subject to manner of sale provisions, notice requirements and the availability
of current public information about us. Any person (or persons whose shares are
aggregated) who is not deemed to have been one of our affiliates at any time
during the three months preceding a sale, and who owns shares within the
definition of "restricted securities" under Rule 144 that were purchased from us
(or any affiliate) at least two years previously, would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.
Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from us by our employees, directors, officers,
consultants or advisers prior to the date we become subject to the
65
<PAGE>
reporting requirements of the Securities Exchange Act of 1934, or the Exchange
Act, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Securities and
Exchange Commission has indicated that Rule 701 will apply to typical stock
options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of this prospectus).
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 90 days after the
date of this prospectus, may be sold by persons other than affiliates subject
only to the manner of sale provisions of Rule 144 and by affiliates under Rule
144 without compliance with its minimum holding period requirements.
After this offering pursuant to this prospectus, the holders of shares
of common stock, or their transferees, will be entitled to various rights with
respect to the registration of such shares under the Securities Act.
Registration of such shares under the Securities Act would result in such shares
becoming freely tradable without restriction under the Securities Act (except
for shares purchased by affiliates) immediately upon the effectiveness of such
registration. See "Description of Capital Stock-- Registration Rights."
We have agreed not to offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock, or enter into any swap or
similar agreement that transfers, in whole or in part, the economic risk of
ownership of the common stock, for a period of 180 days after the date of this
prospectus, without the prior written consent of BancBoston Robertson Stephens,
subject to limited exceptions.
As of December 31, 1998, options to purchase a total of 704,282 shares of
common stock pursuant to our 1996 Stock Plan were outstanding and exercisable.
All of the shares subject to options are subject to lock-up agreements. As of
December 31, 1998, a warrant to purchase up to 5,991 shares of common stock was
outstanding and exercisable. An additional 529,064 shares of common stock were
available for future option grants under the 1996 Stock Plan. On February 4,
1999, we adopted, subject to stockholder approval, the 1999 Stock Option Plan to
replace the 1996 Stock Plan, with an increase of shares available for issuance
thereunder of 400,000 shares, plus an additional number of shares equal to 5% of
the shares outstanding on the first day of 2000, 2001 and 2002. In addition, on
February 4, 1999, we adopted, subject to stockholder approval, the Employee
Stock Purchase Plan, and reserved 500,000 shares of common stock for issuance
thereunder, and the 1999 Non-Employee Director Option Plan, and reserved 250,000
shares of common stock for issuance thereunder. See "Management--1999 Equity
Incentive Plan," "--Employee Stock Purchase Plan," "--1999 Non-Employee Director
Option Plan" and Note of Notes to Financial Statements.
We intend to file registration statements under the Securities Act covering
approximately shares of common stock subject to outstanding options
or issuable pursuant to our 1999 Equity Incentive Plan and 1999 Non-Employee
Director Option Plan, and 500,000 shares of common stock issuable pursuant to
our Employee Stock Purchase Plan. We expect to file the registration statement
covering shares issuable pursuant to the Employee Stock Purchase Plan on the
effective date of this offering and to file the registration statement covering
shares offered pursuant to the 1999 Equity Incentive Plan and 1999 Non-Employee
Director Option Plan approximately 30 days after the closing of this offering.
Shares registered under such registration statements will, subject to Rule 144
volume limitations applicable to affiliates, be available for sale in the open
market, except to the extent that such shares are subject to vesting
restrictions with us or the contractual restrictions described above. See
"Management--1999 Equity Incentive Plan," "--Employee Stock Purchase Plan" and
"--1999 Non-Employee Director Option Plan."
66
<PAGE>
UNDERWRITING
The Underwriters, BancBoston Robertson Stephens Inc, Hambrecht & Quist LLC
and Piper Jaffray Inc., have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from us the numbers of
shares of common stock set forth opposite their respective names below. The
Underwriters are committed to purchase and pay for all such shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- -----------
<S> <C>
BancBoston Robertson Stephens Inc.................................................
Hambrecht & Quist LLC.............................................................
Piper Jaffray Inc.................................................................
-----------
Total...........................................................................
-----------
-----------
</TABLE>
The Underwriters have advised us that the Underwriters propose to offer the
shares of common stock to the public at the price to the public set forth on the
cover page of this prospectus and to certain dealers at such price less a
concession of not more than $ per share, of which $ may be reallowed
to other dealers. After the public offering, the public offering price,
concession and reallowance to dealers may be reduced by the Underwriters. No
such reduction shall change the amount of proceeds to be received by us as set
forth on the cover page of this prospectus.
We have granted to the Underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the initial public offering
price per share set forth on the cover of this prospectus. To the extent that
the Underwriters exercise such option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
shares that the number of shares of common stock to be purchased by it shown in
the above table represents as a percentage of the total number of shares offered
hereby. If purchased, such additional shares will be sold by the Underwriters on
the same terms as those on which the shares offered hereby are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and us against enumerated civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Pursuant to the terms of lock-up agreements, the holders of shares of
our common stock (including shares of common stock issuable upon
conversion of outstanding preferred stock and shares issuable upon
conversion of an outstanding convertible promissory note), have agreed, for a
period of up to 180 days after the date of this prospectus, that, subject to
exceptions, they will not contract to sell or otherwise dispose of any shares of
common stock, any options or warrants to purchase shares of common stock or any
securities convertible into, or exchangeable for, shares of common stock, owned
directly by such holders or with respect to which they have the power of
disposition, without the prior written consent of BancBoston Robertson Stephens.
BancBoston Robertson Stephens may, in its sole discretion, and at any time
without notice, release all or any portion of the securities subject to the
lock-up agreements. All of the shares of common stock subject to the lock-up
agreements will be eligible for sale in the public market upon the expiration of
the lock-up agreements, subject in the case of any restricted shares to Rule
144.
In addition, we have agreed that until 180 days after the date of this
prospectus, we will not, without the prior written consent of BancBoston
Robertson Stephens, subject to exceptions, offer, sell,
67
<PAGE>
contract to sell or otherwise dispose of any shares of common stock, any options
or warrants to purchase any shares of common stock or any securities convertible
into, exercisable for or exchangeable for shares of common stock other than our
sale of shares in this offering, the issuance of shares of common stock upon the
exercise of outstanding options and warrants and the conversion of shares of
preferred stock and the grant of options to purchase shares of common stock
under existing employee stock option or stock purchase plans. See "Shares
Eligible for Future Sale."
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the common stock
offered hereby was determined through negotiations among us and the
Underwriters. Among the factors considered in such negotiations were prevailing
market conditions, our financial information, market valuations of other
companies that we and the Underwriters believe to be comparable to us, estimates
of our business potential, our present state of development and other factors
deemed relevant.
At the request of Net Perceptions, the Underwriters have reserved up to
shares of common stock to be issued by Net Perceptions and offered hereby
for sale, at the initial public offering price, to directors, officers,
employees, business associates and related persons of Net Perceptions. The
number of shares of common stock available for sale to the general public will
be reduced to the extent such individuals purchase such reserved shares. Any
reserved shares that are not so purchased will be offered by the Underwriters to
the general public on the same basis as the other shares offered hereby.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The Underwriters have advised us that, pursuant to Regulation M under the
Securities Act, some persons participating in the offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, which may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the Underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or the purchase of the common stock on behalf of the
Underwriters to reduce a short position incurred by the Underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
Underwriters to reclaim the selling concession otherwise accruing to an
Underwriter or syndicate member in connection with the offering if the common
stock originally sold by such Underwriter or syndicate member is purchased by
the Underwriters in a syndicate covering transaction and has therefore not been
effectively placed by such Underwriter or syndicate member. The Underwriters
have advised us that such transactions may be effected on the Nasdaq National
Market or otherwise and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, Menlo Park, California. Members of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, participating in the consideration of legal matters
relating to the common stock offered in this offering are the beneficial owners
of 33,333 shares of our common stock. Legal matters in connection with this
offering will be passed upon for the underwriters by Cooley Godward LLP, San
Francisco, California.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for the period
from July 3, 1996 to December 31, 1996 and for each of the two years in the
period ended December 31, 1998 included in this Prospectus have been so included
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
68
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the common stock offered hereby. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits and
schedules to the registration statement. For further information with respect to
us and such common stock offered hereby, reference is made to the registration
statement and the exhibits and schedules filed as a part of the registration
statement. Statements contained in this prospectus concerning the contents of
any contract or any other document referred to are not necessarily complete;
reference is made in each instance to the copy of such contract or document
filed as an exhibit to the registration statement. Each such statement is
qualified in all respects by such reference to such exhibit. The registration
statement, including exhibits and schedules thereto, may be inspected without
charge at the Commission's principal office in Washington, D.C., and copies of
all or any part thereof may be obtained from such office after payment of fees
prescribed by the Commission.
69
<PAGE>
NET PERCEPTIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Financial Statements:
Balance Sheet as of December 31, 1997 and 1998........................................................... F-3
Statement of Operations for the Period from July 3, 1996 (Inception) to December 31, 1996 and for the
Years Ended December 31, 1997 and 1998................................................................. F-4
Statement of Stockholders' Equity for the Period from July 3, 1996 (Inception) to December 31, 1996 and
for the Years Ended December 31, 1997 and 1998......................................................... F-5
Statement of Cash Flows for the Period from July 3, 1996 (Inception) to December 31, 1996 and for the
Years Ended December 31, 1997 and 1998................................................................. F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Net Perceptions, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Net Perceptions, Inc. at December
31, 1997 and 1998, and the results of its operations and its cash flows for the
period from July 3, 1996 (inception) to December 31, 1996 and for each of the
two years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 4, 1999
F-2
<PAGE>
NET PERCEPTIONS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 1,407 $ 972
Short-term investments.................................................................... 3,439 --
Accounts receivable, net.................................................................. 164 3,382
Prepaid expenses and other current assets................................................. 133 142
--------- ----------
Total current assets.................................................................... 5,143 4,496
--------- ----------
Property and equipment, net................................................................. 389 1,019
Other assets................................................................................ 43 122
--------- ----------
Total assets............................................................................ $ 5,575 $ 5,637
--------- ----------
--------- ----------
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 280 $ 256
Accrued expenses.......................................................................... 222 1,410
Deferred revenue.......................................................................... 81 2,107
Current portion of capital lease obligations.............................................. 118 255
--------- ----------
Total current liabilities............................................................... 701 4,028
--------- ----------
Long-term liabilities:
Capital lease obligations, net of current portion......................................... 345 538
--------- ----------
Total liabilities....................................................................... 1,046 4,566
--------- ----------
Commitments and contingencies (Notes 7 and 8)
Series A Convertible Redeemable Preferred Stock; $.0001 par value; 1,085,000 shares
authorized; 1,084,065 shares issued and outstanding at redemption value................... 650 650
--------- ----------
Stockholders' equity:
Series B Convertible Preferred Stock; $.0001 par value; 2,000,000 shares authorized;
1,932,368 shares issued and outstanding................................................. -- --
Series C Convertible Preferred Stock; $.0001 par value; 2,400,000 shares authorized;
1,959,612 and 2,317,917 shares issued and outstanding, respectively..................... -- --
Common stock; $.0001 par value; 30,000,000 shares authorized; 3,138,696 and 3,316,654
shares issued and outstanding, respectively............................................. 1 1
Additional paid-in capital................................................................ 9,627 11,000
Accumulated deficit....................................................................... (5,749) (10,580)
--------- ----------
Total stockholders' equity.............................................................. 3,879 421
--------- ----------
Total liabilities, convertible redeemable preferred stock and stockholders' equity...... $ 5,575 $ 5,637
--------- ----------
--------- ----------
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE>
NET PERCEPTIONS, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FROM JULY 3,
1996
(INCEPTION) TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
--------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Product.......................................................... $ -- $ 284 $ 3,955
Service and maintenance.......................................... 4 33 522
--------------- ------------ ------------
Total revenues................................................. 4 317 4,477
--------------- ------------ ------------
Cost of revenues:
Product.......................................................... -- 14 52
Service and maintenance.......................................... 2 30 373
--------------- ------------ ------------
Total cost of revenues......................................... 2 44 425
--------------- ------------ ------------
Gross margin....................................................... 2 273 4,052
--------------- ------------ ------------
Operating expenses:
Sales and marketing.............................................. 454 3,063 5,150
Research and development......................................... 378 1,372 2,347
General and administrative....................................... 210 585 1,450
--------------- ------------ ------------
Total operating expenses....................................... 1,042 5,020 8,947
--------------- ------------ ------------
Loss from operations............................................... (1,040) (4,747) (4,895)
--------------- ------------ ------------
Other income (expense):
Interest income.................................................. 18 87 197
Interest expense................................................. (3) (56) (89)
Other expense.................................................... (2) (6) (44)
--------------- ------------ ------------
Total other income............................................. 13 25 64
--------------- ------------ ------------
Net loss........................................................... $ (1,027) $ (4,722) $ (4,831)
--------------- ------------ ------------
--------------- ------------ ------------
Basic and diluted net loss per share............................... $ (6.80) $ (6.02) $ (2.73)
--------------- ------------ ------------
--------------- ------------ ------------
Shares used in computing basic and diluted net loss per share...... 151,070 784,622 1,772,758
--------------- ------------ ------------
--------------- ------------ ------------
Unaudited pro forma basic and diluted net loss per share........... $ (0.68)
------------
------------
Shares used in computing unaudited pro forma basic and diluted net
loss per share................................................... 7,056,348
------------
------------
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE>
NET PERCEPTIONS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SERIES B CONVERTIBLE SERIES C CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ---------------------- ---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ----------- --------- ----------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of common stock to
founders in July 1996....... -- $ -- -- $ -- 2,965,571 $ 1 $ 3 $ --
Sale of common stock from
September - November 1996... -- -- -- -- 111,000 -- 7 --
Sale of Series B Preferred
Stock in December 1996, net
of $33 of issuance costs.... 1,932,368 -- -- -- -- -- 3,966 --
Net loss...................... -- -- -- -- -- -- -- (1,027)
--------- ----------- --------- ----------- --------- ----- ----------- ------------
Balance, December 31, 1996.... 1,932,368 -- -- -- 3,076,571 1 3,976 (1,027)
Repurchase of common stock.... -- -- -- -- (91,000) -- (5) --
Exercise of stock options..... -- -- -- -- 153,125 -- 31 --
Sale of Series C Preferred
Stock in December 1997, net
of $391 of issuance costs... -- -- 1,959,612 -- -- -- 5,625 --
Net loss...................... -- -- -- -- -- -- -- (4,722)
--------- ----------- --------- ----------- --------- ----- ----------- ------------
Balance, December 31, 1997.... 1,932,368 -- 1,959,612 -- 3,138,696 1 9,627 (5,749)
Exercise of stock options..... -- -- -- -- 177,958 -- 54 --
Compensation relating to stock
options..................... -- -- -- -- -- -- 229 --
Sale of Series C Preferred
Stock in February 1998, net
of $9 of issuance costs..... -- -- 358,305 -- -- -- 1,090 --
Net loss...................... -- -- -- -- -- -- -- (4,831)
--------- ----------- --------- ----------- --------- ----- ----------- ------------
Balance, December 31, 1998.... 1,932,368 $ -- 2,317,917 $ -- 3,316,654 $ 1 $ 11,000 $ (10,580)
--------- ----------- --------- ----------- --------- ----- ----------- ------------
--------- ----------- --------- ----------- --------- ----- ----------- ------------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Sale of common stock to
founders in July 1996....... $ 4
Sale of common stock from
September - November 1996... 7
Sale of Series B Preferred
Stock in December 1996, net
of $33 of issuance costs.... 3,966
Net loss...................... (1,027)
-------------
Balance, December 31, 1996.... 2,950
Repurchase of common stock.... (5)
Exercise of stock options..... 31
Sale of Series C Preferred
Stock in December 1997, net
of $391 of issuance costs... 5,625
Net loss...................... (4,722)
-------------
Balance, December 31, 1997.... 3,879
Exercise of stock options..... 54
Compensation relating to stock
options..................... 229
Sale of Series C Preferred
Stock in February 1998, net
of $9 of issuance costs..... 1,090
Net loss...................... (4,831)
-------------
Balance, December 31, 1998.... $ 421
-------------
-------------
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
NET PERCEPTIONS, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FROM JULY 3,
1996
(INCEPTION) TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
--------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $ (1,027) $ (4,722) $ (4,831)
Reconciliation of net loss to net cash used by operating
activities:
Depreciation and amortization.................................. 6 140 284
Provision for doubtful accounts................................ -- 28 294
Compensation related to stock options.......................... -- -- 229
Changes in assets and liabilities:
Accounts receivable.......................................... (5) (187) (3,512)
Prepaid expenses and other current assets.................... (139) 6 (9)
Accounts payable............................................. 232 48 (24)
Accrued expenses............................................. 153 68 1,188
Deferred revenue............................................. -- 81 2,026
Other assets................................................. (22) (25) (79)
------- ------------ ------------
Net cash used by operating activities...................... (802) (4,563) (4,434)
------- ------------ ------------
Cash flows from investing activities:
Purchases of short-term investments.............................. (1,757) (3,439) --
Sales of short-term investments.................................. -- 1,757 3,439
Purchases of property and equipment.............................. (2) -- (442)
------- ------------ ------------
Net cash provided (used) by investing activities........... (1,759) (1,682) 2,997
------- ------------ ------------
Cash flows from financing activities:
Principal payments under capital lease obligations............... (2) (63) (142)
Proceeds from sale of preferred stock............................ 4,616 5,625 1,090
Proceeds from the sale of common stock........................... 11 -- --
Proceeds from exercise of stock options, net of redemptions...... -- 26 54
------- ------------ ------------
Net cash provided by financing activities.................. 4,625 5,588 1,002
------- ------------ ------------
Net increase (decrease) in cash and cash equivalents............... 2,064 (657) (435)
Cash and cash equivalents at beginning of period................... -- 2,064 1,407
------- ------------ ------------
Cash and cash equivalents at end of period......................... $ 2,064 $ 1,407 $ 972
------- ------------ ------------
------- ------------ ------------
Supplemental schedule of non-cash investing and financing
activities:
Capital lease obligations incurred............................... $ 115 $ 414 $ 472
Supplemental schedule of cash activity:
Interest paid.................................................... $ 2 $ 52 $ 91
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE>
NET PERCEPTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION
Net Perceptions, Inc. (the "Company") was incorporated under the laws of the
state of Delaware on July 3, 1996. The Company develops, markets and supports
real-time relationship marketing software solutions. The Company's core
technology, the Net Perceptions Recommendation Engine, enables these
capabilities to be embedded in a variety of applications offered over the web
and in other environments. All product and service revenues through December 31,
1998 have been attributable to the Company's Net Perceptions for E-commerce
product. Sales to customers located outside of the United States totaled 27% and
13% of total revenues in 1997 and 1998, respectively. International sales to one
customer in Japan totaled 22% of total 1997 revenues. International sales to
customers in any one individual foreign country were not material in 1998.
The Company is subject to risks and uncertainties common to rapidly growing
technology-based companies, including rapid technological change, growth of the
Internet and electronic commerce, dependence on principal products and
third-party technology, new product development and acceptance, actions of
competitors, dependence on key personnel, international expansion, lengthy sales
cycle and limited operating history.
The Company has sustained losses and negative cash flows from operations
since inception and expects these conditions to continue for the foreseeable
future. As of December 31, 1998, the Company had an accumulated deficit of
$10,580. The implementation of the Company's business plan is dependent on
sufficient capital. In January 1999, the board of directors authorized the
Company to proceed with an initial public offering ("IPO"). In February 1999, an
international corporate investor loaned $4,000 to the Company at an interest
rate of 8.0%. The loan and accrued interest will be automatically converted into
the same class and series of equity security as issued in the Company's next
round of equity financing upon the closing of the next round. The loan is
unsecured and due with accrued interest on January 31, 2000, unless previously
converted. There can be no assurance that an IPO will be completed. If it does
not occur, the Company intends to seek additional financing through other
sources including its current venture capital shareholders, other institutions
or strategic relationships. There can be no assurance that such additional
financing will be available on terms attractive to the Company, or at all.
Should additional financing not be available, management believes that the
Company's current growth plans would need to be curtailed, but that sufficient
funds would be available from existing credit and working capital to fund
operations through 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company's revenues are derived from licenses for its software as well as
software maintenance and support, training and consulting services. The Company
adopted American Institute of Certified
F-7
<PAGE>
NET PERCEPTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Public Accountants Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," as amended by SOP 98-4 effective January 1, 1998. The adoption did
not have a material effect on the timing of the Company's revenue recognition or
cause changes to its revenue recognition policies.
Revenues derived from software licenses are recognized upon (a) the
execution of a license agreement, (b) delivery of the software product, (c)
reasonable assurance of collectibility of the receivable, and (d) fulfillment of
any other of the Company's significant contract obligations. For software
provided for demonstration purposes, or where significant post-delivery
obligations exist, revenues are deferred until execution of a license agreement
and fulfillment of all revenue recognition requirements. Under arrangements
where both services and software are sold under one contract, revenue is
allocated to each element based on their respective fair values, with these fair
values being determined using the price charged when that element is sold
separately.
Maintenance and support revenues are deferred and recognized ratably over
the term of the contract, which is typically twelve months. Revenues from
training and consulting are recognized when the services are performed.
The allowance for doubtful accounts was $28 and $300 at December 31, 1997
and 1998, respectively. A separate allowance for estimated future returns is
recorded as a liability at the time revenue is recognized based on the Company's
return policies.
CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to credit risk
consist primarily of accounts receivable. To minimize this risk, ongoing credit
evaluations of customers' condition are performed. The Company grants credit to
customers in the ordinary course of business. Two customers accounted for
approximately 22% and 19% of total revenues during 1997. Receivables from one
customer in 1997 represented approximately 43% of total receivables at December
31, 1997. There were no customers in 1998 that exceeded 10% of total revenues or
10% of total receivables at December 31, 1998.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents consist principally of money market funds with original
maturities of three months or less, are readily convertible to cash and are
stated at cost, which approximates fair value. Short-term investments were
classified in the balance sheet based on their maturity date. At December 31,
1997 all of the Company's short-term investments were classified as
available-for-sale. At December 31, 1997, the estimated fair value of the
securities approximated their amortized cost and any unrealized holding gains or
losses were not significant.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, which include
cash equivalents, accounts receivable, accounts payable, accrued expenses and
capital lease obligations, approximate their fair values at December 31, 1998.
F-8
<PAGE>
NET PERCEPTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The majority of the Company's
property and equipment have been acquired with capital leases. Depreciation and
amortization are computed using the straight-line method over the shorter of the
estimated useful lives of the individual assets or the lease term. Estimated
useful lives generally range from three to five years.
OTHER ASSETS
Other assets consist primarily of capital and operating lease deposits.
RESEARCH AND DEVELOPMENT
Research and development expenditures, which include software development
costs, are expensed as incurred. Statement of Financial Accounting Standards
("SFAS") No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased or Otherwise Marketed," requires the capitalization of certain software
development costs once technological feasibility is established, which the
Company defines as the completion of a working model. To date, the period
between achieving technological feasibility and the general availability of such
software has been short and software development costs qualifying for
capitalization have been insignificant. Accordingly, the Company has not
capitalized any software development costs.
INCOME TAXES
The Company calculates income taxes in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes", which requires the use of the
liability method of accounting for income taxes. Income taxes are deferred for
all temporary differences between the financial statement and income tax basis
of assets and liabilities. Deferred taxes are recorded using the enacted tax
rates scheduled by tax law to be in effect when the temporary differences are
expected to be settled or realized. Deferred tax assets are reduced by a
valuation allowance to the extent that utilization is not presently likely.
ADVERTISING EXPENSE
The Company recognizes advertising expense as incurred. Advertising expense
has been immaterial since inception.
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
Upon the closing of the Company's IPO, all of the outstanding shares of
preferred stock (Series A, B and C) will automatically convert into 5,334,350
shares of common stock. The Company's unaudited
F-9
<PAGE>
NET PERCEPTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
pro forma stockholders' equity as of December 31, 1998, as adjusted to reflect
these conversions, but not to reflect shares or proceeds from the planned IPO,
is as follows:
<TABLE>
<S> <C>
Common stock; 8,651,004 shares issued and outstanding............. $ 1
Additional paid-in capital........................................ 11,650
Accumulated deficit............................................... (10,580)
---------
Total stockholders' equity.................................... $ 1,071
---------
---------
</TABLE>
NET LOSS PER SHARE
Net loss per share is computed under SFAS No. 128, "Earnings Per Share."
Basic net loss per share is computed using the weighted-average number of shares
of common stock outstanding, excluding shares of common stock subject to
repurchase. Such shares of common stock subject to repurchase aggregated
2,677,182, 1,837,616 and 1,135,185 at December 31, 1996, 1997 and 1998,
respectively (see Note 7). Diluted net loss per share does not differ from basic
net loss per share since potential shares of common stock from conversion of
preferred stock, stock options and warrants and outstanding shares of common
stock subject to repurchase are anti-dilutive for all periods presented.
Unaudited pro forma basic and diluted net loss per share has been calculated
assuming the conversion of all outstanding shares of preferred stock into shares
of common stock, as if the shares had converted immediately upon their issuance.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new statement establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The Company does
not expect SFAS No. 133 to materially affect its financial position or results
of operations.
In November 1998, the FASB cleared for issuance SOP 98-9, "Modification of
SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions,"
which will retain the limitations of SOP 97-2 on what constitutes
vendor-specific objective evidence of fair value. SOP 98-9 will be effective for
transactions entered into in fiscal years beginning after March 15, 1999. The
Company believes that its current revenue recognition policies and practices are
consistent with the provisions of the new guidance.
In February 1998, the Accounting Standards Executive Committee issued SOP
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 establishes the accounting for costs of software
products developed or purchased for internal use, including when such costs
should be capitalized. The Company does not expect SOP 98-1, which is effective
for the Company beginning January 1, 1999, to materially affect its financial
position or results of operations.
F-10
<PAGE>
NET PERCEPTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
3. FINANCIAL STATEMENT COMPONENTS
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Computer hardware.......................................................... $ 339 $ 710
Leasehold improvements..................................................... 11 233
Computer software.......................................................... 56 230
Furniture, fixtures and equipment.......................................... 125 218
--------- ---------
531 1,391
Less: Accumulated depreciation and amortization............................ (142) (372)
--------- ---------
$ 389 $ 1,019
--------- ---------
--------- ---------
</TABLE>
Property and equipment include assets under capital leases of $529 and
$1,001 at December 31, 1997 and 1998, respectively. Generally, all property and
equipment with the exception of leasehold improvements and certain furniture,
fixtures and equipment, was acquired under capital leases.
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Accrued wages and benefits................................................... $ 89 $ 626
Accrued leasehold improvements............................................... -- 225
Other accrued expenses....................................................... 133 559
--------- ---------
$ 222 $ 1,410
--------- ---------
--------- ---------
</TABLE>
4. INCOME TAXES
For income tax purposes, the Company has available net operating loss
carryforwards of approximately $9,100 and research and development credit
carryforwards of $258 at December 31, 1998. The net operating loss and research
and development credit carryforwards expire in 2011 through 2018 if not
previously utilized. The utilization of these carryforwards may be subject to
limitations based on future changes in ownership of the Company pursuant to
Internal Revenue Code Section 382. Future tax benefits have not been recognized
in the financial statements as their utilization is not presently likely based
on the weight of available information.
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax
F-11
<PAGE>
NET PERCEPTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
4. INCOME TAXES (CONTINUED)
purposes. The Company has no deferred tax liabilities as of December 31, 1997
and 1998. Significant components of the Company's deferred tax assets are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................................... $ 2,161 $ 3,574
Research and development credit carryforwards.......................... 109 258
Vacation and other accruals............................................ 12 237
Accounts receivable allowance.......................................... 11 98
--------- ---------
Total deferred tax assets............................................ 2,293 4,167
--------- ---------
Valuation allowance...................................................... (2,293) (4,167)
--------- ---------
Total net deferred income taxes...................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
5. TECHNOLOGY LICENSE
Effective July 31, 1996, the Company entered into a license agreement with
the University of Minnesota. Under the terms of the agreement, the Company
received a worldwide license to use and sell certain information and
intellectual property rights relating to an information filtering technique
developed by the University of Minnesota. The Company has further developed this
technology. The license agreement ends upon the expiration or invalidation of
the licensed technology. The license may also be terminated by the Company with
sixty-day notice and by the University of Minnesota if the Company has a
material breach or default of the agreement.
On October 13, 1997, the Company entered into an amendment to the July 31,
1996 license agreement whereas the Company has obtained all rights and licenses
relating to improvements resulting from continued research by the University of
Minnesota relating to the information filtering technology. The amendment is
cancelable by the Company prior to the beginning of each of three research
years.
6. CAPITAL LEASES
The Company maintains a lease line of credit with a leasing company for the
acquisition of property and equipment under capital lease arrangements. The
current lease line of credit expires on December 31, 1999 and has approximately
$1,000 available at December 31, 1998. The initial term of any loan under the
agreement is forty-two months from the borrowing date and has an effective
interest rate of 14%. Monthly payments are equal to 2.8% of the original amount
borrowed. Existing borrowings bear interest at 15.9% to 19.0% and are due in
varying monthly installments through
F-12
<PAGE>
NET PERCEPTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
6. CAPITAL LEASES (CONTINUED)
July 2002. As of December 31, 1997 and 1998, $529 and $1,001, respectively, had
been drawn on the lease line of credit, exclusive of any repayments. Future
minimum payments are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1999............................................................. $ 370
2000............................................................. 316
2001............................................................. 220
2002............................................................. 101
---------
Total minimum lease payments..................................... 1,007
Less: Amount representing interest............................... (214)
---------
Present value of net minimum lease payments...................... 793
Less: Current portion............................................ (255)
---------
$ 538
---------
---------
</TABLE>
7. STOCKHOLDERS' EQUITY AND CONVERTIBLE REDEEMABLE PREFERRED STOCK
The Company is authorized to issue two classes of stock designated as common
and preferred. As of December 31, 1998, the total number of shares that the
Company was authorized to issue was 45,000,000 shares, of which 30,000,000 were
common stock and 15,000,000 were preferred stock. As of December 31, 1998,
1,085,000, 2,000,000 and 2,400,000 shares of the preferred stock have been
designated Series A, Series B, and Series C Preferred Stock, respectively. In
February 1999, subject to certain conditions, the board of directors authorized
the amendment and restatement of the Company's Certificate of Incorporation.
Upon the closing of the Company's IPO, the authorized capital stock will consist
of 50,000,000 shares of common stock, $.0001 par value, and 5,000,000 shares of
preferred stock, $.0001 par value.
PREFERRED STOCK
The shares of preferred stock are convertible, at the option of the holder,
into common stock on a share for share basis, subject to adjustment for certain
events, have voting rights and provide for certain preferential dividend,
liquidation, redemption and other rights. The Company has reserved 5,334,350
shares of common stock to satisfy these conversion rights. The preferred stock
will automatically convert into common stock if the Company issues common stock
in a public offering, pursuant to a registration statement under the Securities
Act of 1933, as amended, in which the net proceeds received by the Company
equals or exceeds $7,500 and the public offering price equals or exceeds $6.21
per share, as adjusted for certain events.
Voting rights for the shares of preferred stock are on an "as if converted
to common stock" basis. In addition, an affirmative vote of the majority of the
preferred stockholders is required to sell the Company and to amend the
Company's articles of incorporation relating to the preferred stock.
Redemption of the Series A Preferred Stock is mandatory, at the election of
certain holders, at $.60 per share plus any declared but unpaid dividends in
three annual installments commencing August 1, 2002, if not previously converted
or otherwise redeemed. Future redemptions of the Series A
F-13
<PAGE>
NET PERCEPTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
7. STOCKHOLDERS' EQUITY AND CONVERTIBLE REDEEMABLE PREFERRED STOCK (CONTINUED)
Preferred Stock outstanding at December 31, 1998 are $217 in each of the years
ending December 31, 2002, 2003 and 2004. The Series A Preferred Stock is
reflected at redemption value at December 31, 1997 and 1998. Shares of the
Series B and Series C Preferred Stock are not redeemable. No dividends have been
declared.
In the event of a liquidation, dissolution, merger or acquisition of the
Company, preferred stockholders will be entitled to receive in cash, out of the
assets of the Company, an amount equal to their cost ($.60 per share for Series
A, $2.07 per share for Series B and $3.07 per share for Series C Preferred
Stock), plus an amount equal to declared but unpaid dividends on such shares
(the "Preference Amount"). The Preference Amount will be paid before any
distribution or payment is made to the holders of common stock of the Company.
Following the payment of the Preference Amount, the remaining assets of the
Company available for distribution to stockholders shall be distributed among
the holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and common stock pro rata based on the number of shares of
common stock held (assuming conversion of all Series A, Series B and Series C
Preferred Stock), except that the Series A, Series B, and Series C preferred
stockholders have a liquidation ceiling of six times, three times and two times,
respectively, of their initial investment (inclusive of the Preference Amount).
The liquidation ceilings as of December 31, 1998 for the Series A, B and C
preferred stockholders are $3,903, $12,000 and $14,232, respectively.
PREFERRED STOCK WARRANT
On October 28, 1997, the Company issued a warrant to purchase Series C
Preferred Stock to a bank pursuant to a business loan agreement that expired in
1998. The warrant is for 5,991 shares of Series C Preferred Stock at $3.07 per
share, but converts to a warrant for 5,991 shares of common stock upon the
closing of the Company's IPO. The warrant expires on the earlier of October 28,
2002 or two years following the Company's IPO. The warrant had a nominal value
on the date of issuance.
COMMON STOCK
Total shares of common stock outstanding at December 31, 1998 were
3,316,654, of which 1,135,185 are subject to a repurchase option, which is at
the Company's discretion, at the original sale price in the event the employee
holding the shares leaves the Company. In general, the Company's repurchase
option expires to the extent of 25% of the applicable shares after the first
year of service and then in equal amounts over the next 36 months. The remaining
repurchase option on shares of common stock, including common stock underlying
unexercised stock options may be accelerated in the event of a change in
control.
STOCK OPTION PLANS
The Company's stock option plan (the "1996 Plan"), provides for the issuance
of both incentive and nonqualified stock options. The incentive options allow
the holder to purchase shares of the Company's common stock at fair market value
(as determined by the Board of Directors) on the date of the grant, subject to
certain repurchase rights held by the Company. For options granted to holders of
more than 10% of the outstanding common stock, the option price at the date of
the grant must be at least equal to 110% of the fair market value of the stock.
A total of 1,233,346 shares of common
F-14
<PAGE>
NET PERCEPTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
7. STOCKHOLDERS' EQUITY AND CONVERTIBLE REDEEMABLE PREFERRED STOCK (CONTINUED)
stock are reserved for issuance under the 1996 Plan. Stock options are
immediately exercisable but are subject to certain discretionary repurchase
rights by the Company, and generally expire ten years from the date of grant. In
general, common stock underlying options are subject to repurchase by the
Company at the original exercise price. The repurchase feature generally expires
for 25% of the shares after the first year of service and then expires ratably
over the next 36 months.
The Company records compensation related to stock options using the
intrinsic value method of APB No. 25. Compensation related to stock options
granted in 1998 below fair market value was $850. Such compensation is
considered deferred compensation and amortized over the four year repurchase
period of the common stock underlying the related options. Stock compensation
expense of $229 was recognized during the year ended December 31, 1998.
Subsequent to December 31, 1998, the Company granted options to purchase
146,468 shares of common stock to employees and a director with exercise prices
ranging from $8.00 to $15.00 per share. Compensation related to these stock
options granted below fair market value approximates $310. Such compensation
will be amortized over the four year repurchase period of the common stock
underlying the related options.
A summary of activity of the Plan is presented below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Outstanding, December 31, 1996.................................. -- --
Granted....................................................... 606,000 $ 0.21
Exercised..................................................... (153,125) $ 0.20
Forfeited..................................................... (137,875) $ 0.20
----------
Outstanding, December 31, 1997.................................. 315,000 $ 0.23
Granted....................................................... 598,282 $ 1.22
Exercised..................................................... (177,958) $ 0.31
Forfeited..................................................... (31,042) $ 0.31
----------
Outstanding, December 31, 1998.................................. 704,282 $ 1.04
----------
----------
</TABLE>
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------ OPTIONS EXERCISABLE
RANGE OF WEIGHTED-AVERAGE ------------------------------
EXERCISE NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------- ----------- ---------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$0.20-$0.50 425,500 9.2 years $ 0.38 425,500 $ 0.38
$1.00-$1.75 138,650 9.6 $ 1.56 138,650 $ 1.56
$1.95-$2.25 119,132 9.8 $ 2.06 119,132 $ 2.06
$4.50-$6.00 21,000 9.9 $ 5.18 21,000 $ 5.18
----------- -----------
704,282 704,282
----------- -----------
----------- -----------
</TABLE>
F-15
<PAGE>
NET PERCEPTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
7. STOCKHOLDERS' EQUITY AND CONVERTIBLE REDEEMABLE PREFERRED STOCK (CONTINUED)
All outstanding options at December 31, 1998 are exercisable but the common
stock underlying the options are subject to certain repurchase rights by the
Company. As of December 31, 1998, only 96,757 options were not subject to
repurchase.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." For the purposes of the pro forma
disclosure under SFAS No. 123, the estimated fair value of the options is
amortized to expense over the four year repurchase period of the common stock
underlying the related options. Had compensation cost for the Company's stock
plan been determined based on the minimum value at the grant date for awards
during 1997 and 1998 consistent with the provisions of SFAS No. 123, the
differences between the Company's pro forma net loss and pro forma net loss per
share for the years ended December 31, 1997 and 1998 from the actual amounts
reported in the statement of operations were immaterial.
The minimum value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1998, respectively; dividend yield of
0%; risk-free interest rates of 6.1% and 5.4%; and expected lives of 5 years.
Volatility factors are not applicable to non-public companies for these fair
value calculations. The weighted-average fair value of options granted during
1997 and 1998 using the Black-Scholes option-pricing model was $0.05 and $1.75
per share, respectively. Because the determination of the fair value of all
options granted after the Company becomes a public entity will include an
expected volatility factor and because additional option grants are expected to
be made in 1999, the pro forma effects of applying the fair value method may be
material to reported net income or loss in future years.
In February 1999, the Company's board of directors adopted, subject to
stockholder approval, the 1999 Equity Incentive Plan (the "1999 Plan") and the
1999 Non-Employee Director Option Plan (the "1999 Non-Employee Plan"). The
number of shares of common stock reserved for issuance under the 1999 Plan is
equal to 400,000, plus the number of remaining shares available for grant under
the Company's 1996 Plan at the effective date of the Company's IPO. The number
of shares of common stock reserved for issuance under the 1999 Non-Employee Plan
is 250,000.
EMPLOYEE STOCK PURCHASE PLAN
In February 1999, the Company's board of directors adopted, subject to
stockholder approval, the Employee Stock Purchase Plan (the "Purchase Plan").
The number of shares of common stock reserved for issuance under the Purchase
Plan is 500,000.
F-16
<PAGE>
NET PERCEPTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
8. OPERATING LEASES
The Company has entered into operating lease commitments for its office
space. Minimum future lease payments due under the agreements are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1999............................................................ $ 466
2000............................................................ 546
2001............................................................ 554
2002............................................................ 554
---------
$ 2,120
---------
---------
</TABLE>
Rent expense totaled $29, $145 and $214 for the periods ended December 31,
1996, 1997 and 1998, respectively.
9. BENEFIT PLAN
The Company has adopted a 401(k) employee retirement plan under which
eligible employees may contribute up to 25% of their annual compensation,
subject to certain limitations. Employees vest immediately in their
contributions and earnings thereon. The plan allows for, but does not require,
Company matching contributions. The Company has not made any such matching
contributions.
F-17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee............................................... $ 11,120
NASD fee........................................................... 4,500
Nasdaq National Market initial listing fee......................... 1,000
Printing and engraving.............................................
Legal fees and expenses of the Company.............................
Accounting fees and expenses.......................................
Directors and Officers Liability Insurance.........................
Blue sky fees and expenses.........................................
Transfer agent fees................................................
Miscellaneous......................................................
---------
Total............................................................
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933
(the "Act"). Article VII of the Registrant's Bylaws provides for mandatory
indemnification of its directors and officers and permissible indemnification of
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. The Registrant's Amended and Restated Certificate of
Incorporation provides that, pursuant to Delaware law, its directors shall not
be liable for monetary damages for breach of the directors' fiduciary duty as
directors to the Registrant and its stockholders. This provision in the Amended
and Restated Certificate of Incorporation does not eliminate the directors'
fiduciary duty, and in appropriate circumstances equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant has
entered into Indemnification Agreements with its officers and directors, a form
of which is attached as Exhibit 10.1 hereto and incorporated herein by
reference. The Indemnification Agreements provide the Registrant's officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law. The Registrant maintains liability insurance
for its directors and officers. Reference is also made to Section 8 of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Registrant against certain liabilities, and Section 1.10 of
the Amended and Restated Investor Rights Agreement contained in Exhibit 4.1
hereto, indemnifying certain of the Company's stockholders, including
controlling stockholders, against certain liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Since July 3, 1996 (inception), the Registrant has issued and sold the
following securities:
1. On July 3, 1996, the Registrant issued and sold an aggregate of
2,857,142 shares of its common stock to five founders of the Company
for an aggregate purchase price of $2,857.
2. On July 22, 1996, the Registrant issued and sold an aggregate of 15,000
shares of its common stock to six individuals in consideration for the
assignment by the individuals to the Company of certain technology.
3. On July 22, 1996, the Registrant issued and sold an aggregate of 22,000
shares of its common stock to three employees of the Company for an
aggregate purchase price of $220.
4. On July 25, 1996, the Registrant issued and sold an aggregate of 71,429
shares of its common stock to the University of Minnesota for an
aggregate purchase price of $714.29.
5. The Registrant issued and sold 331,083 shares (assuming no exercise of
stock options after December 31, 1998) of its common stock to
employees, consultants and directors of the Company pursuant to
exercises of options under its 1996 Stock Plan (Exhibit 10.2).
6. The Registrant granted options to purchase 1,204,282 shares of common
stock to employees and consultants of the Company under its 1996 Stock
Plan, of which 331,083 shares have been exercised as of December 31,
1998.
7. On August 2, 1996, the Registrant issued and sold 1,084,065 shares of
Series A Preferred Stock for an aggregate purchase price of $650,439 to
a group of five investors.
8. On December 4, 1996, the Registrant issued and sold 1,932,368 shares of
Series B Preferred Stock for an aggregate purchase price of
$4,000,001.76 to a group of five investors.
9. On October 28, 1997, the Registrant issued and sold warrants to
purchase approximately 5,991 shares of Series C Preferred Stock to
Silicon Valley Bank.
10. Between December 18, 1997 and February 20, 1998, the Registrant issued
and sold 2,317,917 shares of Series C Preferred Stock for an aggregate
purchase price of $7,116,005.19 to a group of 11 investors.
11. On February 4, 1999, the Registrant issued and sold a convertible
promissory note with a principal balance of $4,000,000.00 to one
foreign corporation.
The issuances described in Items 15(a)(1) through 15(a)(3), 15(a)(5) and
15(a)(6) were deemed exempt from registration under the Act in reliance upon
Rule 701 promulgated under the Act. The issuances of the securities described in
Items 15(a)(4) and 15(a)(7) through 15(a)(10) were deemed to be exempt from
registration under the Act in reliance on Section 4(2) of such Act as
transactions by an issuer not involving any public offering. The issuance
described in Item 15(a)(11) was deemed exempt from registration under the Act in
reliance on Regulation S. In addition, the recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. All recipients had
adequate access, through their relationships with the Registrant, to information
about the Registrant.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant, as amended to date.
3.2* Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed after the
closing of the offering made pursuant to this Registration Statement.
3.3 Bylaws of the Registrant.
3.4* Form of Amended and Restated Bylaws of the Registrant to be effective after the closing of the offering
made pursuant to this Registration Statement.
4.1 Amended and Restated Investor Rights Agreement, dated December 18, 1997, among the Registrant and the
investors and founders named therein, as amended.
4.2* Specimen Certificate of the Registrant's common stock.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to the Registrant.
10.1* Form of Indemnification Agreement entered into between the Registrant and its directors and officers.
10.2 1996 Stock Plan.
10.3 1999 Equity Incentive Plan.
10.4 1999 Non-Employee Director Option Plan.
10.5 Employee Stock Purchase Plan.
10.6** License Agreement between Registrant and Regents of the University of Minnesota, dated July 31, 1996.
10.7** Amendment to License Agreement between Registrant and Regents of the University of Minnesota, dated
October 13, 1997.
10.8** Software Technology License Agreement between Neural Applications Corporation and Registrant, dated
August 7, 1998.
10.9** Orbix Development and Runtime License Agreement between IONA Technologies PLC and the Registrant, dated
July 9, 1998.
10.10** Agreement Amendment to Orbix Development and Runtime License Agreement between IONA Technologies PLC
and the Registrant, dated October 12, 1998.
10.11 Lease between the Protective Group and the Registrant, dated November 12, 1998 (Minneapolis office).
10.12 Form of Master Purchase Agreement.
10.13 Severance agreement between Registrant and George Moser, executed January 23, 1999.
10.14* Registrant's Change in Control Severance Plan and Summary Plan Description.
10.15 Note Purchase Agreement between the Registrant and Trans Cosmos, Inc., dated February 4, 1999.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.2* Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to the Registrant.
Reference is made to Exhibit 5.1.
24.1 Power of Attorney. (See page II-5)
</TABLE>
- ---------
* To be supplied by amendment.
** Confidential treatment requested as to certain portions of these exhibits.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and qualifying accounts.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the Delaware General Corporation Law, the Amended and Restated
Certificate of Incorporation or the Bylaws of the Registrant, Indemnification
Agreements entered into between the Registrant and its officers and directors,
the Underwriting Agreement, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered hereunder,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on this 5th day of February, 1999.
NET PERCEPTIONS, INC.
By: /s/ STEVEN J. SNYDER
-----------------------------------------
Steven J. Snyder
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Steven J. Snyder and Thomas M. Donnelly,
and each of them, his or her true and lawful attorneys-in-fact and agents with
full power of substitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective on filing pursuant to Rule 462(b) promulgated
under the Securities Act of 1933, and all post-effective amendments thereto, and
to file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his or her or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
President, Chief Executive
/s/ STEVEN J. SNYDER Officer and Director
- ---------------------------- (Principal Executive February 5, 1999
Steven J. Snyder Officer)
Chief Financial Officer
/s/ THOMAS M. DONNELLY (Principal Financial and
- ---------------------------- Accounting Officer) and February 5, 1999
Thomas M. Donnelly Secretary
/s/ JOHN T. RIEDL
- ---------------------------- Director February 5, 1999
John T. Riedl
/s/ ANN L. WINBLAD
- ---------------------------- Director February 5, 1999
Ann L. Winblad
/s/ DOUGLAS J. BURGUM
- ---------------------------- Director February 5, 1999
Douglas J. Burgum
II-5
<PAGE>
SCHEDULE II
NET PERCEPTIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
PERIODS ENDED DECEMBER 31, 1996, 1997 AND 1998
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
ADDITIONS-
BALANCE AT CHARGED
BEGINNING TO COSTS BALANCE AT
OF AND DEDUCTIONS- END OF
PERIOD ENDED DECEMBER 31, PERIOD EXPENSES WRITE-OFFS PERIOD
- --------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1996............................. $ -- $ -- $ -- $ --
1997............................. -- 28,181 -- 28,181
1998............................. 28,181 294,309 22,337 300,154
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE
- ------------- ---------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
1.1* Form of Underwriting Agreement..........................................................
3.1 Amended and Restated Certificate of Incorporation of the Registrant, as amended to
date..................................................................................
3.2* Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed
after the closing of the offering made pursuant to this Registration Statement........
3.3 Bylaws of the Registrant................................................................
3.4* Form of Amended and Restated Bylaws of the Registrant to be made effective after the
closing of the offering made pursuant to this Registration Statement.
4.1 Amended and Restated Investor Rights Agreement, dated December 18, 1997, among the
Registrant and the investors and founders named therein, as amended...................
4.2* Specimen Certificate of the Registrant's common stock...................................
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to the
Registrant............................................................................
10.1* Form of Indemnification Agreement entered into between the Registrant and its directors
and officers..........................................................................
10.2 1996 Stock Plan.........................................................................
10.3 1999 Equity Incentive Plan..............................................................
10.4 1999 Non-Employee Director Option Plan..................................................
10.5 Employee Stock Purchase Plan............................................................
10.6** License Agreement between Registrant and Regents of the University of Minnesota, dated
July 31, 1996.........................................................................
10.7** Amendment to License Agreement between Registrant and Regents of the University of
Minnesota, dated October 13, 1997.....................................................
10.8** Software Technology License Agreement between Neural Applications Corporation and
Registrant, dated August 7, 1998......................................................
10.9** Orbix Development and Runtime License Agreement between IONA Technologies PLC and the
Registrant, dated July 9, 1998........................................................
10.10** Agreement Amendment to Orbix Development and Runtime License Agreement between IONA
Technologies PLC and the Registrant, dated October 12, 1998...........................
10.11 Lease between the Protective Group and the Registrant, dated November 12, 1998
(Minneapolis office)..................................................................
10.12 Form of Master Purchase Agreement.......................................................
10.13 Severance agreement between Registrant and George Moser, executed January 23, 1999......
10.14* Registrant's Change in Control Severance Plan and Summary Plan Description..............
10.15 Note Purchase Agreement between the Registrant and Trans Cosmos, Inc., dated February 4,
1999..................................................................................
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants..........................
23.2* Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to the
Registrant. Reference is made to Exhibit 5.1..........................................
24.1 Power of Attorney. (See page II-5)......................................................
</TABLE>
- ---------
* To be supplied by amendment.
** Confidential treatment requested as to certain portions of these exhibits.
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF NET PERCEPTIONS, INC.,
a Delaware corporation
Net Perceptions, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware, which was originally
incorporated on July 3, 1996 (the "Corporation"), certifies as follows:
ONE: The undersigned Steven J. Snyder and Daniel E. O'Connor are
the duly elected and acting President and Secretary, respectively, of said
corporation.
TWO: The Certificate of Incorporation of said corporation shall
be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Net Perceptions, Inc.
ARTICLE II
The address of the registered office of this corporation in the
State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
ARTICLE IV
A. CLASSES OF STOCK. This corporation is authorized to
issue two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares that this corporation is
authorized to issue is forty-five million (45,000,000) shares. Thirty
million (30,000,000) shares shall be Common Stock, par value $.0001 per
share, and fifteen million (15,000,000) shares shall be Preferred Stock, par
value $.0001 per share.
B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK.
The Preferred Stock authorized by this Amended and Restated Certificate of
Incorporation may be issued from time to time in one or more series. The
rights, preferences, privileges, and restrictions granted to and imposed on
the Series A Preferred Stock, which series shall consist of one million
eighty-five thousand (1,085,000) shares, the Series B Preferred Stock, which
series shall consist of two million (2,000,000) shares, and the Series C
Preferred Stock, which series shall consist of two million four hundred
thousand (2,400,000) shares, are as set forth below in this Article IV(B).
<PAGE>
The Board of Directors is hereby authorized to fix or alter the rights,
preferences, privileges and restrictions granted to or imposed upon
additional series of Preferred Stock, and the number of shares constituting
any such series and the designation thereof, or of any of them. Subject to
compliance with applicable protective voting rights that have been or may be
granted to the Preferred Stock or series thereof in Certificates of
Determination or this corporation's Certificate of Incorporation ("Protective
Provisions"), but notwithstanding any other rights of the Preferred Stock or
any series thereof, the rights, privileges, preferences and restrictions of
any such additional series may be subordinated to, PARI PASSU with
(including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of
matters by vote or written consent), or senior to any of those of any present
or future class or series of Preferred or Common Stock. Subject to
compliance with applicable Protective Provisions, the Board of Directors is
also authorized to increase or decrease the number of shares of any series
(other than the Series A Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock), prior or subsequent to the issue of that series, but not
below the number of shares of such series then outstanding. In case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status that they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
1. DIVIDEND PROVISIONS. Subject to the rights of series of
Preferred Stock that may from time to time come into existence, the holders of
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of this corporation) on the
Common Stock of this corporation, at the rate of (i) in the case of the Series A
Preferred Stock, $.054 per share per annum, (ii) in the case of the Series B
Preferred Stock, $.1863 per share per annum, and (iii) in the case of the
Series C Preferred Stock, $.2763 per share per annum, or, if greater (as
determined on a per annum basis and an as converted basis for the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock), an
amount equal to that paid on any other outstanding shares of this corporation,
payable quarterly when, as and if declared by the Board of Directors. Such
dividends shall not be cumulative.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding
up of this corporation, either voluntary or involuntary, subject to the
rights of series of Preferred Stock that may from time to time come into
existence, the holders of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to
the holders of Common Stock by reason of their ownership thereof, (A) in the
case of the Series A Preferred Stock, an amount per share equal to the sum of
(i) $.60 for each outstanding share of Series A Preferred Stock (the
"Original Series A Issue Price") and (ii) an amount equal to declared but
unpaid dividends on such share, (B) in the case of the Series B Preferred
Stock, an amount per share equal to the sum of (i) $2.07 for each outstanding
share of Series B Preferred Stock (the "Original Series B Issue
2
<PAGE>
Price") and (ii) an amount equal to declared but unpaid dividends on such
share, and (C) in the case of the Series C Preferred Stock, an amount per
share equal to the sum of (i) $3.07 for each outstanding share of Series C
Preferred Stock (the "Original Series C Issue Price") and (ii) an amount
equal to declared but unpaid dividends on such share. If upon the occurrence
of such event, the assets and funds thus distributed among the holders of the
Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred
Stock shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then, subject to the rights of series of
Preferred Stock that may from time to time come into existence, the entire
assets and funds of this corporation legally available for distribution shall
be distributed ratably among the holders of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock so that each holder
receives the same percentage of the applicable preferential amount.
(b) Upon the completion of the distribution required by
subparagraph (a) of this Section 2 and any other distribution that may be
required with respect to series of Preferred Stock that may from time to time
come into existence, the remaining assets of this corporation available for
distribution to stockholders shall be distributed among the holders of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Common Stock pro rata based on the number of shares of Common Stock held by
each (assuming conversion of all such Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock) until (i) with respect to the
holders of Series A Preferred Stock, such holders shall have received an
aggregate of $3.60 per share (including amounts paid pursuant to subsection
(a) of this Section 2), (ii) with respect to the holders of Series B
Preferred Stock, such holders shall have received an aggregate of $6.21 per
share (including amounts paid pursuant to subsection (a) of this Section 2),
and (iii) with respect to the holders of Series C Preferred Stock, such
holders shall have received an aggregate of $6.14 per share (including
amounts paid pursuant to subsection (a) of this Section 2); thereafter,
subject to the rights of series of Preferred Stock that may from time to time
come into existence, if assets remain in this corporation, the holders of the
Common Stock of this corporation shall receive all of the remaining assets of
this corporation pro rata based on the number of shares of Common Stock held
by each.
(c) (i) For purposes of this Section 2, a liquidation,
dissolution or winding up of this corporation shall be deemed to be
occasioned by, or to include, (A) the acquisition of this corporation by
another entity by means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation)
that results in the transfer of fifty percent (50%) or more of the
outstanding voting power of this corporation; or (B) a sale of all or
substantially all of the assets of this corporation.
(ii) In any of such events, if the consideration
received by this corporation is other than cash, its value will be deemed its
fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment
letter or other similar restrictions on free marketability covered by (B)
below:
3
<PAGE>
(1) If traded on a securities exchange
or through NASDAQ-NMS, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty (30) day
period ending three (3) days prior to the closing;
(2) If actively traded
over-the-counter, the value shall be deemed to be the average of the closing
bid or sale prices (whichever is applicable) over the thirty (30) day period
ending three (3) days prior to the closing; and
(3) If there is no active public
market, the value shall be the fair market value thereof, as mutually
determined by this corporation and the holders of at least a majority of the
voting power of all then outstanding shares of Preferred Stock.
(B) The method of valuation of securities
subject to investment letter or other restrictions on free marketability
(other than restrictions arising solely by virtue of a stockholder's status
as an affiliate or former affiliate) shall be to make an appropriate discount
from the market value determined as above in (A) (1), (2) or (3) to reflect
the approximate fair market value thereof, as mutually determined by this
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of such Preferred Stock.
(iii) In the event the requirements of this subsection
2(c) are not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until
such time as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event
the rights, preferences and privileges of the holders of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in subsection
2(c)(iv) hereof.
(iv) This corporation shall give each holder of record
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock written notice of such impending transaction not later than twenty (20)
days prior to the stockholders' meeting called to approve such transaction,
or twenty (20) days prior to the closing of such transaction, whichever is
earlier, and shall also notify such holders in writing of the final approval
of such transaction. The first of such notices shall describe the material
terms and conditions of the impending transaction and the provisions of this
Section 2, and this corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after this corporation has given the first
notice provided for herein or sooner than ten (10) days after this
corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written
consent of the holders of Preferred Stock that are entitled to such notice
rights or similar notice rights and that represent at least a majority of the
voting power of all then outstanding shares of such Preferred Stock.
4
<PAGE>
3. REDEMPTION.
(a) Subject to the rights of series of Preferred Stock that
may from time to time come into existence, at any time after August 1, 2002,
but within ninety (90) days after the receipt by this corporation of a
written request from the holders of not less than sixty-six and two-thirds
percent (66 2/3%) of the then outstanding Series A Preferred Stock that all
or, if less than all, a specified percentage of such holders' shares of
Series A Preferred Stock be redeemed, this corporation shall, to the extent
it may lawfully do so, redeem in three (3) equal annual installments (each
payment date being referred to herein as a "Redemption Date") the shares
specified in such request by paying in cash therefor a sum per share equal to
$.60 per share of Series A Preferred Stock (as adjusted for any stock
dividends, combinations or splits with respect to such shares) plus all
declared but unpaid dividends on such share (the "Series A Redemption
Price"). Any redemption of Series A Preferred Stock effected pursuant to
this subsection 3(a) shall be made on a pro rata basis among the holders of
the Series A Preferred Stock in proportion to the number of shares of Series
A Preferred Stock proposed to be redeemed by such holders.
(b) Subject to the rights of series of Preferred Stock that
may from time to time come into existence, at least fifteen (15) but no more
than thirty (30) days prior to each Redemption Date, written notice shall be
mailed, first class postage prepaid, to each holder of record (at the close
of business on the business day next preceding the day on which notice is
given) of the Series A Preferred Stock to be redeemed, at the address last
shown on the records of this corporation for such holder, notifying such
holder of the redemption to be effected, specifying the number of shares to
be redeemed from such holder, the Redemption Date, the Redemption Price, the
place at which payment may be obtained and calling upon such holder to
surrender to this corporation, in the manner and at the place designated,
his, her or its certificate or certificates representing the shares to be
redeemed (the "Redemption Notice"). Except as provided in subsection (3)(c),
on or after the Redemption Date, each holder of Series A Preferred Stock to
be redeemed shall surrender to this corporation the certificate or
certificates representing such shares, in the manner and at the place
designated in the Redemption Notice, and thereupon the applicable Redemption
Price of such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be cancelled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
(c) From and after the Redemption Date, unless there shall
have been a default in payment of the Redemption Price, all rights of the
holders of shares of Series A Preferred Stock designated for redemption in
the Redemption Notice as holders of Series A Preferred Stock (except the
right to receive the applicable Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books
of this corporation or be deemed to be outstanding for any purpose
whatsoever. Subject to the rights of series of Preferred Stock that may from
time to time come into existence, if the funds of this corporation legally
available for redemption of shares of Series A Preferred Stock on the
Redemption Date are insufficient to redeem the total number of shares of
Series A Preferred Stock to be redeemed on such date, those funds that are
legally available will be used to redeem the maximum possible number of such
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shares ratably among the holders of such shares to be redeemed such that each
holder of a share of Series A Preferred Stock receives the same percentage of
the applicable Series A Redemption Price. The shares of Series A Preferred
Stock not redeemed (including shares to be redeemed in subsequent
installments) shall remain outstanding and entitled to all the rights and
preferences provided herein. Subject to the rights of series of Preferred
Stock that may from time to time come into existence, at any time thereafter
when additional funds of this corporation are legally available for the
redemption of shares of Series A Preferred Stock, such funds will immediately
be used to redeem the balance of the shares that this corporation has become
obliged to redeem on any Redemption Date but that it has not redeemed.
(d) Neither the Series B Preferred Stock nor the Series C
Preferred Stock is redeemable.
4. CONVERSION. The holders of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date
of issuance of such share and, in the case of the Series A Preferred Stock,
on or prior to the fifth day prior to the first Redemption Date, if any, as
may have been fixed in any Redemption Notice with respect to the Series A
Preferred Stock, at the office of this corporation or any transfer agent for
such stock, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Original Issue Price for such series
by the Conversion Price applicable to such share, determined as hereafter
provided, in effect on the date the certificate is surrendered for
conversion. The initial Conversion Price per share for shares of Series A
Preferred Stock shall be the Original Series A Issue Price, the initial
Conversion Price per share for shares of Series B Preferred Stock shall be
the Original Series B Issue Price, and the initial Conversion Price per share
for shares of Series C Preferred Stock shall be the Original Series C Issue
Price; provided, however, that the Conversion Price for the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall
be subject to adjustment as set forth in subsection 4(d).
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for such series immediately upon the earlier of
(i) this corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement on Form S-1
or Form SB-2 under the Securities Act of 1933, as amended, the public
offering price of which was not less than $6.21 per share (adjusted to
reflect subsequent stock dividends, stock splits or recapitalizations) and
$7,500,000 in the aggregate, or (ii) the date specified by written consent or
agreement of the holders of a majority of the then outstanding Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
(voting together as a single class and not as separate series, and on an
as-converted basis).
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(c) MECHANICS OF CONVERSION. Before any holder of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock shall
be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the
office of this corporation or of any transfer agent for the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, and
shall give written notice to this corporation at its principal corporate
office, of the election to convert the same and shall state therein the name
or names in which the certificate or certificates for shares of Common Stock
are to be issued. This corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the shares of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If
the conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock for conversion, be conditioned
upon the closing with the underwriters of the sale of securities pursuant to
such offering, in which event the person(s) entitled to receive the Common
Stock upon conversion of the Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock shall not be deemed to have converted such
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock until immediately prior to the closing of such sale of securities.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR
CERTAIN DILUTIVE ISSUANCES, SPLITS AND COMBINATIONS. The Conversion Price of
the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock shall be subject to adjustment from time to time as follows:
(i) (A) If after the date upon which any shares of
Series C Preferred Stock were first issued (the "Purchase Date"), this
corporation shall issue any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Conversion Price
for the Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock in effect immediately prior to the issuance of such
Additional Stock, the Conversion Price for such series in effect immediately
prior to each such issuance shall forthwith (except as otherwise provided in
this clause (i)) be adjusted to a price determined by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance plus
the number of shares of Common Stock that the aggregate consideration
received by this corporation for such issuance would purchase at such
Conversion Price, and the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issuance plus the
number of shares of such Additional Stock.
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(B) No adjustment of the Conversion Price for
the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock shall be made in an amount less than one cent per share, provided that
any adjustments that are not required to be made by reason of this sentence
shall be carried forward and shall be either taken into account in any
subsequent adjustment made prior to three years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the
end of three years from the date of the event giving rise to the adjustment
being carried forward. Except to the limited extent provided for in
subsections (E)(3) and (E)(4), no adjustment of such Conversion Price
pursuant to this subsection 4(d)(i) shall have the effect of increasing the
Conversion Price above the Conversion Price in effect immediately prior to
such adjustment.
(C) In the case of the issuance of Common
Stock for cash, the consideration shall be deemed to be the amount of cash
paid therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by this corporation for any underwriting
or otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of Common
Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
reasonably determined by the Board of Directors irrespective of any
accounting treatment.
(E) In the case of the issuance (whether
before, on or after the Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights to subscribe
for such convertible or exchangeable securities, the following provisions
shall apply for all purposes of this subsection 4(d)(i) and subsection
4(d)(ii):
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (assuming the satisfaction
of any conditions to exercisability, including without limitation, the
passage of time, but without taking into account potential antidilution
adjustments) of such options to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued at the time such options or rights
were issued and for a consideration equal to the consideration (determined in
the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)), if any,
received by this corporation upon the issuance of such options or rights plus
the minimum exercise price provided in such options or rights (without taking
into account potential antidilution adjustments) for the Common Stock covered
thereby.
(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange
(assuming the satisfaction of any conditions to convertibility or
exchangeability, including, without limitation, the passage of time, but
without taking into account potential antidilution adjustments) for any such
convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be deemed to
have been issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the consideration, if
any, received by this corporation for
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any such securities and related options or rights, plus the minimum
additional consideration, if any, to be received by this corporation (without
taking into account potential antidilution adjustments) upon the conversion
or exchange of such securities or the exercise of any related options or
rights (the consideration in each case to be determined in the manner
provided in subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the
number of shares of Common Stock deliverable or in the consideration payable
to this corporation upon exercise of such options or rights or upon
conversion of or in exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the antidilution
provisions thereof (unless such options or rights or convertible or
exchangeable securities were merely deemed to be included in the numerator
and denominator for purposes of determining the number of shares of Common
Stock outstanding for purposes of subsection 4(d)(i)(A)), the Conversion
Price of the Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, to the extent in any way affected by or computed using such
options, rights or securities, shall be recomputed to reflect such change,
but no further adjustment shall be made for the actual issuance of Common
Stock or any payment of such consideration upon the exercise of any such
options or rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such
options or rights, the termination of any such rights to convert or exchange,
or the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, to the extent in
any way affected by or computed using such options, rights or securities, or
options or rights related to such securities (unless such options or rights
were merely deemed to be included in the numerator and denominator for
purposes of determining the number of shares of Common Stock outstanding for
purposes of subsection 4(d)(i)(A)), shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and convertible or
exchangeable securities that remain in effect) actually issued upon the
exercise of such options or rights, upon the conversion or exchange of such
securities, or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common
Stock deemed issued and the consideration deemed paid therefor pursuant to
subsections 4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect
any change, termination or expiration of the type described in either
subsection 4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to subsection
4(d)(i)(E)) by this corporation after the Purchase Date other than
(A) Common Stock issued pursuant to a
transaction described in subsection 4(d)(iii) hereof;
(B) shares of Common Stock issuable or issued
to employees consultants, directors or vendors (if in transactions with
primarily non-financing purposes) of this
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corporation directly or pursuant to a stock option plan or restricted stock
plan approved by the Board of Directors of this corporation; or
(C) Common Stock issued upon conversion of
shares of Preferred Stock.
(iii) In the event this corporation should at any time
or from time to time after the Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock
or other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional shares of Common Stock
(hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date
(or the date of such dividend distribution, split or subdivision if no record
date is fixed), the Conversion Price of the Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion
of each share of such series shall be increased in proportion to such
increase of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination
of the outstanding shares of Common Stock, then, following the record date of
such combination, the Conversion Price for the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion
of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
(e) OTHER DISTRIBUTIONS. In the event this corporation
shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by this corporation or other persons, assets
(excluding cash dividends) or options or rights not referred to in subsection
4(d)(iii), then, in each such case for the purpose of this subsection 4(e),
the holders of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were the holders of the number of shares of
Common Stock of this corporation into which their shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are
convertible as of the record date fixed for the determination of the holders
of Common Stock of this corporation entitled to receive such distribution.
(f) RECAPITALIZATIONS. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 4 or in Section 2) provision shall be made so that
the holders of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock shall thereafter be entitled to receive upon
conversion of the Series A Preferred
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Stock, Series B Preferred Stock and Series C Preferred Stock the number of
shares of stock or other securities or property of the Company or otherwise,
to which a holder of Common Stock deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 4 with
respect to the rights of the holders of the Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock after the recapitalization to
the end that the provisions of this Section 4 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
(g) NO IMPAIRMENT. This corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by this corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock against impairment.
(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, and the number of shares of
Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock the holder is at
the time converting into Common Stock and the number of shares of Common
Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock pursuant to this Section 4, this
corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. This corporation shall, upon the written request at any time of any
holder of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price for the Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock at the time in effect, and (C) the number of
shares of Common Stock and the amount, if any, of other property that at the
time would be received upon the conversion of a share of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock.
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(i) NOTICES OF RECORD DATE. In the event of any taking by
this corporation of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, at least twenty (20) days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This
corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, this corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes, including, without limitation, engaging in best
efforts to obtain the requisite stockholder approval of any necessary
amendment to this certificate.
(k) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of this corporation.
5. VOTING RIGHTS.
(a) GENERAL VOTING RIGHTS. The holder of each share of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock shall have the right to one vote for each share of Common Stock into
which such Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock could then be converted, and with respect to such vote, such
holder shall have full voting rights and powers equal to the voting rights
and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting
in accordance with the bylaws of this corporation, and shall be entitled to
vote, together with holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote. Fractional votes
shall not, however, be permitted and any fractional voting rights available
on an as-converted basis (after aggregating all shares into which shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock held by each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward).
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(b) VOTING FOR THE ELECTION OF DIRECTORS. As long as at
least a majority of the shares of Series A Preferred Stock originally issued
remain outstanding, the holders of such shares of Series A Preferred Stock
shall be entitled to elect one (1) director of this corporation at each
annual election of directors. As long as at least a majority of the shares
of Series B Preferred Stock originally issued remain outstanding, the holders
of such shares of Series B Preferred Stock shall be entitled to elect one (1)
director of this corporation at each annual election of directors. The
holders of outstanding Common Stock shall be entitled to elect two (2)
directors of this corporation at each annual election of directors. The
holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Common Stock (voting together as a single class and not
as separate series, and on an as-converted basis) shall be entitled to elect
any remaining directors of this corporation.
In the case of any vacancy (other than a vacancy caused by
removal) in the office of a director occurring among the directors elected by
the holders of a class or series of stock pursuant to this Section 5(b), the
remaining directors so elected by that class or series may by affirmative
vote of a majority thereof (or the remaining director so elected if there be
but one, or if there are no such directors remaining, by the affirmative vote
of the holders of a majority of the shares of that class or series), elect a
successor or successors to hold office for the unexpired term of the director
or directors whose place or places shall be vacant. Any director who shall
have been elected by the holders of a class or series of stock or by any
directors so elected as provided in the immediately preceding sentence hereof
may be removed during the aforesaid term of office, either with or without
cause, by, and only by, the affirmative vote of the holders of a majority of
the shares of the class or series of stock entitled to elect such director or
directors, given either at a special meeting of such stockholders duly called
for that purpose or pursuant to a written consent of stockholders, and any
vacancy thereby created may be filled by the holders of that class or series
of stock represented at the meeting or pursuant to unanimous written consent.
6. PROTECTIVE PROVISIONS. Subject to the rights of series
of Preferred Stock that may from time to time come into existence, so long as
at least 1,500,000 shares of Series A Preferred Stock, Series B Preferred
Stock and/or Series C Preferred Stock are outstanding (as adjusted for any
stock dividends, combinations or splits with respect to such shares), this
corporation shall not without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of at least a majority of
the then outstanding shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock (voting together as a single class and not
as separate series, and on an as-converted basis):
(a) sell, convey, or otherwise dispose of all or
substantially all of its assets or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of this corporation is disposed of;
(b) alter or change the rights, preferences or privileges of
the shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock;
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(c) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock;
(d) effectuate any transaction covered by Internal Revenue
Code Section 305;
(e) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security, having a preference over, or being on a
parity with, the Series A Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock with respect to voting, redemption, dividends or upon
liquidation; or
(f) increase the authorized number of directors of this
corporation to greater than seven (7) directors.
7. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock shall be redeemed or converted pursuant to Section 3 or
Section 4 hereof, the shares so converted or redeemed shall be cancelled and
shall not be issuable by this corporation. The Certificate of Incorporation
of this corporation shall be appropriately amended to effect the
corresponding reduction in this corporation's authorized capital stock.
C. COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders
of all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of this
corporation legally available therefor, such dividends as may be declared
from time to time by the Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution
or winding up of this corporation, the assets of this corporation shall be
distributed as provided in Section 2 of Division (B) of this Article IV
hereof.
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holder of each share of Common Stock
shall have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
Except as otherwise provided in this Amended and Restated
Certificate of Incorporation, in furtherance and not in limitation of the
powers conferred by statute, the Board of Directors is expressly authorized
to make, repeal, alter, amend and rescind any or all of the Bylaws of this
corporation.
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ARTICLE VI
Subject to Article IV, Division B, Section 6(f) above, the
number of directors of this corporation shall be fixed from time to time by a
bylaw or amendment thereof duly adopted by the Board of Directors or by the
stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the
Bylaws of this corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of this corporation
may be kept (subject to any provision contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the Bylaws of this corporation.
ARTICLE IX
A director of this corporation shall, to the full extent
permitted by the Delaware General Corporation Law as it now exists or as it
may hereafter be amended, not be liable to this corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article IX, nor the
adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with this Article IX, shall eliminate or reduce
the effect of this Article IX in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Article IX, would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
ARTICLE X
This corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE XI
To the fullest extent permitted by applicable law, this
corporation is authorized to provide indemnification of (and advancement of
expenses to) agents of this corporation (and any other persons to which
General Corporation Law permits this corporation to provide indemnification)
through bylaw provisions, agreements with such agents or other persons, vote
of stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
General Corporation Law, subject only to limits created by applicable General
Corporation Law (statutory or non-statutory), with respect to actions for
breach of duty to this corporation, its stockholders, and others.
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Any amendment, repeal or modification of the foregoing
provisions of this Article XI shall not adversely affect any right or
protection of a director, officer, agent, or other person existing at the
time of, or increase the liability of any director of this corporation with
respect to any acts or omissions of such director, officer or agent occurring
prior to, such amendment, repeal or modification.
* * *
THREE: That thereafter said amendment and restatement was duly
adopted in accordance with the provisions of Section 242 and Section 245 of
the General Corporation Law by obtaining a majority vote of the Common Stock
in favor of said amendment and restatement in the manner set forth in Section
222 of the General Corporation Law.
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IN WITNESS WHEREOF, the undersigned have executed this certificate
on December 17, 1997.
/s/ Steven J. Snyder
-----------------------------------
Steven J. Snyder, President
/s/ Daniel E. O'Connor
-----------------------------------
Daniel E. O'Connor, Secretary
<PAGE>
BYLAWS
OF
NET PERCEPTIONS, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of Newcastle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the city of Minnetonka, State of Minnesota, at such
place as may be fixed from time to time by the Board of Directors, or at such
other place either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. Meetings of stockholders for any other purpose may be held at
such time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
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Section 2. Annual meetings of stockholders, commencing with the year
1997, shall be held at such date and time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
they shall elect by a plurality vote a board of directors, and transact such
other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority
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of the Board of Directors, or at the request in writing of stockholders
owning at least ten percent (10%) in amount of the entire capital stock of
the corporation issued and outstanding and entitled to vote. Such request
shall state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of fifty percent (50%) of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
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Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
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ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and new created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent
(10%) of the total number of the shares at the time outstanding having the right
to vote for such directors, summarily order an election to be held to fill any
such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in office.
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Section 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these bylaws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
president on two (2) days' notice to each director by mail or forty-eight (48)
hours notice to each director either personally or by telegram; special meetings
shall be called by the president or secretary in like
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manner and on like notice on the written request of two (2) directors unless
the board consists of only one director, in which case special meetings shall
be called by the president or secretary in like manner and on like notice on
the written request of the sole director.
Section 8. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
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COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
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authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of shares
entitled to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it
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shall not be construed to mean personal notice, but such notice may be given
in writing, by mail, addressed to such director or stockholder, at his
address as it appears on the records of the corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the
same shall be deposited in the United States mail. Notice to directors may
also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
Board of Directors and shall be a president, treasurer and a secretary. The
Board of Directors may elect from among its members a Chairman of the Board and
a Vice Chairman of the Board. The Board of Directors may also choose one or
more vice-presidents, assistant secretaries and assistant treasurers. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a president, a treasurer, and a
secretary and may choose vice presidents.
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Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may exercise such powers as are, from time to time,
assigned to him by the board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
board and as may be provided by law.
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THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief executive officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he shall preside at all meetings of the stockholders and the Board of Directors;
he shall have general and active management of the business of the corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect.
Section 9. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
Section 10. In the absence of the president or in the event of his
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
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THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 12. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
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THE TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 14. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 15. If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 16. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his
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inability or refusal to act, perform the duties and exercise the powers of
the treasurer and shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by, the
Chairman or Vice Chairman of the Board of Directors, or the president or a vice-
president and the treasurer or an assistant treasurer, or the secretary or an
assistant secretary of the corporation, certifying the number of shares owned by
him in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware,
in lieu of the foregoing requirements, there may be set forth on the face or
back of the certificate which the corporation shall issue to represent such
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class or series of stock, a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
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TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
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share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
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FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized
under the laws of the State of Delaware, as those laws may be amended and
supplemented from time to time, indemnify any director made, or threatened to be
made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation, provided, however, that the
corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by the Board of
Directors of the corporation. The indemnification provided for in this Section
6 shall: (i) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (ii)
continue as to a person who has ceased to be a director, and (iii) inure to the
benefit of the heirs, executors and administrators of such a person. The
corporation's obligation to provide
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indemnification under this Section 6 shall be offset to the extent of any
other source of indemnification or any otherwise applicable insurance
coverage under a policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation which alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
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proceeding theretofore or thereafter brought based in whole or in part upon
any such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
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ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new
bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate of incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
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CERTIFICATE OF SECRETARY OF
NET PERCEPTIONS, INC.
The undersigned, Daniel O'Connor, hereby certifies that he is the duly
elected and acting Secretary of Net Perceptions, Inc., a Delaware corporation
(the "Corporation"), and that the Bylaws attached hereto constitute the Bylaws
of said Corporation as duly adopted by Action by Written Consent in Lieu of
Organizational Meeting by the Directors on July 3, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this 3rd day of July, 1996.
-----------------------------
Daniel O'Connor,
Secretary
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NET PERCEPTIONS, INC.
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
DECEMBER 18, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Request for Registration . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Company Registration . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Obligations of the Company . . . . . . . . . . . . . . . . . . . . . 4
1.5 Furnish Information. . . . . . . . . . . . . . . . . . . . . . . . . 5
1.6 Expenses of Demand Registration. . . . . . . . . . . . . . . . . . . 6
1.7 Expenses of Company Registration . . . . . . . . . . . . . . . . . . 6
1.8 Underwriting Requirements. . . . . . . . . . . . . . . . . . . . . . 6
1.9 Delay of Registration. . . . . . . . . . . . . . . . . . . . . . . . 7
1.10 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.11 Reports Under Securities Exchange Act of 1934. . . . . . . . . . . . 9
1.12 Form S-3 Registration. . . . . . . . . . . . . . . . . . . . . . . . 9
1.13 Assignment of Registration Rights. . . . . . . . . . . . . . . . . .10
1.14 Market Stand-Off Agreement Rights. . . . . . . . . . . . . . . . . .11
1.15 Termination of Registration Rights . . . . . . . . . . . . . . . . .11
2. Covenants of the Company. . . . . . . . . . . . . . . . . . . . . . . . .11
2.1 Delivery of Financial Statements . . . . . . . . . . . . . . . . . .11
2.2 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
2.3 Termination of Information and Inspection Covenants. . . . . . . . .12
2.4 Right of First Offer . . . . . . . . . . . . . . . . . . . . . . . .13
2.5 Proprietary Information and Inventions Agreements. . . . . . . . . .14
2.6 Certain Actions Requiring Outside Board Approval . . . . . . . . . .14
2.7 Covenant Regarding Issuance of Additional Shares of Common Stock . .14
3. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
3.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . .14
3.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
3.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
3.4 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . .15
3.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
3.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
3.7 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . .15
3.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
3.9 Aggregation of Stock . . . . . . . . . . . . . . . . . . . . . . . .16
3.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .16
3.11 Additional Parties . . . . . . . . . . . . . . . . . . . . . . . . .16
3.12 Prior Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . .16
</TABLE>
<PAGE>
Schedule A Schedule of Investors
Schedule B Schedule of Founders
<PAGE>
INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of
December 18, 1997, by and among Net Perceptions, Inc., a Delaware corporation
(the "Company"), and the investors listed on SCHEDULE A hereto, each of which is
herein referred to as an "Investor" and the founders listed on SCHEDULE B
hereto, each of which is herein referred to as a "Founder."
RECITALS
WHEREAS, certain of the Investors and the Founders possess
registration rights and certain of the Investors possess other investor rights
granted pursuant to that certain Amended and Restated Investors' Rights
Agreement, dated December 4, 1996, among the Company and the persons listed on
the Schedule of Investors attached thereto (the "Prior Agreement");
WHEREAS, certain of the Investors (the "Series C Investors") are
parties to the Series C Preferred Stock Purchase Agreement of even date herewith
(the "Series C Agreement") among the Company and the investors listed on the
Schedule of Investors attached thereto, pursuant to which the Series C Investors
are purchasing shares of Series C Preferred Stock of the Company;
WHEREAS, in order to induce the Company to enter into the Series C
Agreement and to induce the Series C Investors to invest funds in the Company
pursuant to the Series C Agreement, the Prior Investors and the Founders hereby
agree to waive their rights under the Prior Agreement, and the Investors, the
Founders and the Company hereby agree that this Agreement shall govern the
rights of the Investors and the Founders to cause the Company to register shares
of Common Stock issued or issuable to such persons, and certain other matters as
set forth herein; and
WHEREAS, the Series C Investors and the Company have agreed, pursuant
to the Series C Agreement, to enter into this Agreement;
NOW, THEREFORE, in consideration of the promises, covenants, and
conditions set forth herein, the parties hereto hereby agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as
follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in effect
on the date hereof or any registration form under the Act subsequently adopted
by the SEC that permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
<PAGE>
(c) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof.
(d) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(e) The term "register," "registered," and "registration" refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, (ii) the shares of Common Stock
issued to the Founders as of the date of this Agreement; provided, however, that
such shares of Common Stock shall not be deemed Registrable Securities and the
aforementioned individuals shall not be deemed Holders for the purposes of
Sections 1.2, 1.12 and 3.7 (except as provided therein), and (iii) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of the shares
referenced in (i) and (ii) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned.
(g) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding that are, and the number of shares of Common Stock issuable pursuant
to then exercisable or convertible securities that are, Registrable Securities.
(h) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after the earlier of
(i) August 2, 2000, or (ii) six (6) months after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction), a written request from the Holders of a
majority of the Registrable Securities then outstanding that the Company file a
registration statement under the Act covering the registration of at least fifty
percent (50%) of the Registrable Securities then outstanding (or a lesser
percent if the anticipated aggregate offering price, net of underwriting
discounts and commissions, would exceed $7,500,000), then the Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders; and
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(ii) effect as soon as practicable, and in any event within
sixty (60) days of the receipt of such request, the registration under the Act
of all Registrable Securities that the Holders request to be registered, subject
to the limitations of subsection 1.2(b), within twenty (20) days of the mailing
of such notice by the Company in accordance with Section 3.5.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to subsection 1.2(a) and the Company
shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by a majority in interest
of the Initiating Holders and shall be reasonably acceptable to the Company. In
such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities that would otherwise be underwritten pursuant hereto, and
the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than ninety (90) days after
receipt of the request of the Initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve (12) month
period.
(d) In addition, the Company shall not be obligated to effect, or
to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
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(ii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of shares
of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.12 below.
1.3 COMPANY REGISTRATION. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, a registration
on any form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities that are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 3.5, the Company shall, subject to the provisions of
Section 1.8, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
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<PAGE>
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.5 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.2(a) or subsection
1.12(b)(2), whichever is applicable.
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company and the
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<PAGE>
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 1.2; provided
further, however, that if at the time of such withdrawal, the Holders have
learned of a material adverse change in the condition, business, or prospects of
the Company from that known to the Holders at the time of their request and have
withdrawn the request with reasonable promptness following disclosure by the
Company of such material adverse change, then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to
Section 1.2.
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, that the underwriters determine in their sole discretion
will not jeopardize the success of the offering (the securities so included to
be apportioned pro rata among the selling stockholders according to the total
amount of securities entitled to be included therein owned by each selling
stockholder or in such other proportions as shall mutually be agreed to by such
selling stockholders) but in no event shall (i) the amount of securities of the
selling Holders included in the offering be reduced below twenty-five percent
(25%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities, in which
case the selling stockholders may be excluded if the underwriters make the
determination described above and no other stockholder's securities are included
or (ii) notwithstanding (i) above, any shares being sold by a stockholder
exercising a demand registration right similar to that granted in Section 1.2 be
excluded from such offering. For purposes of the preceding parenthetical
concerning apportionment, for any selling stockholder that is a holder of
Registrable Securities and that is a partnership or corporation, the partners,
retired partners and stockholders of such holder, or the estates and
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<PAGE>
family members of any such partners and retired partners and any trusts for
the benefit of any of the foregoing persons shall be deemed to be a single
"selling stockholder," and any pro-rata reduction with respect to such
"selling stockholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included
in such "selling stockholder," as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder, and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages or liabilities (joint or several) to which any of the foregoing persons
may become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case
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to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration; and each such Holder
will pay, as incurred, any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 1.10(b) in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this subsection 1.10(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
8
<PAGE>
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after the effective date of
the first registration statement filed by the Company for the offering of its
securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
1.12 FORM S-3 REGISTRATION. In case the Company shall receive a
written request or requests from the Holder or Holders of at least twenty
percent (20%) of the Registrable Securities that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders;
9
<PAGE>
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this section 1.12: (1) if
Form S-3 is not available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than ninety (90) days after
receipt of the request of the Holder or Holders under this Section 1.12;
provided, however, that the Company shall not utilize this right more than once
in any twelve (12) month period; (4) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected two (2)
registrations on Form S-3 for the Holders pursuant to this Section 1.12; or (5)
in any particular jurisdiction in which the Company would be required to qualify
to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance; and
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 1.12, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company and including any underwriters' discounts or
commissions associated with Registrable Securities, shall be borne pro rata by
the Holder or Holders participating in the Form S-3 Registration.
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least 100,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided: (a) the Company is, within a reasonable time
after such transfer, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.14 below;
and (c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act. For the purposes of
10
<PAGE>
determining the number of shares of Registrable Securities held by a
transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership
(including spouses and ancestors, lineal descendants and siblings of such
partners or spouses who acquire Registrable Securities by gift, will or
intestate succession) shall be aggregated together and with the partnership;
provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices
or taking any action under this Section 1.
1.14 "MARKET STAND-OFF" AGREEMENT RIGHTS. Each Investor hereby
agrees that, during the period of duration specified by the Company and an
underwriter of Common Stock or other securities of the Company, following the
effective date of a registration statement of the Company filed under the Act,
it shall not, to the extent requested by the Company and such underwriter,
directly or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period, except
Common Stock included in such registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company that covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements; and
(c) such market stand-off time period shall not exceed one hundred
eighty (180) days.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.15 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be
entitled to exercise any right provided for in this Section 1 after five
(5) years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
initial firm commitment underwritten offering of its securities to the general
public or, as to any Holder, such earlier time at which all Registrable
Securities held by such Holder can be sold in any three (3) month period without
registration in compliance with Rule 144 of the Act.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver
to each Investor:
11
<PAGE>
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a statement of cash flows for such year,
such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("gaap"), and audited
and certified by independent public accountants of nationally recognized
standing selected by the Company;
(b) so long as such Investor holds at least 100,000 shares of
Preferred Stock (either in the form of Series A, Series B or Series C Preferred
Stock or Common Stock issued upon conversion thereof, and as adjusted for
subsequent stock splits, recombinations or reclassifications), as soon as
practicable, but in any event within forty-five (45) days after the end of each
of the first three (3) quarters of each fiscal year of the Company, an unaudited
income statement, statement of cash flows for such fiscal quarter and an
unaudited balance sheet and a statement of stockholder's equity as of the end of
such fiscal quarter;
(c) so long as such Investor holds at least 100,000 shares of
Preferred Stock (either in the form of Series A, Series B or Series C Preferred
Stock or Common Stock issued upon conversion thereof, and as adjusted for
subsequent stock splits, recombinations or reclassifications), within thirty
(30) days of the end of each month, an unaudited income statement and statement
of cash flows and balance sheet for and as of the end of such month, in
reasonable detail;
(d) so long as such Investor holds at least 100,000 shares of
Preferred Stock (either in the form of Series A, Series B or Series C Preferred
Stock or Common Stock issued upon conversion thereof, and as adjusted for
subsequent stock splits, recombinations or reclassifications), as soon as
practicable, but in any event thirty (30) days prior to the end of each fiscal
year, a budget for the next fiscal year; and
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company certifying that such financials
were prepared in accordance with gaap consistently applied with prior practice
for earlier periods (with the exception of footnotes that may be required by
gaap) and fairly present the financial condition of the Company and its results
of operation for the period specified, subject to year-end audit adjustment.
2.2 INSPECTION. The Company shall permit each Investor, at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Investor; provided, however, that the Company shall not be obligated
pursuant to this Section 2.2 to provide access to any information that it
reasonably considers to be a trade secret or similar confidential information.
2.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The
covenants set forth in Section 2.1, Section 2.2, Section 2.4, Section 2.5,
Section 2.6 and Section 2.7 shall terminate and be of no further force or effect
when the sale of securities pursuant to a registration statement filed by the
Company under the Act in connection with the firm commitment
12
<PAGE>
underwritten offering of its securities to the general public is consummated
or when the Company first becomes subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event
shall first occur.
2.4 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this paragraph 2.4, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). An Investor shall be entitled to apportion the right
of first offer hereby granted it among itself and its partners and affiliates in
such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for, any shares of any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Investors stating (i) its bona fide intention to offer such
Shares, (ii) the number of such Shares to be offered, and (iii) the price and
terms, if any, upon which it proposes to offer such Shares.
(b) By written notification received by the Company within twenty
(20) calendar days after giving of the Notice, the Investor may elect to
purchase or obtain, at the price and on the terms specified in the Notice, up to
that portion of such Shares that equals the proportion that the number of shares
of Common Stock issued and held, or issuable upon conversion of the Series A,
Series B and Series C Preferred Stock then held, by such Investor bears to the
total number of shares of Common Stock of the Company then outstanding (assuming
full conversion, exercise and exchange of all convertible, exercisable or
exchangeable securities).
(c) If all Shares that Investors are entitled to obtain pursuant
to subsection 2.4(b) are not elected to be obtained as provided in subsection
2.4(b) hereof, the Company may, during the ninety (90) day period following the
expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for
the sale of the Shares within such period, or if such agreement is not
consummated within sixty (60) days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall not be
applicable (i) to the issuance or sale of 861,304 shares of Common Stock (or
options therefor) after the date of this Agreement (excluding shares of Common
Stock repurchased at cost by the Company in connection with the termination of
service) to employees or directors of or consultants to the Company for the
primary purpose of soliciting or retaining their services, (ii) to or after
consummation of a bona fide, firmly underwritten public offering of shares of
Common Stock, registered under the Act pursuant to a registration statement on
Form S-1, at an offering price of at least $6.21 per share (appropriately
adjusted for any stock split, dividend, combination or other
13
<PAGE>
recapitalization) and $7,500,000 in the aggregate, (iii) the issuance of
securities pursuant to the conversion, exercise or exchange of convertible,
exercisable or exchangeable securities, (iv) the issuance of securities in
connection with a bona fide business acquisition of or by the Company,
whether by merger, consolidation, sale of assets, sale or exchange of stock
or otherwise, (v) the issuance of stock, warrants or other securities or
rights to persons or entities with which the Company has business
relationships, provided such issuances are for other than primarily equity
financing purposes, or (vi) shares of Series C Preferred Stock issued
pursuant to the Series C Agreement.
2.5 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. The
Company will cause each person with access to confidential information now or
hereafter employed by it or any subsidiary to enter into a proprietary
information and inventions agreement substantially in the form approved by the
Board of Directors.
2.6 CERTAIN ACTIONS REQUIRING OUTSIDE BOARD APPROVAL. The Company
covenants and agrees that it will not take any of the following actions without
obtaining the approval of the director of the Company that the Company's Amended
and Restated Certificate of Incorporation provides is to be elected by the
holders of Series A Preferred Stock, which director shall initially be Ann
Winblad:
(a) enter into any transaction with any director, officer or ten
percent (10%) or greater stockholder of the Company, excluding a director or
stockholder that is affiliated with Hummer Winblad Venture Partners II, LP; or
(b) enter into any transaction that provides for the sale or
exclusive license of technology that is material to the Company's business.
2.7 COVENANT REGARDING ISSUANCE OF ADDITIONAL SHARES OF COMMON
STOCK. The Company covenants and agrees that it will not, without obtaining the
prior consent of the director of the Company elected by the holders of Series A
Preferred Stock (which director shall initially be Ann Winblad), issue or sell
more than 861,304 additional shares of Common Stock (or options therefor) after
the date of this Agreement (excluding shares of Common Stock repurchased at cost
by the Company in connection with the termination of service). In addition, the
Company covenants and agrees that, unless the Company has obtained the prior
consent of the director of the Company elected by the holders of Series A
Preferred Stock, any shares of Common Stock (or options therefor) issued after
the date of this Agreement will be subject to a four year vesting schedule, with
25% of the shares vesting on the first anniversary of the vesting commencement
date and the balance of the shares vesting in equal monthly installments over
the next thirty-six months.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party
14
<PAGE>
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
3.2 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given (i) upon personal delivery to the party to be notified, (ii)
upon deposit with the United States Post Office, by registered or certified
mail, postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties, or (iii) upon delivery by facsimile transmission to the party to
be notified at the facsimile number indicated for such party on the signature
page hereof, or at such other facsimile number as such party may designate by
ten (10) days' advance written notice to the other parties.
3.6 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding; provided, however,
that in the event such amendment or waiver adversely affects the rights and/or
obligations of the Founders under this Agreement in a different manner than the
other Holders, such amendment or waiver shall also require the written consent
of a majority of the Common Stock held by the Founders then employed by the
Company. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.
3.8 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
15
<PAGE>
3.9 AGGREGATION OF STOCK. All shares of Registrable Securities
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
3.10 ENTIRE AGREEMENT. This Agreement (including the Exhibits
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
3.11 ADDITIONAL PARTIES. In the event of a subsequent closing with
an investor as provided for in Section 1.3 of the Series C Agreement, such
investor shall become a party to this Agreement as an "Investor" upon receipt
from such investor of a fully executed signature page.
3.12 PRIOR AGREEMENT. The Prior Agreement is hereby superseded in
its entirety and shall be of no further force or effect.
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
NET PERCEPTIONS, INC.
By:
---------------------------------------------
Steven J. Snyder
President and Chief Executive Officer
Address: 11200 West 78th Street, Suite 300
Eden Prairie, Minnesota 55344
Telephone: (612) 903-9424
Facsimile: (612) 903-9425
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS:
LONDON PACIFIC LIFE & ANNUITY COMPANY
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
Address: 3109 Poplarwood Court, Suite 108
Raleigh, North Carolina 27604
Telephone: (919) 981-2712
Facsimile: (919) 981-2797
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
ST. PAUL VENTURE CAPITAL IV, LLC
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
ST. PAUL FIRE AND MARINE INSURANCE COMPANY
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
Address: 8500 Normandale Lake Boulevard, Suite 1940
Bloomington, Minnesota 55437-3831
Telephone: (612) 830-7474
Facsimile: (612) 830-7475
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
VULCAN VENTURES INC.
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
Address: 110 110th Avenue, N.E., Suite 550
Bellevue, Washington 98004
Telephone: (206) 453-1940
Facsimile: (206) 453-1985
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
HUMMER WINBLAD VENTURE PARTNERS III, L.P.
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
HUMMER WINBLAD TECHNOLOGY FUND III, L.P.
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
HUMMER WINBLAD VENTURE PARTNERS II, L.P.
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
HUMMER WINBLAD TECHNOLOGY FUND II, L.P.
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
HUMMER WINBLAD TECHNOLOGY FUND IIA, L.P.
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
Address: Two South Park, 2nd Floor
San Francisco, California 94107
Telephone: (415) 979-9600
Facsimile: (415) 979-9601
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
STANFORD UNIVERSITY
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
Address: 2770 Sand Hill Road
Menlo Park, California 94025
Telephone:
-------------------------------------------------
Facsimile: (415) 854-9267
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
CHRISTIAN & TIMBERS
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
Address: One Corporate Exchange
25825 Science Park Drive, Suite 400
Cleveland, Ohio 44122
Telephone: (216) 464-8710
Facsimile: (216) 464-6160
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
G & H PARTNERS
By:
-----------------------------------------
Partner
Print Name:
---------------------------------
Address: 155 Constitution Drive
Menlo Park, California 94025
Telephone: (650) 321-2400
Facsimile: (650) 321-2800
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
SILICON VALLEY BANK
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
Address: 3003 Tasman Drive, NC821
Santa Clara, California 95054
Telephone: (408) 654-7776
Facsimile: (408) 496-2407
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
JAFCO AMERICA VENTURES
By:
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
Address: One Boston Place
Boston, Massachusetts 02108
Telephone:
-------------------------------------------------
Facsimile:
-------------------------------------------------
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
--------------------------------------------
Rudy Perpich, Jr.
Address: 12000 Marion Lane West, #1325
Minnetonka, Minnesota 55305
Telephone: (612) 593-0680
Facsimile:
-------------------------------------------------
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
--------------------------------------------
(Name of Investor as it should appear on the
Series C Preferred Stock Certificate)
--------------------------------------------
(Signature of Investor or Authorized
Signatory)
--------------------------------------------
(Print or Type Name and Title if Investor is
not an individual)
Address:
--------------------------------------------
--------------------------------------------
--------------------------------------------
Telephone:
--------------------------------------------
Facsimile:
--------------------------------------------
PLEASE PROVIDE ALL OF THE ABOVE-REQUESTED INFORMATION
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
FOUNDERS:
--------------------------------------------
Steven J. Snyder, Ph.D.
Address: 11200 West 78th Street, Suite 300
Eden Prairie, Minnesota 55344
Telephone: (612) 903-9424
Facsimile: (612) 903-9425
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
--------------------------------------------
John T. Riedl
Address: 11200 West 78th Street, Suite 300
Eden Prairie, Minnesota 55344
Telephone: (612) 903-9424
Facsimile: (612) 903-9425
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
--------------------------------------------
Bradley N. Miller
Address: 11200 West 78th Street, Suite 300
Eden Prairie, Minnesota 55344
Telephone: (612) 903-9424
Facsimile: (612) 903-9425
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
--------------------------------------------
David A. Gardiner
Address: 11200 West 78th Street, Suite 300
Eden Prairie, Minnesota 55344
Telephone: (612) 903-9424
Facsimile: (612) 903-9425
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
--------------------------------------------
Joseph A. Konstan
Address: 11200 West 78th Street, Suite 300
Eden Prairie, Minnesota 55344
Telephone: (612) 903-9424
Facsimile: (612) 903-9425
SIGNATURE PAGE TO NET PERCEPTIONS, INC. SERIES C
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
London Pacific Life & Annuity Company
3109 Poplarwood Court, Suite 108
Raleigh, North Carolina 27604
With a copy to:
Berkeley International Capital Corporation
650 California Street, Suite 2800
San Francisco, California 94108-2609
St. Paul Venture Capital IV, LLC
8500 Normandale Lake Boulevard, Suite 1940
Bloomington, Minnesota 55437-3831
Vulcan Ventures Inc.
110 110th Avenue, N.E., Suite 550
Bellevue, Washington 98004
Hummer Winblad Venture Partners III, L.P.
Hummer Winblad Technology Fund III, L.P.
Two South Park, 2nd Floor
San Francisco, California 94107
Christian & Timbers
One Corporate Exchange
25825 Science Park Drive, Suite 400
Cleveland, Ohio 44122
Stanford University
2770 Sand Hill Road
Menlo Park, California 94025
G & H Partners
155 Constitution Drive
Menlo Park, California 94025
Silicon Valley Bank
3003 Tasman Drive, NC821
Santa Clara, California 95054
<PAGE>
ADDENDUM NO. 1 TO SCHEDULE A
SCHEDULE OF INVESTORS
JAFCO Co., Ltd.
JAFCO G-6(A) Investment Enterprise Partnership
JAFCO G-6(B) Investment Enterprise Partnership
US Information Technology No. 2 Investment
Enterprise Partnership
Tekko Bldg., 1-8-2 Marunouchi
Chiyoda-ku, Tokyo 100, Japan
Attn: Hitoshi Imuta
Rudy Perpich, Jr.
12000 Marion Lane West, #1325
Minnetonka, Minnesota 55305
<PAGE>
SCHEDULE B
SCHEDULE OF FOUNDERS
Steven J. Snyder, Ph.D.
11200 West 78th Street, Suite 300
Eden Prairie, Minnesota 55344
John T. Riedl
11200 West 78th Street, Suite 300
Eden Prairie, Minnesota 55344
Bradley N. Miller
11200 West 78th Street, Suite 300
Eden Prairie, Minnesota 55344
David A. Gardiner
11200 West 78th Street, Suite 300
Eden Prairie, Minnesota 55344
Joseph A. Konstan
11200 West 78th Street, Suite 300
Eden Prairie, Minnesota 55344
<PAGE>
NET PERCEPTIONS, INC.
1996 STOCK PLAN
ADOPTED ON JANUARY 22, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE. . . . . . . . . . . . . . . . 1
SECTION 2. ADMINISTRATION.. . . . . . . . . . . . . . . . . . . . . 1
(a) Committees of the Board of Directors.. . . . . . . . . . . . . 1
(b) Authority of the Board of Directors. . . . . . . . . . . . . . 1
SECTION 3. ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . 1
(a) General Rule.. . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Ten-Percent Stockholders.. . . . . . . . . . . . . . . . . . . 1
SECTION 4. STOCK SUBJECT TO PLAN. . . . . . . . . . . . . . . . . . 2
(a) Basic Limitation.. . . . . . . . . . . . . . . . . . . . . . . 2
(b) Additional Shares. . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES. . . . . . . . . 2
(a) Stock Purchase Agreement.. . . . . . . . . . . . . . . . . . . 2
(b) Duration of Offers and Nontransferability of Rights. . . . . . 2
(c) Purchase Price.. . . . . . . . . . . . . . . . . . . . . . . . 2
(d) Withholding Taxes. . . . . . . . . . . . . . . . . . . . . . . 3
(e) Restrictions on Transfer of Shares.. . . . . . . . . . . . . . 3
(f) Accelerated Vesting . . . . . . . . . . . . . . . . . . . . . 3
SECTION 6. TERMS AND CONDITIONS OF OPTIONS. . . . . . . . . . . . . 3
(a) Stock Option Agreement.. . . . . . . . . . . . . . . . . . . . 3
(b) Number of Shares.. . . . . . . . . . . . . . . . . . . . . . . 3
(c) Exercise Price.. . . . . . . . . . . . . . . . . . . . . . . . 3
(d) Withholding Taxes. . . . . . . . . . . . . . . . . . . . . . . 3
(e) Exercisability . . . . . . . . . . . . . . . . . . . . . . . . 4
(f) Accelerated Exercisability . . . . . . . . . . . . . . . . . . 4
(g) Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(h) Nontransferability . . . . . . . . . . . . . . . . . . . . . . 4
(i) Termination of Service (Except by Death).. . . . . . . . . . . 4
(j) Leaves of Absence. . . . . . . . . . . . . . . . . . . . . . . 5
(k) Death of Optionee. . . . . . . . . . . . . . . . . . . . . . . 5
(l) No Rights as a Stockholder . . . . . . . . . . . . . . . . . . 5
(m) Modification, Extension and Assumption of Options. . . . . . . 5
(n) Restrictions on Transfer of Shares and Minimum Vesting . . . . 5
</TABLE>
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<TABLE>
<S> <C>
(o) Accelerated Vesting . . . . . . . . . . . . . . . . . . . . . 6
SECTION 7. PAYMENT FOR SHARES.. . . . . . . . . . . . . . . . . . . 6
(a) General Rule.. . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Surrender of Stock.. . . . . . . . . . . . . . . . . . . . . . 6
(c) Services Rendered. . . . . . . . . . . . . . . . . . . . . . . 6
(d) Promissory Note. . . . . . . . . . . . . . . . . . . . . . . . 6
(e) Exercise/Sale. . . . . . . . . . . . . . . . . . . . . . . . . 6
(f) Exercise/Pledge. . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 8. ADJUSTMENT OF SHARES.. . . . . . . . . . . . . . . . . . 7
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Mergers and Consolidations.. . . . . . . . . . . . . . . . . . 7
(c) Reservation of Rights. . . . . . . . . . . . . . . . . . . . . 7
SECTION 9. SECURITIES LAWS REQUIREMENTS.. . . . . . . . . . . . . . 8
SECTION 10. NO RETENTION RIGHTS.. . . . . . . . . . . . . . . . . . 8
SECTION 11. DURATION AND AMENDMENTS.. . . . . . . . . . . . . . . . 8
(a) Term of the Plan.. . . . . . . . . . . . . . . . . . . . . . . 8
(b) Right to Amend or Terminate the Plan.. . . . . . . . . . . . . 8
(c) Effect of Amendment or Termination.. . . . . . . . . . . . . . 8
SECTION 12. DEFINITIONS.. . . . . . . . . . . . . . . . . . . . . . 9
SECTION 13. EXECUTION.. . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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<PAGE>
NET PERCEPTIONS, INC. 1996 STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an
opportunity to acquire a proprietary interest in the success of the Company,
or to increase such interest, by purchasing Shares of the Company's Stock.
The Plan provides both for the direct award or sale of Shares and for the
grant of Options to purchase Shares. Options granted under the Plan may
include Nonstatutory Options as well as ISOs intended to qualify under
Section 422 of the Code.
Capitalized terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be
administered by one or more Committees. Each Committee shall consist of one
or more members of the Board of Directors who have been appointed by the
Board of Directors. Each Committee shall have such authority and be
responsible for such functions as the Board of Directors has assigned to it.
If no Committee has been appointed, the entire Board of Directors shall
administer the Plan. Any reference to the Board of Directors in the Plan
shall be construed as a reference to the Committee (if any) to whom the Board
of Directors has assigned a particular function.
(b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions
of the Plan, the Board of Directors shall have full authority and discretion
to take any actions it deems necessary or advisable for the administration of
the Plan. All decisions, interpretations and other actions of the Board of
Directors shall be final and binding on all Purchasers, all Optionees and all
persons deriving their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) GENERAL RULE. Only Employees, Outside Directors and
Consultants shall be eligible for the grant of Options or the direct award or
sale of Shares. Only Employees shall be eligible for the grant of ISOs.
(b) TEN-PERCENT STOCKHOLDERS. An individual who owns more than 10%
of the total combined voting power of all classes of outstanding stock of the
Company, its Parent or any of its Subsidiaries shall not be eligible for an
ISO unless (i) the Exercise Price is at least 110% of the Fair Market Value
of a Share on the date of grant, and (ii) such ISO by its terms is not
exercisable after the expiration of five years from the date of grant. For
purposes of this Subsection (b), in determining stock ownership, the
attribution rules of Section 424(d) of the Code shall be applied.
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<PAGE>
SECTION 4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. Shares offered under the Plan may be
authorized but unissued Shares or treasury Shares. The aggregate number of
Shares that may be issued under the Plan (upon exercise of Options or other
rights to acquire Shares) shall not exceed 923,429 Shares, subject to
adjustment pursuant to Section 8. The number of Shares that are subject to
Options or other rights outstanding at any time under the Plan shall not
exceed the number of Shares that then remain available for issuance under the
Plan. The Company, during the term of the Plan, shall at all times reserve
and keep available sufficient Shares to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option or
other right for any reason expires or is canceled or otherwise terminated,
the Shares allocable to the unexercised portion of such Option or other right
shall again be available for the purposes of the Plan. In the event that
Shares issued under the Plan are reacquired by the Company pursuant to any
forfeiture provision, right of repurchase or right of first refusal, such
Shares shall again be available for the purposes of the Plan, except that the
aggregate number of Shares which may be issued upon the exercise of ISOs
shall in no event exceed 923,429 Shares (subject to adjustment pursuant to
Section 8).
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under
the Plan (other than upon exercise of an Option) shall be evidenced by a
Stock Purchase Agreement between the Purchaser and the Company. Such award
or sale shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Board of Directors deems appropriate
for inclusion in a Stock Purchase Agreement. The provisions of the various
Stock Purchase Agreements entered into under the Plan need not be identical.
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right
to acquire Shares under the Plan (other than an Option) shall automatically
expire if not exercised by the Purchaser within 30 days after the grant of
such right was communicated to the Purchaser by the Company. Such right
shall not be transferable and shall be exercisable only by the Purchaser to
whom such right was granted.
(c) PURCHASE PRICE. The Purchase Price of Shares to be offered
under the Plan shall not be less than 85% of the Fair Market Value of such
Shares, and a higher percentage may be required by Section 3(b). Subject to
the preceding sentence, the Purchase Price shall be determined by the Board
of Directors at its sole discretion. The Purchase Price shall be payable in
a form described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the purchase of Shares,
the Purchaser shall make such arrangements as the Board of Directors may
require for the satisfaction of any
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<PAGE>
federal, state, local or foreign withholding tax obligations that may arise
in connection with such purchase.
(e) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any
Shares awarded or sold under the Plan shall be subject to such special
forfeiture conditions, rights of repurchase, rights of first refusal and
other transfer restrictions as the Board of Directors may determine. Such
restrictions shall be set forth in the applicable Stock Purchase Agreement
and shall apply in addition to any restrictions that may apply to holders of
Shares generally. Any such repurchase right may be exercised only within 90
days after the termination of the Purchaser's Service for cash or for
cancellation of indebtedness incurred in purchasing the Shares.
(f) ACCELERATED VESTING. Unless the applicable Stock Purchase
Agreement provides otherwise, any right to repurchase a Purchaser's Shares at
the original Purchase Price (if any) upon termination of the Purchaser's
Service shall lapse and all of such Shares shall become vested if (i) the
Company is subject to a Change in Control and (ii) the repurchase right is
not assigned to the entity that employs the Purchaser immediately after the
Change in Control or to its parent or subsidiary.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions
of the Plan and may be subject to any other terms and conditions which are
not inconsistent with the Plan and which the Board of Directors deems
appropriate for inclusion in a Stock Option Agreement. The provisions of the
various Stock Option Agreements entered into under the Plan need not be
identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify
the number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100% of
the Fair Market Value of a Share on the date of grant, and a higher
percentage may be required by Section 3(b). The Exercise Price of a
Nonstatutory Option shall not be less than 85% of the Fair Market Value of a
Share on the date of grant, and a higher percentage may be required by
Section 3(b). Subject to the preceding two sentences, the Exercise Price
under any Option shall be determined by the Board of Directors at its sole
discretion. The Exercise Price shall be payable in a form described in
Section 7.
(d) WITHHOLDING TAXES. As a condition to the exercise of an
Option, the Optionee shall make such arrangements as the Board of Directors
may require for the satisfaction of any federal, state, local or foreign
withholding tax obligations that may arise in connection with such exercise.
The Optionee shall also make such arrangements as the Board of Directors may
require
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<PAGE>
for the satisfaction of any federal, state, local or foreign
withholding tax obligations that may arise in connection with the disposition
of Shares acquired by exercising an Option.
(e) EXERCISABILITY. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. The
exercisability provisions of any Stock Option Agreement shall be determined
by the Board of Directors at its sole discretion.
(f) ACCELERATED EXERCISABILITY. Unless the applicable Stock Option
Agreement provides otherwise, all of an Optionee's Options shall become
exercisable in full if (i) the Company is subject to a Change in Control,
(ii) such Options do not remain outstanding, (iii) such Options are not
assumed by the surviving corporation or its parent and (iv) the surviving
corporation or its parent does not substitute options with substantially the
same terms for such Options.
(g) BASIC TERM. The Stock Option Agreement shall specify the term
of the Option. The term shall not exceed 10 years from the date of grant,
and a shorter term may be required by Section 3(b). Subject to the preceding
sentence, the Board of Directors at its sole discretion shall determine when
an Option is to expire.
(h) NONTRANSFERABILITY. No Option shall be transferable by the
Optionee other than by beneficiary designation, will or the laws of descent
and distribution. An Option may be exercised during the lifetime of the
Optionee only by the Optionee or by the Optionee's guardian or legal
representative. No Option or interest therein may be transferred, assigned,
pledged or hypothecated by the Optionee during the Optionee's lifetime,
whether by operation of law or otherwise, or be made subject to execution,
attachment or similar process.
(i) TERMINATION OF SERVICE (EXCEPT BY DEATH). If an Optionee's
Service terminates for any reason other than the Optionee's death, then the
Optionee's Options shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to
Subsection (g) above;
(ii) The date three months after the termination of the
Optionee's Service for any reason other than Disability; or
(iii) The date six months after the termination of the
Optionee's Service by reason of Disability.
The Optionee may exercise all or part of the Optionee's Options at any time
before the expiration of such Options under the preceding sentence, but only
to the extent that such Options had become exercisable before the Optionee's
Service terminated (or became exercisable as a result of the termination) and
the underlying Shares had vested before the Optionee's Service terminated (or
vested as a result of the termination). The balance of such Options shall
lapse when the Optionee's Service terminates. In the event that the Optionee
dies after the termination of the Optionee's Service but before the
expiration of the Optionee's Options, all or part of such Options may be
exercised (prior to expiration) by the executors or administrators of the
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<PAGE>
Optionee's estate or by any person who has acquired such Options directly
from the Optionee by beneficiary designation, bequest or inheritance, but
only to the extent that such Options had become exercisable before the
Optionee's Service terminated (or became exercisable as a result of the
termination) and the underlying Shares had vested before the Optionee's
Service terminated (or vested as a result of the termination).
(j) LEAVES OF ABSENCE. For purposes of Subsection (i) above,
Service shall be deemed to continue while the Optionee is on a bona fide
leave of absence, if such leave was approved by the Company in writing and if
continued crediting of Service for this purpose is expressly required by the
terms of such leave or by applicable law (as determined by the Company).
(k) DEATH OF OPTIONEE. If an Optionee dies while the Optionee is
in Service, then the Optionee's Options shall expire on the earlier of the
following dates:
(i) The expiration date determined pursuant to
Subsection (g) above; or
(ii) The date 12 months after the Optionee's death.
All or part of the Optionee's Options may be exercised at any time before the
expiration of such Options under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired
such Options directly from the Optionee by beneficiary designation, bequest
or inheritance, but only to the extent that such Options had become
exercisable before the Optionee's death or became exercisable as a result of
the death. The balance of such Options shall lapse when the Optionee dies.
(l) NO RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to
receive such Shares by filing a notice of exercise and paying the Exercise
Price pursuant to the terms of such Option.
(m) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of
an Option shall, without the consent of the Optionee, impair the Optionee's
rights or increase the Optionee's obligations under such Option.
(n) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any
Shares issued upon exercise of an Option shall be subject to such special
forfeiture conditions, rights of repurchase, rights of first refusal and
other transfer restrictions as the Board of Directors may determine. Such
restrictions shall be set forth in the applicable Stock Option Agreement and
shall apply in addition to any restrictions that may apply to holders of
Shares generally. Any right to repurchase an Optionee's Shares at the
original Exercise Price upon termination of the
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<PAGE>
Optionee's Service shall lapse at least as rapidly as the schedule set forth
in Subsection (e) above. Any such repurchase right may be exercised only
within 90 days after the termination of the Optionee's Service for cash or
for cancellation of indebtedness incurred in purchasing the Shares.
(o) ACCELERATED VESTING. Unless the applicable Stock Option
Agreement provides otherwise, any right to repurchase an Optionee's Shares at
the original Exercise Price upon termination of the Optionee's Service shall
lapse and all of such Shares shall become vested if (i) the Company is
subject to a Change in Control and (ii) the repurchase right is not assigned
to the entity that employs the Optionee immediately after the Change in
Control or to its parent or subsidiary.
SECTION 7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price of
Shares issued under the Plan shall be payable in cash or cash equivalents at
the time when such Shares are purchased, except as otherwise provided in this
Section 7.
(b) SURRENDER OF STOCK. To the extent that a Stock Option
Agreement so provides, payment may be made all or in part with Shares owned
by the Optionee or the Optionee's representative. Such Shares shall be
surrendered to the Company in good form for transfer and shall be valued at
their Fair Market Value on the date when the Option is exercised. This
Subsection (b) shall not apply to the extent that acceptance of Shares in
payment of the Exercise Price would cause the Company to recognize
compensation expense with respect to the Option for financial reporting
purposes.
(c) SERVICES RENDERED. At the discretion of the Board of
Directors, Shares may be awarded under the Plan in consideration of services
rendered to the Company, a Parent or a Subsidiary prior to the award.
(d) PROMISSORY NOTE. To the extent that a Stock Option Agreement
or Stock Purchase Agreement so provides, all or a portion of the Exercise
Price or Purchase Price (as the case may be) of Shares issued under the Plan
may be paid with a full-recourse promissory note. The par value of the
Shares, if newly issued, shall be paid in cash or cash equivalents. The
Shares shall be pledged as security for payment of the principal amount of
the promissory note and interest thereon. The interest rate payable under
the terms of the promissory note shall not be less than the minimum rate (if
any) required to avoid the imputation of additional interest under the Code.
Subject to the foregoing, the Board of Directors (at its sole discretion)
shall specify the term, interest rate, amortization requirements (if any) and
other provisions of such note.
(e) EXERCISE/SALE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part
by the delivery (on a form prescribed by the Company) of an irrevocable
direction to a securities broker approved by the
6
<PAGE>
Company to sell Shares and to deliver all or part of the sales proceeds to
the Company in payment of all or part of the Exercise Price and any
withholding taxes.
(f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement
so provides, and if Stock is publicly traded, payment may be made all or in
part by the delivery (on a form prescribed by the Company) of an irrevocable
direction to pledge Shares to a securities broker or lender approved by the
Company, as security for a loan, and to deliver all or part of the loan
proceeds to the Company in payment of all or part of the Exercise Price and
any withholding taxes.
SECTION 8. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding
Stock, a declaration of a dividend payable in Shares, a declaration of an
extraordinary dividend payable in a form other than Shares in an amount that
has a material effect on the Fair Market Value of the Stock, a combination or
consolidation of the outstanding Stock into a lesser number of Shares, a
recapitalization, a spin-off, a reclassification or a similar occurrence, the
Board of Directors shall make appropriate adjustments in one or more of (i)
the number of Shares available for future grants under Section 4, (ii) the
number of Shares covered by each outstanding Option or (iii) the Exercise
Price under each outstanding Option.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a
party to a merger or consolidation, outstanding Options shall be subject to
the agreement of merger or consolidation. Such agreement, without the
Optionees' consent, may provide for:
(i) The continuation of such outstanding Options by the
Company (if the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding
Options by the surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its
parent of options with substantially the same terms for such
outstanding Options; or
(iv) The cancellation of such outstanding Options without
payment of any consideration.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 8,
an Optionee or Purchaser shall have no rights by reason of (i) any
subdivision or consolidation of shares of stock of any class, (ii) the
payment of any dividend or (iii) any other increase or decrease in the number
of shares of stock of any class. Any issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or Exercise Price of Shares subject to an Option.
The grant of an Option pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its
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capital or business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
SECTION 9. SECURITIES LAW REQUIREMENTS.
Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of
1933, as amended, the rules and regulations promulgated thereunder, state
securities laws and regulations, and the regulations of any stock exchange or
other securities market on which the Company's securities may then be traded.
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan
shall confer upon the Purchaser or Optionee any right to continue in Service
for any period of specific duration or interfere with or otherwise restrict
in any way the rights of the Company (or any Parent or Subsidiary employing
or retaining the Purchaser or Optionee) or of the Purchaser or Optionee,
which rights are hereby expressly reserved by each, to terminate his or her
Service at any time and for any reason, with or without cause.
SECTION 11. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to
the approval of the Company's stockholders. In the event that the
stockholders fail to approve the Plan within 12 months after its adoption by
the Board of Directors, any grants of Options or sales or awards of Shares
that have already occurred shall be rescinded, and no additional grants,
sales or awards shall be made thereafter under the Plan. The Plan shall
terminate automatically 10 years after its adoption by the Board of Directors
and may be terminated on any earlier date pursuant to Subsection (b) below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors
may amend, suspend or terminate the Plan at any time and for any reason;
provided, however, that any amendment of the Plan which increases the number
of Shares available for issuance under the Plan (except as provided in
Section 8), or which materially changes the class of persons who are eligible
for the grant of ISOs, shall be subject to the approval of the Company's
stockholders. Stockholder approval shall not be required for any other
amendment of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued
or sold under the Plan after the termination thereof, except upon exercise of
an Option granted prior to such termination. The termination of the Plan, or
any amendment thereof, shall not affect any Share previously issued or any
Option previously granted under the Plan.
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SECTION 12. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company, as constituted from time to time.
(b) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of
the continuing or surviving entity's securities outstanding
immediately after such merger, consolidation or other
reorganization is owned by persons who were not stockholders of
the Company immediately prior to such merger, consolidation or
other reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is
to change the state of the Company's incorporation or to create a holding
company that will be owned in substantially the same proportions by the
persons who held the Company's securities immediately before such transaction.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(e) "COMPANY" shall mean Net Perceptions, Inc., a Delaware
corporation.
(f) "CONSULTANT" shall mean an individual who performs bona fide
services for the Company, a Parent or a Subsidiary as a consultant or advisor,
excluding Employees and Outside Directors.
(g) "DISABILITY" shall mean that the Optionee is unable to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment.
(h) "EMPLOYEE" shall mean any individual who is a common-law employee
of the Company, a Parent or a Subsidiary.
(i) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.
(j) "FAIR MARKET VALUE" shall mean the fair market value of a Share,
as determined by the Board of Directors in good faith. Such determination shall
be conclusive and binding on all persons.
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(k) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(l) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(m) "OPTION" shall mean an ISO or Nonstatutory Option granted under
the Plan and entitling the holder to purchase Shares.
(n) "OPTIONEE" shall mean an individual who holds an Option.
(o) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors
who is not an Employee.
(p) "PARENT" shall mean any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a
Parent on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
(q) "PLAN" shall mean this Net Perceptions, Inc. 1996 Stock Plan.
(r) "PURCHASE PRICE" shall mean the consideration for which one
Share may be acquired under the Plan (other than upon exercise of an Option),
as specified by the Board of Directors.
(s) "PURCHASER" shall mean an individual to whom the Board of
Directors has offered the right to acquire Shares under the Plan (other than
upon exercise of an Option).
(t) "SERVICE" shall mean service as an Employee, Outside Director
or Consultant.
(u) "SHARE" shall mean one share of Stock, as adjusted in
accordance with Section 8 (if applicable).
(v) "STOCK" shall mean the Common Stock of the Company, with a par
value of $0.0001 per Share.
(w) "STOCK OPTION AGREEMENT" shall mean the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to the Optionee's Option.
(x) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the
Company and a Purchaser who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such
Shares.
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(y) "SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board of Directors, the
Company has caused its authorized officer to execute the same.
NET PERCEPTIONS, INC.
By: --------------------------------
Title: -----------------------------
11
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NET PERCEPTIONS, INC.
1999 EQUITY INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. INTRODUCTION......................................................1
ARTICLE 2. ADMINISTRATION....................................................1
2.1 Committee Composition...............................................1
2.2 Committee Responsibilities..........................................1
2.3 Committee for Non-Officer Grants....................................1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.......................................2
3.1 Basic Limitation....................................................2
3.2 Annual Increase in Shares...........................................2
3.3 Additional Shares...................................................2
3.4 Dividend Equivalents................................................2
ARTICLE 4. ELIGIBILITY.......................................................2
4.1 Incentive Stock Options.............................................2
4.2 Other Grants........................................................3
ARTICLE 5. OPTIONS...........................................................3
5.1 Stock Option Agreement..............................................3
5.2 Number of Shares....................................................3
5.3 Exercise Price......................................................3
5.4 Exercisability and Term.............................................3
5.6 Modification or Assumption of Options...............................3
5.7 Buyout Provisions...................................................4
ARTICLE 6. PAYMENT FOR OPTION SHARES.........................................4
6.1 General Rule........................................................4
6.2 Surrender of Common Stock...........................................4
6.3 Exercise/Sale.......................................................4
6.4 Exercise/Pledge....................................................4
6.5 Promissory Note.....................................................4
6.6 Other Forms of Payment..............................................5
ARTICLE 7. STOCK APPRECIATION RIGHTS.........................................5
7.1 SAR Agreement.......................................................5
7.2 Number of Shares....................................................5
7.3 Exercise Price......................................................5
7.4 Exercisability and Term.............................................5
7.5 Exercise of SARs....................................................5
7.6 Modification or Assumption of SARs..................................6
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ARTICLE 8. RESTRICTED SHARES.................................................6
8.1 Restricted Stock Agreement..........................................6
8.2 Payment for Awards..................................................6
8.3 Vesting Conditions..................................................6
8.4 Voting and Dividend Rights..........................................6
ARTICLE 9. STOCK UNITS.......................................................6
9.1 Stock Unit Agreement................................................6
9.2 Payment for Awards..................................................6
9.3 Vesting Conditions..................................................7
9.4 Voting and Dividend Rights..........................................7
9.5 Form and Time of Settlement of Stock Units..........................7
9.6 Death of Recipient..................................................7
9.7 Creditors' Rights...................................................7
ARTICLE 10. CHANGE IN CONTROL................................................7
10.1 Effect of Change in Control........................................7
10.2 Involuntary Termination............................................8
ARTICLE 11. PROTECTION AGAINST DILUTION......................................8
11.1 Adjustments........................................................8
11.2 Dissolution or Liquidation.........................................8
11.3 Reorganizations....................................................9
ARTICLE 12. DEFERRAL OF AWARDS...............................................9
ARTICLE 13. AWARDS UNDER OTHER PLANS.........................................9
ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES........................10
14.1 Effective Date....................................................10
14.2 Elections to Receive NSOs, Restricted Shares or Stock Units.......10
14.3 Number and Terms of NSOs, Restricted Shares or Stock Units........10
ARTICLE 15. LIMITATION ON RIGHTS............................................10
15.1 Retention Rights..................................................10
15.2 Stockholders' Rights..............................................10
15.3 Regulatory Requirements...........................................10
ARTICLE 16. WITHHOLDING TAXES...............................................11
16.1 General...........................................................11
16.2 Share Withholding.................................................11
ARTICLE 17. FUTURE OF THE PLAN..............................................11
17.1 Term of the Plan..................................................11
17.2 Amendment or Termination..........................................11
ARTICLE 18. LIMITATION ON PAYMENTS..........................................11
18.1 Scope of Limitation...............................................11
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18.2 Basic Rule........................................................12
18.3 Reduction of Payments.............................................12
18.4 Overpayments and Underpayments....................................12
18.5 Related Corporations..............................................13
ARTICLE 19. DEFINITIONS.....................................................13
</TABLE>
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NET PERCEPTIONS, INC.
1999 EQUITY INCENTIVE PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board to be effective as of the date of
the IPO. The purpose of the Plan is to promote the long-term success of the
Corporation and the creation of stockholder value by (a) encouraging Employees,
Outside Directors and Consultants to focus on critical long-range objectives,
(b) encouraging the attraction and retention of Employees, Outside Directors and
Consultants with exceptional qualifications and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased
stock ownership. The Plan seeks to achieve this purpose by providing for Awards
in the form of Restricted Shares, Stock Units, Options (which may constitute
incentive stock options or nonstatutory stock options) or stock appreciation
rights.
The Plan shall be governed by, and construed in accordance with,
the laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Corporation, who shall be appointed by the Board. In addition, the
composition of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange
Commission may establish for administrators acting under plans
intended to qualify for exemption under Rule 16b-3 (or its successor)
under the Exchange Act; and
(b) Such requirements as the Internal Revenue Service may
establish for outside directors acting under plans intended to qualify
for exemption under Section 162(m)(4)(C) of the Code.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Awards, (c) interpret the Plan and (d) make all other
decisions relating to the operation of the Plan. The Committee may adopt such
rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons.
2.3 COMMITTEE FOR NON-OFFICER GRANTS. The Board may also appoint a
secondary committee of the Board, which shall be composed of one or more
directors of the Corporation who need not satisfy the requirements of Section
2.1. Such secondary committee may administer the Plan with respect to Employees
and Consultants who are not considered officers or directors of the Corporation
under Section 16 of the Exchange Act, may grant Awards under the Plan to
<PAGE>
such Employees and Consultants and may determine all features and conditions of
such Awards. Within the limitations of this Section 2.3, any reference in the
Plan to the Committee shall include such secondary committee.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Shares of Common Stock issued pursuant to the
Plan may be authorized but unissued shares or treasury shares. The aggregate
number of Options, SARs, Stock Units and Restricted Shares awarded under the
Plan shall not exceed (a) __________, plus shares remaining available for
issuance under the Predecessor Plan, plus (b) the additional shares of Common
Stock described in Sections 3.2 and 3.3. The limitation of this Section 3.1
shall be subject to adjustment pursuant to Article 11.
3.2 ANNUAL INCREASE IN SHARES. As of January 1 of each year,
commencing with the year 2000 and ending with the year 2002, the aggregate
number of Options, SARs, Stock Units and Restricted Shares that may be awarded
under the Plan shall automatically increase by a number equal to the lesser of
(a) 5% of the total number of shares of Common Stock then outstanding or
(b) __________ shares.
3.3 ADDITIONAL SHARES. If Restricted Shares or shares of Common Stock
issued upon the exercise of Options are forfeited (including any options
incorporated from the Predecessor Plan), then such shares of Common Stock shall
again become available for Awards under the Plan. If Stock Units, Options or
SARs are forfeited or terminate for any other reason before being exercised,
then the corresponding shares of Common Stock shall again become available for
Awards under the Plan. If Stock Units are settled, then only the number of
shares of Common Stock (if any) actually issued in settlement of such Stock
Units shall reduce the number available under Section 3.1 and the balance shall
again become available for Awards under the Plan. If SARs are exercised, then
only the number of shares of Common Stock (if any) actually issued in settlement
of such SARs shall reduce the number available under Section 3.1 and the balance
shall again become available for Awards under the Plan. The foregoing
notwithstanding, the aggregate number of shares of Common Stock that may be
issued under the Plan upon the exercise of ISOs shall not be increased when
Restricted Shares or other shares of Common Stock are forfeited.
3.4 DIVIDEND EQUIVALENTS. Any dividend equivalents paid or credited
under the Plan shall not be applied against the number of Restricted Shares,
Stock Units, Options or SARs available for Awards, whether or not such dividend
equivalents are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 INCENTIVE STOCK OPTIONS. Only Employees who are common-law
employees of the Corporation, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, an Employee who owns more than 10% of the total
combined voting power of all classes of outstanding stock of the Corporation or
any of its Parents or Subsidiaries shall not be eligible for the grant of an ISO
unless the requirements set forth in Section 422(c)(6) of the Code are
satisfied.
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<PAGE>
4.2 OTHER GRANTS. Only Employees, Outside Directors and Consultants
shall be eligible for the grant of Restricted Shares, Stock Units, NSOs or SARs.
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Corporation. Such Option shall be subject to all applicable terms of the Plan
and may be subject to any other terms that are not inconsistent with the Plan.
The Stock Option Agreement shall specify whether the Option is an ISO or an NSO.
The provisions of the various Stock Option Agreements entered into under the
Plan need not be identical. Options may be granted in consideration of a
reduction in the Optionee's other compensation. A Stock Option Agreement may
provide that a new Option will be granted automatically to the Optionee when he
or she exercises a prior Option and pays the Exercise Price in the form
described in Section 6.2.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of shares of Common Stock subject to the Option and shall provide for the
adjustment of such number in accordance with Article 11. Options granted to any
Optionee in a single fiscal year of the Corporation shall not cover more than
750,000 shares of Common Stock, except that Options granted to a new Employee in
the fiscal year of the Corporation in which his or her service as an Employee
first commences shall not cover more than 1,000,000 shares of Common Stock. The
limitations set forth in the preceding sentence shall be subject to adjustment
in accordance with Article 11.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a share of Common Stock on the
date of grant and the Exercise Price under an NSO shall in no event be less than
85% of the Fair Market Value of a share of Common Stock on the date of grant.
In the case of an NSO, a Stock Option Agreement may specify an Exercise Price
that varies in accordance with a predetermined formula while the NSO is
outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify
the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service. Options may be awarded in
combination with SARs, and such an Award may provide that the Options will not
be exercisable unless the related SARs are forfeited.
5.5 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the
Corporation or by another issuer) in return for the grant of new options for the
same or a different number of shares and at the same or a different exercise
price. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option.
3
<PAGE>
5.6 BUYOUT PROVISIONS. The Committee may at any time (a) offer to buy
out for a payment in cash or cash equivalents an Option previously granted or
(b) authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of shares of Common Stock
issued upon exercise of Options shall be payable in cash or cash equivalents at
the time when such shares of Common Stock are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment
shall be made only pursuant to the express provisions of the
applicable Stock Option Agreement. The Stock Option Agreement may
specify that payment may be made in any form(s) described in this
Article 6.
(b) In the case of an NSO, the Committee may at any time
accept payment in any form(s) described in this Article 6.
6.2 SURRENDER OF COMMON STOCK. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, shares of Common Stock that are already owned
by the Optionee. Such shares of Common Stock shall be valued at their Fair
Market Value on the date when the new shares of Common Stock are purchased under
the Plan. The Optionee shall not surrender, or attest to the ownership of,
shares of Common Stock in payment of the Exercise Price if such action would
cause the Corporation to recognize compensation expense (or additional
compensation expense) with respect to the Option for financial reporting
purposes.
6.3 EXERCISE/SALE. To the extent that this Section 6.3 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Corporation) an irrevocable direction to
a securities broker approved by the Corporation to sell all or part of the
shares of Common Stock being purchased under the Plan and to deliver all or part
of the sales proceeds to the Corporation.
6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Corporation) an irrevocable
direction to pledge all or part of the shares of Common Stock being purchased
under the Plan to a securities broker or lender approved by the Corporation, as
security for a loan, and to deliver all or part of the loan proceeds to the
Corporation.
6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Corporation) a full-recourse
promissory note. However, the par value of the shares of Common Stock being
purchased under the Plan, if newly issued, shall be paid in cash or cash
equivalents.
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6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS.
7.1 SAR AGREEMENT. Each grant of a SAR under the Plan shall be
evidenced by an SAR Agreement between the Optionee and the Corporation. Such
SAR shall be subject to all applicable terms of the Plan and may be subject to
any other terms that are not inconsistent with the Plan. The provisions of the
various SAR Agreements entered into under the Plan need not be identical. SARs
may be granted in consideration of a reduction in the Optionee's other
compensation.
7.2 NUMBER OF SHARES. Each SAR Agreement shall specify the number of
shares of Common Stock to which the SAR pertains and shall provide for the
adjustment of such number in accordance with Article 11. SARs granted to any
Optionee in a single calendar year shall in no event pertain to more than
750,000 shares of Common Stock, except that SARs granted to a new Employee in
the fiscal year of the Corporation in which his or her service as an Employee
first commences shall not pertain to more than 1,000,000 shares of Common Stock.
The limitations set forth in the preceding sentence shall be subject to
adjustment in accordance with Article 11.
7.3 EXERCISE PRICE. Each SAR Agreement shall specify the Exercise
Price. A SAR Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the SAR is outstanding.
7.4 EXERCISABILITY AND TERM. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may be
awarded in combination with Options, and such an Award may provide that the SARs
will not be exercisable unless the related Options are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. A SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
7.5 EXERCISE OF SARS. Upon exercise of a SAR, the Optionee (or any
person having the right to exercise the SAR after his or her death) shall
receive from the Corporation (a) shares of Common Stock, (b) cash or (c) a
combination of shares of Common Stock and cash, as the Committee shall
determine. The amount of cash and/or the Fair Market Value of shares of Common
Stock received upon exercise of SARs shall, in the aggregate, be equal to the
amount by which the Fair Market Value (on the date of surrender) of the shares
of Common Stock subject to the SARs exceeds the Exercise Price. If, on the date
when an SAR expires, the Exercise Price under such SAR is less than the Fair
Market Value on such date but any portion of such SAR has not been exercised or
surrendered, then such SAR shall automatically be deemed to be exercised as of
such date with respect to such portion.
5
<PAGE>
7.6 MODIFICATION OR ASSUMPTION OF SARS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Corporation or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of an SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.
ARTICLE 8. RESTRICTED SHARES.
8.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Shares under
the Plan shall be evidenced by a Restricted Stock Agreement between the
recipient and the Corporation. Such Restricted Shares shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical.
8.2 PAYMENT FOR AWARDS. Subject to the following sentence, Restricted
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash equivalents,
full-recourse promissory notes, past services and future services. To the
extent that an Award consists of newly issued Restricted Shares, the Award
recipient shall furnish consideration with a value not less than the par value
of such Restricted Shares in the form of cash, cash equivalents or past services
rendered to the Corporation (or a Parent or Subsidiary), as the Committee may
determine.
8.3 VESTING CONDITIONS. Each award of Restricted Shares may or may not
be subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Stock Agreement. A
Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events.
8.4 VOTING AND DIVIDEND RIGHTS. The holders of Restricted Shares
awarded under the Plan shall have the same voting, dividend and other rights as
the Corporation's other stockholders. A Restricted Stock Agreement, however,
may require that the holders of Restricted Shares invest any cash dividends
received in additional Restricted Shares. Such additional Restricted Shares
shall be subject to the same conditions and restrictions as the Award with
respect to which the dividends were paid.
ARTICLE 9. STOCK UNITS.
9.1 STOCK UNIT AGREEMENT. Each grant of Stock Units under the Plan
shall be evidenced by a Stock Unit Agreement between the recipient and the
Corporation. Such Stock Units shall be subject to all applicable terms of the
Plan and may be subject to any other terms that are not inconsistent with the
Plan. The provisions of the various Stock Unit Agreements entered into under
the Plan need not be identical. Stock Units may be granted in consideration of
a reduction in the recipient's other compensation.
9.2 PAYMENT FOR AWARDS. To the extent that an Award is granted in the
form of Stock Units, no cash consideration shall be required of the Award
recipients.
6
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9.3 VESTING CONDITIONS. Each Award of Stock Units may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events.
9.4 VOTING AND DIVIDEND RIGHTS. The holders of Stock Units shall have
no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded
under the Plan may, at the Committee's discretion, carry with it a right to
dividend equivalents. Such right entitles the holder to be credited with an
amount equal to all cash dividends paid on one share of Common Stock while the
Stock Unit is outstanding. Dividend equivalents may be converted into
additional Stock Units. Settlement of dividend equivalents may be made in the
form of cash, in the form of shares of Common Stock, or in a combination of
both. Prior to distribution, any dividend equivalents which are not paid shall
be subject to the same conditions and restrictions as the Stock Units to which
they attach.
9.5 FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) shares of Common Stock or
(c) any combination of both, as determined by the Committee. The actual number
of Stock Units eligible for settlement may be larger or smaller than the number
included in the original Award, based on predetermined performance factors.
Methods of converting Stock Units into cash may include (without limitation) a
method based on the average Fair Market Value of shares of Common Stock over a
series of trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting
conditions applicable to the Stock Units have been satisfied or have lapsed, or
it may be deferred to any later date. The amount of a deferred distribution may
be increased by an interest factor or by dividend equivalents. Until an Award
of Stock Units is settled, the number of such Stock Units shall be subject to
adjustment pursuant to Article 11.
9.6 DEATH OF RECIPIENT. Any Stock Unit Award that becomes payable
after the recipient's death shall be distributed to the recipient's beneficiary
or beneficiaries. Each recipient of a Stock Unit Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Corporation. A beneficiary designation may be changed by filing
the prescribed form with the Corporation at any time before the Award
recipient's death. If no beneficiary was designated or if no designated
beneficiary survives the Award recipient, then any Stock Unit Award that becomes
payable after the recipient's death shall be distributed to the recipient's
estate.
9.7 CREDITORS' RIGHTS. A holder of Stock Units shall have no rights
other than those of a general creditor of the Corporation. Stock Units
represent an unfunded and unsecured obligation of the Corporation, subject to
the terms and conditions of the applicable Stock Unit Agreement.
ARTICLE 10. CHANGE IN CONTROL
10.1 EFFECT OF CHANGE IN CONTROL. In the event of any Change in
Control, each outstanding Award shall automatically accelerate so that each such
Award shall, immediately prior to the effective date of the Change in Control,
become fully exercisable for all of the shares
7
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of Common Stock at the time subject to such Award and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. However, an
outstanding Award shall NOT so accelerate if and to the extent such Award is, in
connection with the Change in Control, either to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable Award for
shares of the capital stock of the successor corporation (or parent thereof).
The determination of Award comparability shall be made by the Plan
Administrator, and its determination shall be final, binding and conclusive.
10.2 INVOLUNTARY TERMINATION. In addition, in the event that the Award
is assumed by the successor corporation (or parent thereof) and the Participant
experiences an Involuntary Termination within eighteen months following a Change
in Control, each outstanding Award shall automatically accelerate so that each
such Award shall, immediately prior to the effective date of the Involuntary
Termination, become fully exercisable for all of the shares of Common Stock at
the time subject to such Award and may be exercised for any or all of those
shares as fully-vested shares of Common Stock.
ARTICLE 11. PROTECTION AGAINST DILUTION.
11.1 ADJUSTMENTS. In the event of a subdivision of the outstanding
shares of Common Stock, a declaration of a dividend payable in shares of Common
Stock, a declaration of a dividend payable in a form other than shares of Common
Stock in an amount that has a material effect on the price of shares of Common
Stock, a combination or consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise) into a lesser number of shares of Common
Stock, a recapitalization, a spin-off or a similar occurrence, the Committee
shall make such adjustments as it, in its sole discretion, deems appropriate in
one or more of:
(a) The number of Options, SARs, Restricted Shares and
Stock Units available for future Awards under Article 3;
(b) The limitations set forth in Sections 5.2 and 8.2;
(c) The number of shares of Common Stock covered by each
outstanding Option and SAR;
(d) The Exercise Price under each outstanding Option and
SAR; or
(e) The number of Stock Units included in any prior Award
which has not yet been settled.
Except as provided in this Article 11, a Participant shall have no rights by
reason of any issue by the Corporation of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
11.2 DISSOLUTION OR LIQUIDATION. To the extent not previously exercised
or settled, Options, SARs and Stock Units shall terminate immediately prior to
the dissolution or liquidation of the Corporation.
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11.3 REORGANIZATIONS. In the event that the Corporation is a party to a
merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for (a) the
continuation of the outstanding Awards by the Corporation, if the Corporation is
a surviving corporation, (b) the assumption of the outstanding Awards by the
surviving corporation or its parent or subsidiary, (c) the substitution by the
surviving corporation or its parent or subsidiary of its own awards for the
outstanding Awards, (d) full exercisability or vesting and accelerated
expiration of the outstanding Awards or (e) settlement of the full value of the
outstanding Awards in cash or cash equivalents followed by cancellation of such
Awards.
ARTICLE 12. DEFERRAL OF AWARDS.
The Committee (in its sole discretion) may permit or require a
Participant to:
(a) Have cash that otherwise would be paid to such
Participant as a result of the exercise of an SAR or the settlement of
Stock Units credited to a deferred compensation account established
for such Participant by the Committee as an entry on the Corporation's
books;
(b) Have shares of Common Stock that otherwise would be
delivered to such Participant as a result of the exercise of an Option
or SAR converted into an equal number of Stock Units; or
(c) Have shares of Common Stock that otherwise would be
delivered to such Participant as a result of the exercise of an Option
or SAR or the settlement of Stock Units converted into amounts
credited to a deferred compensation account established for such
Participant by the Committee as an entry on the Corporation's books.
Such amounts shall be determined by reference to the Fair Market Value
of such shares of Common Stock as of the date when they otherwise
would have been delivered to such Participant.
A deferred compensation account established under this Article 12 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Corporation. Such an
account shall represent an unfunded and unsecured obligation of the Corporation
and shall be subject to the terms and conditions of the applicable agreement
between such Participant and the Corporation. If the deferral or conversion of
Awards is permitted or required, the Committee (in its sole discretion) may
establish rules, procedures and forms pertaining to such Awards, including
(without limitation) the settlement of deferred compensation accounts
established under this Article 12.
ARTICLE 13. AWARDS UNDER OTHER PLANS.
The Corporation may grant awards under other plans or programs.
Such awards may be settled in the form of shares of Common Stock issued under
this Plan. Such shares of Common Stock shall be treated for all purposes under
the Plan like shares of Common Stock
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issued in settlement of Stock Units and shall, when issued, reduce the number of
shares of Common Stock available under Article 3.
ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
14.1 EFFECTIVE DATE. No provision of this Article 14 shall be effective
unless and until the Board has determined to implement such provision.
14.2 ELECTIONS TO RECEIVE NSOs, RESTRICTED SHARES OR STOCK UNITS. An
Outside Director may elect to receive his or her annual retainer payments and/or
meeting fees from the Corporation in the form of cash, NSOs, Restricted Shares
or Stock Units, or a combination thereof, as determined by the Board. Such
NSOs, Restricted Shares and Stock Units shall be issued under the Plan. An
election under this Article 14 shall be filed with the Corporation on the
prescribed form.
14.3 NUMBER AND TERMS OF NSOs, RESTRICTED SHARES OR STOCK UNITS. The
number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner determined by the Board. The terms
of such NSOs, Restricted Shares or Stock Units shall also be determined by the
Board.
ARTICLE 15. LIMITATION ON RIGHTS.
15.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Corporation and its Parents, Subsidiaries
and Affiliates reserve the right to terminate the service of any Employee,
Outside Director or Consultant at any time, with or without cause, subject to
applicable laws, the Corporation's certificate of incorporation and by-laws and
a written employment agreement (if any).
15.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any shares of
Common Stock covered by his or her Award prior to the time when a stock
certificate for such shares of Common Stock is issued or, if applicable, the
time when he or she becomes entitled to receive such shares of Common Stock by
filing any required notice of exercise and paying any required Exercise Price.
No adjustment shall be made for cash dividends or other rights for which the
record date is prior to such time, except as expressly provided in the Plan.
15.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Corporation to issue shares of Common
Stock under the Plan shall be subject to all applicable laws, rules and
regulations and such approval by any regulatory body as may be required. The
Corporation reserves the right to restrict, in whole or in part, the delivery of
shares of Common Stock pursuant to any Award prior to the satisfaction of all
legal requirements relating to the issuance of such shares of Common Stock, to
their registration, qualification or listing or to an exemption from
registration, qualification or listing.
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ARTICLE 16. WITHHOLDING TAXES.
16.1 GENERAL. To the extent required by applicable federal, state,
local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Corporation for the satisfaction of any
withholding tax obligations that arise in connection with the Plan. The
Corporation shall not be required to issue any shares of Common Stock or make
any cash payment under the Plan until such obligations are satisfied.
16.2 SHARE WITHHOLDING. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Corporation withhold all or a portion of any shares of Common Stock
that otherwise would be issued to him or her or by surrendering all or a portion
of any shares of Common Stock that he or she previously acquired. Such shares
of Common Stock shall be valued at their Fair Market Value on the date when
taxes otherwise would be withheld in cash.
ARTICLE 17. FUTURE OF THE PLAN.
17.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective as of the date of the IPO. The Plan shall remain in effect until it
is terminated under Section 17.2, except that no ISOs shall be granted on or
after the 10th anniversary of the later of (a) the date when the Board adopted
the Plan or (b) the date when the Board adopted the most recent increase in the
number of shares of Common Stock available under Article 3 which was approved by
the Corporation's stockholders.
17.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Corporation's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the
Plan after the termination thereof. The termination of the Plan, or any
amendment thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 18. LIMITATION ON PAYMENTS.
18.1 SCOPE OF LIMITATION. This Article 18 shall apply to an Award only
if:
(a) The independent auditors most recently selected by the
Board (the "Auditors") determine that the after-tax value of such
Award to the Participant, taking into account the effect of all
federal, state and local income taxes, employment taxes and excise
taxes applicable to the Participant (including the excise tax under
Section 4999 of the Code), will be greater after the application of
this Article 18 than it was before the application of this Article 18;
or
(b) The Committee, at the time of making an Award under the
Plan or at any time thereafter, specifies in writing that such Award
shall be subject to this Article 18 (regardless of the after-tax value
of such Award to the Participant).
If this Article 18 applies to an Award, it shall supersede any contrary
provision of the Plan or of any Award granted under the Plan.
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18.2 BASIC RULE. In the event that the Auditors determine that any
payment or transfer by the Corporation under the Plan to or for the benefit of a
Participant (a "Payment") would be nondeductible by the Corporation for federal
income tax purposes because of the provisions concerning "excess parachute
payments" in Section 280G of the Code, then the aggregate present value of all
Payments shall be reduced (but not below zero) to the Reduced Amount. For
purposes of this Article 18, the "Reduced Amount" shall be the amount, expressed
as a present value, which maximizes the aggregate present value of the Payments
without causing any Payment to be nondeductible by the Corporation because of
Section 280G of the Code.
18.3 REDUCTION OF PAYMENTS. If the Auditors determine that any Payment
would be nondeductible by the Corporation because of Section 280G of the Code,
then the Corporation shall promptly give the Participant notice to that effect
and a copy of the detailed calculation thereof and of the Reduced Amount, and
the Participant may then elect, in his or her sole discretion, which and how
much of the Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Payments equals the Reduced Amount)
and shall advise the Corporation in writing of his or her election within
10 days of receipt of notice. If no such election is made by the Participant
within such 10-day period, then the Corporation may elect which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
notify the Participant promptly of such election. For purposes of this
Article 18, present value shall be determined in accordance with
Section 280G(d)(4) of the Code. All determinations made by the Auditors under
this Article 18 shall be binding upon the Corporation and the Participant and
shall be made within 60 days of the date when a Payment becomes payable or
transferable. As promptly as practicable following such determination and the
elections hereunder, the Corporation shall pay or transfer to or for the benefit
of the Participant such amounts as are then due to him or her under the Plan and
shall promptly pay or transfer to or for the benefit of the Participant in the
future such amounts as become due to him or her under the Plan.
18.4 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in the
application of Section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Corporation which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Corporation could have
been made (an "Underpayment"), consistent in each case with the calculation of
the Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the
Corporation or the Participant which the Auditors believe has a high probability
of success, determine that an Overpayment has been made, such Overpayment shall
be treated for all purposes as a loan to the Participant which he or she shall
repay to the Corporation, together with interest at the applicable federal rate
provided in Section 7872(f)(2) of the Code; provided, however, that no amount
shall be payable by the Participant to the Corporation if and to the extent that
such payment would not reduce the amount which is subject to taxation under
Section 4999 of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Underpayment shall promptly be paid or
transferred by the Corporation to or for the benefit of the Participant,
together with interest at the applicable federal rate provided in
Section 7872(f)(2) of the Code.
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18.5 RELATED CORPORATIONS. For purposes of this Article 18, the term
"Corporation" shall include affiliated corporations to the extent determined by
the Auditors in accordance with Section 280G(d)(5) of the Code.
ARTICLE 19. DEFINITIONS.
19.1 "AFFILIATE" means any entity other than a Subsidiary, if the
Corporation and/or one or more Subsidiaries own not less than 50% of such
entity.
19.2 "AWARD" means any award of an Option, an SAR, a Restricted Share or
a Stock Unit under the Plan.
19.3 "BOARD" means the Corporation's Board of Directors, as constituted
from time to time.
19.4 "CHANGE IN CONTROL" shall mean:
(a) The consummation of a merger or consolidation of the
Corporation with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the
continuing or surviving entity's securities outstanding immediately
after such merger, consolidation or other reorganization is owned by
persons who were not stockholders of the Corporation immediately prior
to such merger, consolidation or other reorganization;
(b) The sale, transfer or other disposition of all or
substantially all of the Corporation's assets;
(c) A change in the composition of the Board, as a result
of which fewer than two-thirds of the incumbent directors are
directors who either (i) had been directors of the Corporation on the
date 24 months prior to the date of the event that may constitute a
Change in Control (the "original directors") or (ii) were elected, or
nominated for election, to the Board with the affirmative votes of at
least a majority of the aggregate of the original directors who were
still in office at the time of the election or nomination and the
directors whose election or nomination was previously so approved; or
(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing
at least 50% of the total voting power represented by the
Corporation's then outstanding voting securities. For purposes of
this Paragraph (d), the term "person" shall have the same meaning as
when used in Sections 13(d) and 14(d) of the Exchange Act but shall
exclude (i) a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation or of a Parent or Subsidiary
and (ii) a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions
as their ownership of the common stock of the Corporation.
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A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Corporation's incorporation or to create a holding
company that will be owned in substantially the same proportions by the persons
who held the Corporation's securities immediately before such transaction.
19.5 "CODE" means the Internal Revenue Code of 1986, as amended.
19.6 "COMMITTEE" means a committee of the Board, as described in
Article 2.
19.7 "COMMON STOCK" means the common stock of the Corporation.
19.8 "CONSULTANT" means a consultant or adviser who provides bona fide
services to the Corporation, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.
19.9 "CORPORATION" means Net Perceptions, Inc., a Delaware corporation.
19.10 "EMPLOYEE" means a common-law employee of the Corporation, a
Parent, a Subsidiary or an Affiliate.
19.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
19.12 "EXERCISE PRICE," in the case of an Option, means the amount for
which one share of Common Stock may be purchased upon exercise of such Option,
as specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
19.13 "FAIR MARKET VALUE" means the market price of shares of Common
Stock, determined by the Committee in good faith on such basis as it deems
appropriate. Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in THE WALL STREET JOURNAL.
Such determination shall be conclusive and binding on all persons.
19.14 "INVOLUNTARY TERMINATION" means the termination of the Service of
any individual which occurs by reason of:
(a) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(b) such individual's voluntary resignation following (A)
a change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
participation in bonus or incentive programs) or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
by the Corporation without the individual's consent.
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19.15 "IPO" means the initial offering of Common Stock to the public
pursuant to a registration statement filed by the Corporation with the
Securities and Exchange Commission.
19.16 "ISO" means an incentive stock option described in Section 422(b)
of the Code.
19.17 "MISCONDUCT" means the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee or Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).
19.18 "NSO" means a stock option not described in Sections 422 or 423 of
the Code.
19.19 "OPTION" means an ISO or NSO granted under the Plan and entitling
the holder to purchase shares of Common Stock.
19.20 "OPTIONEE" means an individual or estate who holds an Option or
SAR.
19.21 "OUTSIDE DIRECTOR" shall mean a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.1.
19.22 "PARENT" means any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, if each of the
corporations other than the Corporation owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent commencing
as of such date.
19.23 "PARTICIPANT" means an individual or estate who holds an Award.
19.24 "PLAN" means this Net Perceptions, Inc. 1999 Equity Incentive Plan,
as amended from time to time.
19.25 "PREDECESSOR PLAN" means the Corporation's existing 1996 Stock
Plan.
19.26 "RESTRICTED SHARE" means a Common Share awarded under the Plan.
19.27 "RESTRICTED STOCK AGREEMENT" means the agreement between the
Corporation and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Share.
19.28 "SAR" means a stock appreciation right granted under the Plan.
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19.29 "SAR AGREEMENT" means the agreement between the Corporation and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
19.30 "STOCK OPTION AGREEMENT" means the agreement between the
Corporation and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.
19.31 "STOCK UNIT" means a bookkeeping entry representing the equivalent
of one Common Share, as awarded under the Plan.
19.32 "STOCK UNIT AGREEMENT" means the agreement between the Corporation
and the recipient of a Stock Unit which contains the terms, conditions and
restrictions pertaining to such Stock Unit.
19.33 "SUBSIDIARY" means any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
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NET PERCEPTIONS, INC.
1999 NON-EMPLOYEE DIRECTOR OPTION PLAN
<PAGE>
NET PERCEPTIONS, INC.
1999 NON-EMPLOYEE DIRECTOR OPTION PLAN
ARTICLE 1. PURPOSE OF THE PLAN
The Plan is intended to promote the interests of the Corporation by
providing the non-employee members of the Board with the opportunity to acquire
a proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in the service of the
Corporation.
ARTICLE 2. ADMINISTRATION
The terms and conditions of each automatic option grant (including the
timing and pricing of the option grant) shall be determined by the express terms
and conditions of the Plan, and neither the Board nor any committee of the Board
shall exercise any discretionary functions with respect to option grants made
pursuant to the Plan.
ARTICLE 3. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the
Plan and shall be drawn from either the Corporation's authorized but unissued
shares of Common Stock or from reacquired shares of Common Stock, including
shares repurchased by the Corporation on the open market. The number of shares
of Common Stock reserved for issuance over the term of the Plan shall be fixed
at 250,000 shares.
B. Should one or more outstanding options under this Plan expire or
terminate for any reason prior to exercise in full, then the shares subject to
the portion of each option not so exercised shall be available for subsequent
option grant under the Plan. In addition, should the exercise price of an
outstanding option under the Plan be paid with shares of Common Stock, then the
number of shares of Common Stock available for issuance under the Plan shall be
reduced by the net number of shares of Common Stock actually issued to the
holder of such option.
C. Should any change be made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
for which automatic option grants are to be subsequently made to each
newly-elected or continuing non-employee Board member under the Plan, and
(iii) the number and/or class of securities and price per share in effect under
each option outstanding under the Plan. The adjustments to the outstanding
options shall be made by the Board in a manner which shall
<PAGE>
preclude the enlargement or dilution of rights and benefits under such options
and shall be final, binding and conclusive.
ARTICLE 4. ELIGIBILITY
The individuals eligible to receive automatic option grants pursuant
to the provisions of this Plan shall be limited to (i) those individuals serving
as non-employee Board members on the Effective Date and (ii) those individuals
who are first elected or appointed as non-employee Board members after the
Effective Date, whether through appointment by the Board or election by the
Corporation's stockholders. A non-employee Board member shall not be eligible
to receive the initial automatic option grant if such individual has previously
been in the employ of the Corporation (or any parent or subsidiary). However, a
non-employee Board member shall be eligible to receive one or more annual option
grants, whether or not he or she has previously been in the employ of the
Corporation (or any parent or subsidiary). Each non-employee Board member
eligible to participate in the Plan pursuant to the foregoing criteria is hereby
designated an Eligible Director.
ARTICLE 5. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. GRANT DATE. Option grants shall be made on the dates specified
below:
- Each individual who first becomes an Eligible Director on or
after the Effective Date, whether through election by the
Corporation's stockholders or appointment by the Board, shall
automatically be granted, at the time of such initial election or
appointment, a non-statutory option to purchase 10,000 shares of
Common Stock.
- On the date of the IPO, each Eligible Director who serves on
the Board on that date shall automatically be granted a non-statutory
option to purchase 5,000 shares of Common Stock. On the date of each
Annual Meeting, beginning with the 2000 Annual Meeting, each Eligible
Director who serves on the Board on the meeting date, whether or not
standing for re-election, shall automatically be granted a
non-statutory option to purchase 5,000 shares of Common Stock. An
Eligible Director who resigns effective at an Annual Meeting shall not
be eligible to be granted an option at that time.
There shall be no limit on the number of such annual 5,000-share
option grants any one Eligible Director may receive over his or her period of
continued Board service.
B. EXERCISE PRICE. The exercise price per share of Common Stock
subject to each automatic option grant shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the automatic grant
date.
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C. PAYMENT.
The exercise price shall become immediately due upon exercise of the
option. The entire exercise price shall be payable in cash or cash equivalents
at the time when such shares of Common Stock are purchased. The exercise price
may also be paid in one of the alternative forms specified below:
(i) all or any part of the exercise price may be paid by
surrendering, or attesting to the ownership of, shares of Common Stock that are
already owned by the optionee. Such shares of Common Stock shall be valued at
their Fair Market Value on the date when the option is exercised. The optionee
shall not surrender, or attest to the ownership of, shares of Common Stock in
payment of the exercise price if such action would cause the Corporation to
recognize compensation expense (or additional compensation expense) with respect
to the option for financial reporting purposes; or
(ii) all or any part of the exercise price and any
withholding taxes may be paid by delivering (on a form prescribed by the
Corporation) an irrevocable direction to a securities broker approved by the
Corporation to sell all or part of the shares of Common Stock being acquired
upon exercise of the option and to deliver all or part of the sales proceeds to
the Corporation; or
(iii) all or any part of the exercise price and any
withholding taxes may be paid by delivering (on a form prescribed by the
Corporation) an irrevocable direction to pledge all or part of the shares of
Common Stock being acquired upon exercise of the option to a securities broker
or lender approved by the Corporation, as security for a loan, and to deliver
all or part of the loan proceeds to the Corporation.
For purposes of this Section 5.C, the Exercise Date shall be the date
on which written notice of the option exercise is delivered to the Corporation.
Except to the extent the broker sale or broker pledge procedure specified above
is used, payment of the exercise price for the purchased shares must accompany
the exercise notice.
D. EXERCISABILITY/VESTING. Each 10,000-share automatic grant shall
become exercisable for the option shares in a series of 24 equal monthly
installments measured from the grant date, provided that the option shall become
fully vested immediately prior to the effective date of the adoption by the FASB
of an accounting rule or issuance of an interpretive release which would result
in adverse accounting treatment based on the foregoing vesting schedule. Each
5,000-share automatic grant shall become exercisable for 100% of the option
shares upon the grant date.
E. OPTION TERM. Each automatic grant under the Plan shall have a
maximum term of ten (10) years measured from the automatic grant date.
F. NON-TRANSFERABILITY. During the lifetime of the Optionee, each
automatic option grant shall be exercisable only by the Optionee and shall not
be assignable or transferable
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by the Optionee other than a transfer of the option effected by will or by the
laws of descent and distribution following Optionee's death.
G. EFFECT OF TERMINATION OF BOARD SERVICE.
1. Should the Optionee cease to serve as a Board member for any
reason (other than death) while holding one or more automatic option grants
under the Plan, then such individual shall have a twelve (12)-month period
following the date of such cessation of Board service in which to exercise each
such option for any or all of the option shares.
2. Should the Optionee die while serving as a Board member or
within twelve (12) months after cessation of Board service, then any automatic
option grant held by the Optionee at the time of death may subsequently be
exercised, for all of the option shares (less any option shares purchased by the
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution.
The right to exercise each such option shall lapse upon the expiration of the
twelve (12)-month period measured from the date of the Optionee's cessation of
service.
3. In no event shall any automatic grant under this Plan remain
exercisable after the expiration date of the maximum ten (10)-year option term.
Upon the expiration of the applicable post-service exercise period under
subparagraphs 1 through 2 above or (if earlier) upon the expiration of the
maximum ten (10)-year option term, the automatic grant shall terminate and cease
to be outstanding for any option shares for which the option was not exercised.
H. STOCKHOLDER RIGHTS. The holder of an automatic option grant
shall have none of the rights of a stockholder with respect to any shares
subject to such option until such individual shall have exercised the option and
paid the exercise price for the purchased shares.
I. REMAINING TERMS. The remaining terms and conditions of each
automatic option grant shall be as set forth in the form Stock Option Agreement
approved for use under the Plan.
ARTICLE 6. CHANGE IN CONTROL EVENTS
A. In the event of a Change in Control, each automatic option grant
under the Plan held by an individual who is then serving as a Board member shall
immediately become fully exercisable and vested. Immediately following the
consummation of a Change in Control, each automatic option grant under the Plan
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation or its parent company.
B. The automatic option grants outstanding under the Plan shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
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ARTICLE 7. AMENDMENT OF THE PLAN AND AWARDS
The Board has complete and exclusive power and authority to amend or
modify the Plan (or any component thereof) in any or all respects whatsoever.
However, no such amendment or modification shall adversely affect rights and
obligations with respect to options at the time outstanding under the Plan,
unless the affected Optionees consent to such amendment. Stockholder approval
shall be obtained to the extent required by applicable law.
ARTICLE 8. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective on the Effective Date. One or
more automatic option grants may be made under the Plan at any time on or after
the Effective Date.
B. The Plan shall terminate upon the EARLIER of (i) February 3, 2009
or (ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options granted under the Plan.
If the date of termination is determined under clause (i) above, then all option
grants outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the agreements evidencing those
option grants.
ARTICLE 9. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants under the Plan shall be used for general corporate
purposes.
ARTICLE 10. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under
the Plan and the issuance of Common Stock upon the exercise of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of the Nasdaq National Market or any Stock Exchange on which the Common Stock is
then listed for trading.
ARTICLE 11. NO IMPAIRMENT OF RIGHTS
Neither the action of the Corporation in establishing the Plan nor any
provision of the Plan shall be construed or interpreted so as to affect
adversely or otherwise impair the right of
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<PAGE>
the Corporation or the stockholders to remove any individual from the Board at
any time in accordance with the provisions of applicable law.
ARTICLE 12. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the Plan
may not be assigned, encumbered or otherwise transferred by any Optionee.
B. The provisions of the Plan relating to the exercise of options
shall be governed by the laws of the State of Delaware, as such laws are applied
to contracts entered into and performed in such State.
C. The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, whether by Change
in Control or otherwise, and the Optionees, the legal representatives of their
respective estates, their respective heirs or legatees and their permitted
assignees.
ARTICLE 13. DEFINITIONS
ANNUAL MEETING: the annual meeting of the Corporation's stockholders.
BOARD: the Corporation's Board of Directors.
CODE: the Internal Revenue Code of 1986, as amended.
COMMON STOCK: shares of the Corporation's common stock.
CORPORATION: Net Perceptions, Inc., a Delaware corporation.
CHANGE IN CONTROL: a change in ownership or control of the
Corporation effected through either of the following transactions:
a. the consummation of a merger or consolidation of the
Corporation with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the
continuing or surviving entity's securities outstanding immediately after
such merger, consolidation or other reorganization is owned by persons who
were not stockholders of the Corporation immediately prior to such merger,
consolidation or other reorganization;
b. the sale, transfer or other disposition of all or
substantially all of the Corporation's assets;
c. a change in the composition of the Board, as a result of
which fewer than one-third of the incumbent directors are directors who
either (i) had been directors of the Corporation on the date 24 months
prior to the date of the event that may constitute a Change in Control (the
"original directors") or
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<PAGE>
(ii) were elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the aggregate of the original
directors who were still in office at the time of the election or
nomination and the directors whose election or nomination was previously so
approved;
d. any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly
or indirectly, of securities of the Corporation representing at least 50%
of the total voting power represented by the Corporation's then outstanding
voting securities. For purposes of this Paragraph (d), the term "person"
shall have the same meaning as when used in sections 13(d) and 14(d) of the
1934 Act but shall exclude (i) a trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation or of a Parent
or Subsidiary and (ii) a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions as
their ownership of the Common Stock of the Corporation; or
e. a transaction shall not constitute a Change in Control if
its sole purpose is to change the state of the Corporation's incorporation
or to create a holding company that will be owned in substantially the same
proportions by the persons who held the Corporation's securities
immediately before such transaction.
EFFECTIVE DATE: the date on which the Underwriting Agreement is
executed and the initial public offering price of the Common Stock is
established.
FAIR MARKET VALUE: the Fair Market Value per share of Common Stock
determined in accordance with the following provisions:
a. If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
b. If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
c. For purposes of any option grants made on the date of
execution of the Underwriting Agreement, the Fair Market Value shall be
deemed to
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<PAGE>
be equal to the price per share at which the Common Stock is sold in the
initial public offering pursuant to the Underwriting Agreement.
1934 ACT: the Securities Exchange Act of 1934, as amended.
OPTIONEE: any person to whom an option is granted under the Plan.
PLAN: this Net Perceptions, Inc. 1999 Non-Employee Director Option
Plan.
STOCK EXCHANGE: either the American Stock Exchange or the New York
Stock Exchange.
UNDERWRITING AGREEMENT: the agreement between the Corporation and the
underwriter or underwriters managing the initial public offering of the Common
Stock.
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NET PERCEPTIONS, INC.
EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. PURPOSE OF THE PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 2. ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . .1
(a) Committee Composition. . . . . . . . . . . . . . . . . . . . . . . . . . .1
(b) Committee Responsibilities . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 3. ENROLLMENT AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . .1
(a) Offering Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
(b) Contribution Periods . . . . . . . . . . . . . . . . . . . . . . . . . . .1
(c) Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
(d) Duration of Participation. . . . . . . . . . . . . . . . . . . . . . . . .1
(e) Applicable Offering Period . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 4. EMPLOYEE CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . .2
(a) Frequency of Payroll Deductions. . . . . . . . . . . . . . . . . . . . . .2
(b) Amount of Payroll Deductions . . . . . . . . . . . . . . . . . . . . . . .2
(c) Changing Withholding Rate. . . . . . . . . . . . . . . . . . . . . . . . .3
(d) Discontinuing Payroll Deductions . . . . . . . . . . . . . . . . . . . . .3
(e) Limit on Number of Elections . . . . . . . . . . . . . . . . . . . . . . .3
SECTION 5. WITHDRAWAL FROM THE PLAN . . . . . . . . . . . . . . . . . . . . . . . .3
(a) Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
(b) Re-Enrollment After Withdrawal . . . . . . . . . . . . . . . . . . . . . .3
SECTION 6. CHANGE IN EMPLOYMENT STATUS. . . . . . . . . . . . . . . . . . . . . . .3
(a) Termination of Employment. . . . . . . . . . . . . . . . . . . . . . . . .3
(b) Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
(c) Death. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES . . . . . . . . . . . . . . . . . .4
(a) Plan Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(b) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(c) Number of Shares Purchased . . . . . . . . . . . . . . . . . . . . . . . .4
(d) Available Shares Insufficient. . . . . . . . . . . . . . . . . . . . . . .4
(e) Issuance of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . .4
(f) Unused Cash Balances . . . . . . . . . . . . . . . . . . . . . . . . . . .5
(g) Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP . . . . . . . . . . . . . . . . . . . . .5
(a) Five Percent Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
(b) Dollar Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
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<PAGE>
SECTION 9. RIGHTS NOT TRANSFERABLE. . . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 10. NO RIGHTS AS AN EMPLOYEE. . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 11. NO RIGHTS AS A STOCKHOLDER. . . . . . . . . . . . . . . . . . . . . . .6
SECTION 12. SECURITIES LAW REQUIREMENTS.. . . . . . . . . . . . . . . . . . . . . .7
SECTION 13. STOCK OFFERED UNDER THE PLAN. . . . . . . . . . . . . . . . . . . . . .7
(a) Authorized Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
(b) Anti-Dilution Adjustments. . . . . . . . . . . . . . . . . . . . . . . . .7
(c) Reorganizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
SECTION 14. AMENDMENT OR DISCONTINUANCE . . . . . . . . . . . . . . . . . . . . . .7
SECTION 15. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
(b) Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
(c) Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(d) Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(e) Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(a) Contribution Period. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(f) Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(g) Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(h) Corporate Reorganization . . . . . . . . . . . . . . . . . . . . . . . . .8
(i) Eligible Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(j) Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(k) Fair Market Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(l) IPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(m) Offering Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(n) Participant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(o) Participating Corporation. . . . . . . . . . . . . . . . . . . . . . . . .9
(p) Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(q) Plan Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(r) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(s) Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
</TABLE>
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NET PERCEPTIONS, INC.
EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board on February 4, 1999, to be effective as
of the date of the IPO. The purpose of the Plan is to provide Eligible
Employees with an opportunity to increase their proprietary interest in the
success of the Corporation by purchasing Common Stock from the Corporation on
favorable terms and to pay for such purchases through payroll deductions. The
Plan is intended to qualify under Section 423 of the Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Corporation, who shall be appointed by the Board.
(b) COMMITTEE RESPONSIBILITIES. The Committee shall interpret the
Plan and make all other policy decisions relating to the operation of the Plan.
The Committee may adopt such rules, guidelines and forms as it deems appropriate
to implement the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) OFFERING PERIODS. While the Plan is in effect, two overlapping
Offering Periods shall commence in each calendar year. The Offering Periods
shall consist of the 24-month periods commencing on each May 1 and November 1,
except that the first Offering Period shall commence on the date of the IPO and
end on April 30, 2001.
(b) CONTRIBUTION PERIODS. While the Plan is in effect, two
Contribution Periods shall commence in each calendar year. The Contribution
Periods shall consist of the six-month periods commencing on each May 1 and
November 1, except that the first Contribution Period shall commence on the date
of the IPO and end on October 31, 1999.
(c) ENROLLMENT. Any individual who, on the day prior to the first day
of an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Corporation at the prescribed location not later than one
business day prior to the commencement of such Offering Period.
(d) DURATION OF PARTICIPATION. Once enrolled in the Plan, a
Participant shall continue to participate in the Plan until he or she ceases to
be an Eligible Employee, withdraws
<PAGE>
from the Plan under Section 5(a) or reaches the end of the Contribution Period
in which his or her employee contributions were discontinued under Section 4(d)
or 8(b). A Participant who discontinued employee contributions under Section
4(d) or withdrew from the Plan under Section 5(a) may again become a
Participant, if he or she then is an Eligible Employee, by following the
procedure described in Subsection (c) above. A Participant whose employee
contributions were discontinued automatically under Section 8(b) shall
automatically resume participation at the beginning of the earliest Contribution
Period ending in the next calendar year, if he or she then is an Eligible
Employee.
(e) APPLICABLE OFFERING PERIOD. For purposes of calculating the
Purchase Price under Section 7(b), the applicable Offering Period shall be
determined as follows:
(i) Once a Participant is enrolled in the Plan for an
Offering Period, such Offering Period shall continue to apply to
him or her until the earliest of (A) the end of such Offering
Period, (B) the end of his or her participation under
Subsection (d) above or (C) re-enrollment for a subsequent
Offering Period under Paragraph (ii) or (iii) below.
(ii) In the event that the Fair Market Value of the
Common Stock on the last trading day before the commencement of
the Offering Period for which the Participant is enrolled is
higher than on the last trading day before the commencement of any
subsequent Offering Period, the Participant shall automatically be
re-enrolled for such subsequent Offering Period.
(iii) Any other provision of the Plan notwithstanding, the
Corporation (at its sole discretion) may determine prior to the
commencement of any new Offering Period that all Participants
shall be re-enrolled for such new Offering Period.
(iv) When a Participant reaches the end of an Offering
Period but his or her participation is to continue, then such
Participant shall automatically be re-enrolled for the Offering
Period that commences immediately after the end of the prior
Offering Period.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase
shares of Common Stock under the Plan solely by means of payroll deductions.
Payroll deductions, as designated by the Participant pursuant to Subsection (b)
below, shall occur on each payday during participation in the Plan.
(b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall
designate on the enrollment form the portion of his or her Compensation that he
or she elects to have withheld for the purchase of Common Stock. Such portion
shall be a whole percentage of the Eligible Employee's Compensation, but not
less than 1% nor more than 15% or such lesser percentage established by the
Committee from time to time.
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<PAGE>
(c) CHANGING WITHHOLDING RATE. If a Participant wishes to change the
rate of payroll withholding, he or she may do so by filing a new enrollment form
with the Corporation at the prescribed location at any time. The new
withholding rate shall be effective as soon as reasonably practicable after such
form has been received by the Corporation. The new withholding rate shall be a
whole percentage of the Eligible Employee's Compensation, but not less than 1%
nor more than 15%.
(d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Corporation at the prescribed location at any time.
Payroll withholding shall cease as soon as reasonably practicable after such
form has been received by the Corporation. (In addition, employee contributions
may be discontinued automatically pursuant to Section 8(b).) A Participant who
has discontinued employee contributions may resume such contributions by filing
a new enrollment form with the Corporation at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Corporation.
(e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more than
one election under Subsection (c) or (d) above during any Contribution Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) WITHDRAWAL. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Corporation at the prescribed location at
any time before the last day of an Contribution Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) TERMINATION OF EMPLOYMENT. Termination of employment as an
Eligible Employee for any reason, including death, shall be treated as an
automatic withdrawal from the Plan under Section 5(a). (A transfer from one
Participating Corporation to another shall not be treated as a termination of
employment.)
(b) LEAVE OF ABSENCE. For purposes of the Plan, employment shall not
be deemed to terminate when the Participant goes on a military leave, a sick
leave or another BONA FIDE leave of absence, if the leave was approved by the
Corporation in writing. Employment, however, shall be deemed to terminate 90
days after the Participant goes on a leave, unless a contract or statute
guarantees his or her right to return to work. Employment shall be deemed to
terminate in any event when the approved leave ends, unless the Participant
immediately returns to work.
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<PAGE>
(c) DEATH. In the event of the Participant's death, the amount
credited to his or her Plan Account shall be paid to a beneficiary designated by
him or her for this purpose on the prescribed form or, if none, to the
Participant's estate. Such form shall be valid only if it was filed with the
Corporation at the prescribed location before the Participant's death.
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) PLAN ACCOUNTS. The Corporation shall maintain a Plan Account on
its books in the name of each Participant. Whenever an amount is deducted from
the Participant's Compensation under the Plan, such amount shall be credited to
the Participant's Plan Account. Amounts credited to Plan Accounts shall not be
trust funds and may be commingled with the Corporation's general assets and
applied to general corporate purposes. No interest shall be credited to Plan
Accounts.
(b) PURCHASE PRICE. The Purchase Price for each share of Common Stock
purchased at the close of an Contribution Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the
last trading day in such Contribution Period; or
(ii) 85% of the Fair Market Value of such share on the
last trading day before the commencement of the applicable
Offering Period (as determined under Section 3(e)) or, in the case
of the first Offering Period under the Plan, 85% of the price at
which one share of Common Stock is offered to the public in the
IPO.
(c) NUMBER OF SHARES PURCHASED. As of the last day of each
Contribution Period, each Participant shall be deemed to have elected to
purchase the number of shares of Common Stock calculated in accordance with this
Subsection (c), unless the Participant has previously elected to withdraw from
the Plan in accordance with Section 5(a). The amount then in the Participant's
Plan Account shall be divided by the Purchase Price, and the number of shares
that results shall be purchased from the Corporation with the funds in the
Participant's Plan Account. The foregoing notwithstanding, no Participant shall
purchase more than [2,000] shares of Common Stock with respect to any
Contribution Period nor more than the amounts of Common Stock set forth in
Sections 8(b) and 13(a). The Committee may determine with respect to all
Participants that any fractional share, as calculated under this Subsection (c),
shall be (i) rounded down to the next lower whole share or (ii) credited as a
fractional share.
(d) AVAILABLE SHARES INSUFFICIENT. In the event that the aggregate
number of shares that all Participants elect to purchase during an Contribution
Period exceeds the maximum number of shares remaining available for issuance
under Section 13(a), then the number of shares to which each Participant is
entitled shall be determined by multiplying the number of shares available for
issuance by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
(e) ISSUANCE OF COMMON STOCK. Certificates representing the shares of
Common Stock purchased by a Participant under the Plan shall be issued to him or
her as soon as
4
<PAGE>
reasonably practicable after the close of the applicable Contribution Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property. The Committee may impose such restrictions on the
transfer or resale of issued shares as it may deem advisable.
(f) UNUSED CASH BALANCES. An amount remaining in the Participant's
Plan Account that represents the Purchase Price for any fractional share shall
be carried over in the Participant's Plan Account to the next Contribution
Period. Any amount remaining in the Participant's Plan Account that represents
the Purchase Price for whole shares that could not be purchased by reason of
Subsection (c) above, Section 8(b) or Section 13(a) shall be refunded to the
Participant in cash, without interest.
(g) STOCKHOLDER APPROVAL. Any other provision of the Plan
notwithstanding, no shares of Common Stock shall be purchased under the Plan
unless and until the Corporation's stockholders have approved the adoption of
the Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) FIVE PERCENT LIMIT. Any other provision of the Plan
notwithstanding, no Participant shall be granted a right to purchase Common
Stock under the Plan if such Participant, immediately after his or her election
to purchase such Common Stock, would own stock possessing more than 5% of the
total combined voting power or value of all classes of stock of the Corporation
or any parent or Subsidiary of the Corporation. For purposes of this Subsection
(a), the following rules shall apply:
(i) Ownership of stock shall be determined after
applying the attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock
that he or she has a right or option to purchase under this or any
other plan; and
(iii) Each Participant shall be deemed to have the right
to purchase [2,000] shares of Common Stock under this Plan with
respect to each Contribution Period.
(b) DOLLAR LIMIT. Any other provision of the Plan notwithstanding, no
Participant shall purchase Common Stock with a Fair Market Value in excess of
the following limit:
(i) In the case of Common Stock purchased during an
Offering Period that commenced in the current calendar year, the
limit shall be equal to (A) $25,000 minus (B) the Fair Market
Value of the Common Stock that the Participant previously
purchased in the current calendar year (under this Plan and all
other employee stock purchase plans of the Corporation or any
parent or Subsidiary of the Corporation).
5
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(ii) In the case of Common Stock purchased during an
Offering Period that commenced in the immediately preceding
calendar year, the limit shall be equal to (A) $50,000 minus (B)
the Fair Market Value of the Common Stock that the Participant
previously purchased (under this Plan and all other employee stock
purchase plans of the Corporation or any parent or Subsidiary of
the Corporation) in the current calendar year and in the
immediately preceding calendar year.
(iii) In the case of Common Stock purchased during an
Offering Period that commenced in the second preceding calendar
year, the limit shall be equal to (A) $75,000 minus (B) the Fair
Market Value of the Common Stock that the Participant previously
purchased (under this Plan and all other employee stock purchase
plans of the Corporation or any parent or Subsidiary of the
Corporation) in the current calendar year and in the two preceding
calendar years.
For purposes of this Subsection (b), the Fair Market Value of Common Stock shall
be determined in each case as of the beginning of the Offering Period in which
such Common Stock is purchased. Employee stock purchase plans not described in
section 423 of the Code shall be disregarded. If a Participant is precluded by
this Subsection (b) from purchasing additional Common Stock under the Plan, then
his or her employee contributions shall automatically be discontinued and shall
resume at the beginning of the earliest Contribution Period ending in the next
calendar year (if he or she then is an Eligible Employee).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's
interest in any Common Stock or moneys to which he or she may be entitled under
the Plan, shall not be transferable by voluntary or involuntary assignment or by
operation of law, or in any other manner other than by beneficiary designation
or the laws of descent and distribution. If a Participant in any manner
attempts to transfer, assign or otherwise encumber his or her rights or interest
under the Plan, other than by beneficiary designation or the laws of descent and
distribution, then such act shall be treated as an election by the Participant
to withdraw from the Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Corporation for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Corporations or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares of Common Stock that he or she may have a right to purchase under the
Plan until such shares have been purchased on the last day of the applicable
Contribution Period.
6
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SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Common Stock shall not be issued under the Plan unless the
issuance and delivery of such shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder, state
securities laws and regulations, and the regulations of any stock exchange or
other securities market on which the Corporation's securities may then be
traded.
SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) AUTHORIZED SHARES. The aggregate number of shares of Common Stock
available for purchase under the Plan shall be 500,000, subject to adjustment
pursuant to this Section 13. In addition, the number of shares of Common Stock
available for purchase under the Plan shall automatically increase by the lesser
of (i) 2% of the total number of shares of Common Stock then outstanding or
(ii) ________ shares on January 1, 2000, January 1, 2001, and January 1, 2002.
(b) ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares of
Common Stock offered under the Plan, the number of shares by which the share
reserve is to increase each calendar year, the [2,000]-share limitation
described in Section 7(c) and the price of shares that any Participant has
elected to purchase shall be adjusted proportionately by the Committee for any
increase or decrease in the number of outstanding shares of Common Stock
resulting from a subdivision or consolidation of shares or the payment of a
stock dividend, any other increase or decrease in such shares effected without
receipt or payment of consideration by the Corporation, the distribution of the
shares of a Subsidiary to the Corporation's stockholders or a similar event.
(c) REORGANIZATIONS. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period and Contribution Period then in progress shall terminate and
shares shall be purchased pursuant to Section 7. The Plan shall in no event be
construed to restrict in any way the Corporation's right to undertake a
dissolution, liquidation, merger, consolidation or other reorganization.
SECTION 14. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan at
any time and without notice. Except as provided in Section 13, any increase in
the aggregate number of shares of Common Stock to be issued under the Plan shall
be subject to approval by a vote of the stockholders of the Corporation. In
addition, any other amendment of the Plan shall be subject to approval by a vote
of the stockholders of the Corporation to the extent required by an applicable
law or regulation.
SECTION 15. DEFINITIONS.
(a) "BOARD" means the Board of Directors of the Corporation, as
constituted from time to time.
7
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(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" means a committee of the Board, as described in
Section 2.
(d) "COMMON STOCK" means the common stock of the Corporation.
(e) "CONTRIBUTION PERIOD" means a six-month period during which
contributions may be made toward the purchase of Common Stock under the Plan, as
determined pursuant to Section 3(b).
(f) "CORPORATION" means Net Perceptions, Inc., a Delaware corporation.
(g) "COMPENSATION" means (i) the total compensation paid in cash to a
Participant by a Participating Corporation, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.
(h) "CORPORATE REORGANIZATION" means:
(i) The consummation of a merger or consolidation of the
Corporation with or into another entity or any other corporate
reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Corporation's assets or the complete
liquidation or dissolution of the Corporation.
(i) "ELIGIBLE EMPLOYEE" means any employee of a Participating
Corporation if his or her customary employment is for more than five months per
calendar year and for more than 20 hours per week. The foregoing
notwithstanding, an individual shall not be considered an Eligible Employee if
his or her participation in the Plan is prohibited by the law of any country
which has jurisdiction over him or her or if he or she is subject to a
collective bargaining agreement that does not provide for participation in the
Plan.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(k) "FAIR MARKET VALUE" means the market price of Common Stock,
determined by the Committee as follows:
(i) If the Common Stock was traded on the Nasdaq
National Market on the date in question, then the Fair Market
Value shall be equal to the last-transaction price quoted for such
date by the Nasdaq National Market;
8
<PAGE>
(ii) If the Common Stock was traded on a stock exchange
on the date in question, then the Fair Market Value shall be equal
to the closing price reported by the applicable composite
transactions report for such date; or
(iii) If none of the foregoing provisions is applicable,
then the Fair Market Value shall be determined by the Committee in
good faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in THE WALL STREET JOURNAL or as reported
directly to the Corporation by Nasdaq or a stock exchange. Such determination
shall be conclusive and binding on all persons.
(l) "IPO" means the initial offering of Common Stock to the public
pursuant to a registration statement filed by the Corporation with the
Securities and Exchange Commission.
(m) "OFFERING PERIOD" means a 24-month period with respect to which
the right to purchase Common Stock may be granted under the Plan, as determined
pursuant to Section 3(a).
(n) "PARTICIPANT" means an Eligible Employee who elects to participate
in the Plan, as provided in Section 3(c).
(o) "PARTICIPATING CORPORATION" means (i) the Corporation and (ii)
each present or future Subsidiary designated by the Committee as a Participating
Corporation.
(p) "PLAN" means this Net Perceptions, Inc. Employee Stock Purchase
Plan, as it may be amended from time to time.
(q) "PLAN ACCOUNT" means the account established for each Participant
pursuant to Section 7(a).
(r) "PURCHASE PRICE" means the price at which Participants may
purchase Common Stock under the Plan, as determined pursuant to Section 7(b).
(s) "SUBSIDIARY" means any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
9
<PAGE>
* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
LICENSE AGREEMENT
THIS AGREEMENT is effective upon the date of last signature by the
parties. Net Perceptions, Inc. (hereafter COMPANY), a corporation of
Delaware, that has a principal place of business at 5720 Green Circle
Drive, Minnetonka, MN 55343. and the Regents of the University of
Minnesota (hereafter UNIVERSITY), a non-profit corporation of the State
of Minnesota, having an office at 1100 Washington Avenue S.. Suite 201,
Minneapolis, MN 55415, agree as follows:
ARTICLE I - INTRODUCTION
1.1 COMPANY and the UNIVERSITY are occasionally referred to as "parties"
in singular or plural usage us indicated by the context.
1.2 Terms in this agreement which appear in upper case letters, other than
the names of the parties and article headings, have the meanings given
in Article II.
1.3 The UNIVERSITY possesses certain information, knowledge, and
intellectual property rights relating to an information filtering
technique based upon individual preferences developed by and under the
direction of Professors John Riedl and Joseph Konstan comprising the
University of Minnesota Docket Number 96119.
1.4 COMPANY desires to obtain a license to further develop this
technology.
1.5 The UNIVERSITY and COMPANY agree to the following terms and conditions
in order to; develop such information and knowledge, utilize it in the
public interest and enter into a license agreement.
ARTICLE II - DEFINITIONS
2.1 TECHNOLOGY shall mean the inventions, methods, information, processes,
documentation, know-how and software relating to the "GroupLens"
system for personalized screening of information developed by or under
the direction of Professor John Riedl or Joseph Konstan which is
described in the attached invention disclosure form and attachments
(Appendix B).
2.2 IMPROVEMENTS shall mean any subsequent developments relating to
collaborative filtering developed by or under the direction of
Professor John Riedl or Joseph Konstan, provided that such professor
is acting within his employment at the UNIVERSITY.
2.3. U.S. APPLICATIONS shall mean any U.S. patent applications that may be filed
on TECHNOLOGY or IMPROVEMENTS, and any continuations,
continuations-in-part, and divisions of these applications.
2.4 FOREIGN APPLICATIONS shall mean any foreign patent applications that
correspond to U.S. APPLICATIONS.
<PAGE>
2.5 U.S. PATENTS shall mean any patent that issues on U.S. APPLICATIONS,
including any reissues and reexaminations of these patents.
2.6 FOREIGN PATENTS shall mean any patents issuing on FOREIGN APPLICATIONS.
2.7 APPLICATIONS shall mean U.S. APPLICATIONS and FOREIGN APPLICATIONS.
2.8 PATENTS shall mean U.S. PATENTS and FOREIGN PATENTS.
2.9 PRODUCTS shall mean any product which incorporates the TECHNOLOGY or
IMPROVEMENTS.
2.10 SERVICES shall mean all services that utilize the TECHNOLOGY or
IMPROVEMENTS.
2.11 SUBLICENSEES shall mean all sublicensees of COMPANY under this agreement,
including sublicensees that are subsidiaries and affiliates of COMPANY.
ARTICLE III - APPLICATIONS, PATENTS, AND COPYRIGHTS
3.1 The UNIVERSITY agrees to use its best efforts, consistent with sound and
reasonable judgment, to file and prosecute U.S. APPLICATIONS and maintain
U.S. PATENTS that are requested by COMPANY or, if the UNIVERSITY declines
to do so, to allow COMPANY to file such applications and to sign and/or
have the inventors cooperate by signing the necessary declarations, powers,
and other documents. The UNIVERSITY agrees to provide information to
COMPANY on TECHNOLOGY and IMPROVEMENTS for review for patentable subject
matter.
3.2 The UNIVERSITY agrees to use its best efforts, consistent with sound and
reasonable judgment, to timely file and prosecute FOREIGN APPLICATIONS and
maintain FOREIGN PATENTS in countries requested by COMPANY. The UNIVERSITY
shall have the option, at its sole discretion and expense, to file and
prosecute FOREIGN APPLICATIONS and to maintain FOREIGN PATENTS in countries
not requested by COMPANY.
3.3 Subject to any rights COMPANY may have apart from this Agreement, the
UNIVERSITY shall have sole title to all APPLICATIONS and PATENTS.
3.4 The UNIVERSITY shall bear all expenses for filing and prosecuting U.S.
APPLICATIONS and maintaining U.S. PATENTS. COMPANY shall reimburse the
UNIVERSITY for all reasonable out-of-pocket expenses for COMPANY requested
filing, maintenance, and prosecution of U.S. and foreign APPLICATIONS and
PATENTS, which expenses are estimated to the COMPANY in advance. COMPANY
may withdraw a request at any time and will not be liable for new expenses
incurred after UNIVERSITY's receipt of notice of withdrawal.
3.5 The UNIVERSITY shall have final authority over all decisions concerning
prosecution of APPLICATIONS. However, the UNIVERSITY shall keep COMPANY
informed of its filing and prosecution activities, and shall give COMPANY
the opportunity to comment on major decisions concerning such activities.
COMPANY agrees to fully cooperate
<PAGE>
with the UNIVERSITY in filing and prosecuting APPLICATIONS.
3.6 The UNIVERSITY shall register copyrights on copyrightable portions of the
TECHNOLOGY and IMPROVEMENTS at the request of COMPANY in such countries as
COMPANY requests. The UNIVERSITY shall bear the out-of packet expenses for
such COMPANY requested registrations, but COMPANY shall reimburse the
UNIVERSITY for all such expenses.
3.6 Nothing in this agreement shall be construed to give COMPANY rights in any
technologies developed by the UNIVERSITY other than those explicitly
specified in this agreement. Nothing in this agreement shall be construed
to give the UNIVERSITY rights in technologies developed by COMPANY other
than those explicitly specified in this agreement. The UNIVERSITY shall
have no rights in inventions and other intellectual property developed
solely by COMPANY employees.
ARTICLE IV - LICENSE GRANT AND COMMERCIAL EFFORTS
4.1 Subject to the terms and conditions of this agreement, the
UNIVERSITY hereby grants and COMPANY hereby accepts an exclusive
worldwide license to make, use, sell, lease or otherwise dispose of
PRODUCTS and SERVICES under, and otherwise exploit, any and all
UNIVERSITY rights with respect to the TECHNOLOGY and IMPROVEMENTS,
including but not limited to the UNIVERSITY's rights under copyright,
trade secret, and under APPLICATIONS and PATENTS. This license includes
the right to grant sublicenses. Notwithstanding the license granted
herein this license is subject to whatever nonexclusive rights to the
TECHNOLOGY and IMPROVEMENT (if any) that are retained by AT & T and its
subsidiaries as a result of AT & T's funding for at least some portions
of the TECHNOLOGY and possibly of IMPROVEMENTS as and only as originally
provided in the Agreement between the UNIVERSITY and AT&T dated January
10, 1996. This license is also subject to the non-exclusive rights the
United States government may have for government purposes and the
government statutory "march-in" rights with respect to IMPROVEMENTS, if
any, resulting from funding from a United States government agency. The
UNIVERSITY retains an irrevocable, nonexclusive, nonsublicensable and
nontransferable right to practice for its own educational and research
purposes the TECHNOLOGY and IMPROVEMENTS.
4.2 The term of the license granted in paragraph 4.1 shall be for the term of
this agreement as specified in paragraph 7.1.
4.3 The license granted by this agreement is to COMPANY alone and does not
grant any rights to third parties or to any subsidiary or affiliate of
COMPANY. However, COMPANY may transfer this agreement by way of acquisition
of COMPANY or its business or assets, through sale of assets, sale of
stock, merger, consolidation or otherwise, provided that such sale is not
primarily for the benefit of creditors. COMPANY shall also have the right
to grant sublicenses under this agreement. The COMPANY shall give the
UNIVERSITY notice of any sublicense promptly after its execution. COMPANY
shall be responsible to the UNIVERSITY for the payment of royalties on
sales made by SUBLICENSEES as though they were sales by COMPANY (this does
not apply to sales by SUBLICENSEES of PRODUCTS or SERVICES for which
COMPANY is obligated to pay a royalty).
4.4 COMPANY shall use diligent efforts, consistent with sound and reasonable
business
<PAGE>
practices and judgment, to effect commercialization of PRODUCTS as soon as
practicable and to maximize these sales. "Diligent efforts" under this
clause will be satisfied through August of 1997 if COMPANY raises a minimum
of $200,000 in financing by the end of February 1997 and if it introduces
a PRODUCT for sale by the end of August 1997.
COMPANY shall provide the UNIVERSITY with brief written reports of
COMPANY's efforts and plans to effect commercialization. COMPANY shall
provide these reports quarterly with the royalty report specified in
paragraph 5.3. Such information is confidential to COMPANY and UNIVERSITY
will not disclose it.
4.5 COMPANY shall not use the name of the UNIVERSITY in advertising,
promotional literature, or press releases without prior written approval
from the UNIVERSITY.
4.6 COMPANY and SUBLICENSEES shall alone have the responsibility for any
PRODUCT they make, use, or sell, lease, or otherwise dispose of and any
SERVICE they provide (e.g., regarding defects and compliance with all
applicable government regulations).
ARTICLE V - PAYMENTS, ROYALTIES, REPORTS AND RECORDS
5.1 For the license granted hereunder, COMPANY shall make the following
specified payments and grant the UNIVERSITY the following additional
consideration:
(a) The COMPANY shall pay the UNIVERSITY [*] upon the COMPANY reaching
an aggregate total equity financing of [*]. If the COMPANY
does not reach such financing total by December 31, 1996, then this
[*] payment shall be due in equal installments at the end of each
calendar quarter in calendar year 1997.
(b) Pursuant to the attached Stock Purchase Agreement, which is
substantially similar to those signed by founders (with the exception
of terms relating to employment), the COMPANY shall provide the
UNIVERSITY with a number of shares of COMPANY common stock equal to
[*] of initial founders equity ([*] shares) issued in the name of
the Regents of the University of Minnesota. The founders are John
Riedl, Joseph Konstan, Brad Miller, David Gardiner, and Steven
Snyder.
(c) In the event that APPLICATIONS are filed on IMPROVEMENTS, COMPANY and
the UNIVERSITY shall enter into good faith negotiation of a reasonable
royalty rate and terms to be paid to the UNIVERSITY for sales and
other dispositions of PRODUCTS that incorporate IMPROVEMENTS claimed
in such APPLICATIONS and PATENTS issuing thereon. If COMPANY and the
UNIVERSITY cannot agree on such royalty they will submit the issue for
binding arbitration to be handled in accordance with the following:
(a) unless the parties can agree on a single arbitrator, the parties
shall each select one independent arbitrator with expertise in
software royalty rates and the Internet within ten (10) days of
request of either party, (b) such arbitrators shall select in good
faith a third arbitrator within five (5) days (but, if they fail to do
so, either party may request appointment of the third arbitrator by
the American Arbitration Association (AAA)), (c) each party will have
one (1) day to present its case (presentation shall
* Confidential treatment requested for redacted portion.
<PAGE>
be made on a date selected by the arbitrators which shall be at least
five (5) and no more than fifteen (15) days after selection of the
third arbitrator), (d) the arbitrators shall have ten (10) days from
completion of such presentation to render their decision (the decision
of a majority of the arbitrators will be deemed the decision of the
arbitrators), (e) if one party fails to timely appoint an arbitrator,
the arbitration shall be conducted solely by the other party's
arbitrator, and (f) such arbitration shall be informal and need not
conform to AAA or other established procedures. Unless otherwise
agreed to by the parties, arbitration will take place in Minnesota,
and arbitrator fees will be shared equally by the parties.
5.2 If royalties are payable as provided in 5.1(c), royalties shall be payable
only once with respect to the same unit of PRODUCT, regardless of the
number of PATENTS or APPLICATIONS.
5.3 All payments hereunder to the UNIVERSITY shall be made payable to the
Regents of the University of Minnesota and mailed to the address specified
in Article XI. Payments shall be made in United States dollars. Any
currency translations that are necessary to calculate payments shall be
made at the exchange rate used by COMPANY for financial accounting purposes
in accordance with generally accepted accounting principles. In the event
that royalties are payable as provided under 5.1(c), COMPANY shall provide
the UNIVERSITY with quarterly written reports of all royalty bearing sales,
leases or other dispositions of PRODUCTS by COMPANY and SUBLICENSEES. In
order to minimize COMPANY time spent on royalty reports, a brief one-page
Royalty Report Form is provided in Appendix A that will satisfy the
UNIVERSITY's reporting requirements. The report shall be made within sixty
(60) days of the end of each calendar quarter. The UNIVERSITY agrees to
keep the information in these reports confidential, except as may be
necessary to maintain an action against COMPANY for breach of this
agreement. Royalty payments for sales, leases, and other dispositions of
the PRODUCTS subject to royalty payments as provided in 5.1(c) invoiced
during a calendar quarter shall accompany the Royalty Report Form for that
quarter.
5.4 COMPANY and SUBLICENSEES shall keep and maintain records of royalty bearing
sales, leases, and other dispositions of PRODUCTS that are subject to
royalty payments as provided in 5.1(c). Such records shall be open to
inspection at reasonable times by a certified public accountant chosen by
the UNIVERSITY and acceptable to COMPANY. Such inspection shall be made at
the UNIVERSITY's expense. The UNIVERSITY agrees to itself hold such
records confidential and to require its certified public accountant to hold
such records confidential, except as may be necessary to maintain an action
against COMPANY for breach of this agreement. The records required by this
paragraph shall be maintained and available for inspection for a period of
five (5) years following the calendar quarter to which they pertain. This
paragraph shall survive termination of this agreement for one year.
ARTICLE VI - INFRINGEMENT
6.1 In the event that the UNIVERSITY or COMPANY determines that a third party
is making, using or selling a product that may infringe a PATENT or
copyright with respect to the TECHNOLOGY or IMPROVEMENTS, it will promptly
notify the other party in writing. COMPANY may, at its sole option, bring
suit against such alleged infringer and UNIVERSITY will cooperate
therewith. In the event COMPANY decides to bring suit, it shall give
prompt written notice to the UNIVERSITY of that fact. All
<PAGE>
recoveries in such suit shall belong to COMPANY except that the UNIVERSITY
shall have the right to elect to pay up to fifty percent (50%) of the
litigation costs and receive a percentage of any recovery equal to the
percentage of litigation costs paid, provided that the percentage of the
recovery it receives after it recoups such litigation costs that it paid
will not exceed the royalty percentage for the applicable PATENT. The
UNIVERSITY must make such election within thirty (30) days of its receipt
of notice that COMPANY has decided to bring suit. The UNIVERSITY shall also
have the right to choose to be represented by separate counsel in any such
suit at its own expense. Such expense for separate counsel shall not be
considered as part of "litigation costs" for purposes of determining the
UNIVERSITY's share of any recovery in accordance with the sentence above.
If COMPANY elects not to bring a suit against the alleged infringer, it
shall promptly notify the UNIVERSITY of that fact and the UNIVERSITY shall
have the right to commence such actions at its own cost and expense, in
which case any recoveries shall belong to the UNIVERSITY, provided that the
percentage of the recovery it receives after it recoups such litigation
costs that it paid will not exceed the royalty percentage for the
applicable PATENT. In such suits by the UNIVERSITY, COMPANY shall have
rights of participation and recovery that are the same as the UNIVERSITY
rights as provided above when COMPANY elects to sue.
ARTICLE VII - TERM AND TERMINATION
7.1 This agreement's term shall end when the last of all licensed rights has
either expired or been invalidated in an unappealed decision by a court
having jurisdiction. If no such rights exist, this agreement's term shall
end upon the. date no APPLICATION remains pending and no future application
could be filed.
7.2 Subject to the next paragraph, the UNIVERSITY shall have the right to
terminate this agreement upon sixty (60) days written notice by certified
mail to COMPANY under the following circumstances:
(1) if royalties due the UNIVERSITY are unpaid;
(2) if there is a material breach or default of this agreement by COMPANY;
provided that if UNIVERSITY asserts that COMPANY has failed to use its
diligent efforts to effect commercial sales of PRODUCT in accordance
with paragraph 4.4, and, upon sixty (60) days of receipt of such
notice, COMPANY either fails to cure or is in dispute of such claim,
the parties agree to submit to binding arbitration under the rules of
the American Arbitration Association, the result of such arbitration
will be: (1) a determination of whether the COMPANY is meeting the
diligent efforts criteria; (2) a specification of the measures
required to meet such criteria; and (3) a reasonable timeframe for
COMPANY to take the required measures.
If, and only if COMPANY does not cure a curable default, failure or breach
(or if it cannot reasonably be cured in that period, commences diligent
efforts to cure) within sixty (60) days of receipt of notice of termination
(or if there is a dispute, within 60 days of resolution thereof), such
termination shall become effective. Notwithstanding the above sentence, in
the case of a failure to use diligent effort to effect commercial sales of
PRODUCT, termination will become effective only if the COMPANY does not
take the measures required in the timeframe specified by the arbitration.
Notwithstanding the foregoing, if a failure, breach or default relates only
to a particular TECHNOLOGY or IMPROVEMENT, termination will apply only to
that
<PAGE>
TECHNOLOGY or IMPROVEMENT
7.3 COMPANY may terminate the license granted hereunder (in whole or with
respect to any TECHNOLOGY or IMPROVEMENT) at any time upon sixty (60) days
notice by certified mail to the UNIVERSITY.
7.4 Upon end of term of this agreement in accordance with 7.1 above, COMPANY
shall have the unrestricted royalty-free right to make, use, and sell,
lease, or otherwise dispose of PRODUCTS anywhere in the world.
7.5 Upon termination of this agreement for any reason, including the end of
term as specified above, all rights and obligations under this agreement
shall terminate, except those that have accrued prior to termination (e.g.,
confidentiality and the obligation to report and pay royalty on sales made
under this agreement) and except as specified in this agreement (see
paragraphs 5.4, 7.4 and 9.3).
ARTICLE VIII - PUBLICATION
8.1 It is the policy of the UNIVERSITY to promote and safeguard free and open
inquiry by 'faculty, students and others. To further this policy, the
UNIVERSITY shall retain the right to publish the inventions described in
APPLICATIONS and PATENTS. However, the UNIVERSITY shall provide the
COMPANY with a copy of the manuscript no less than sixty (60) days prior to
publication for the purpose of review and comment, and, if filing of an
APPLICATION is requested, will delay publication up to 90 additional days
as necessary to allow time for filing patent applications. However, the
UNIVERSITY will hold confidential and not disclose any licensed source code
and source documentation.
ARTICLE IX - INDEMNIFICATION
9.1 COMPANY agrees to indemnify the UNIVERSITY and hold the UNIVERSITY harmless
against all liabilities, demands, damages, expenses, or losses arising (i)
from the manufacture, use, lease, sale, or other disposition of a PRODUCT
by COMPANY or a SUBLICENSEE, (ii) from a third party's use of a PRODUCT
purchased, leased, or otherwise acquired from COMPANY or a SIJBLICENSEE, or
(iii) from a third party's manufacture of a PRODUCT at the request of
COMPANY or a SUBLICENSEE, provided that COMPANY's indemnity obligation is
conditioned on COMPANY being given prompt notice of any claim or threat and
sole control of defense and settlement..
9.2 COMPANY agrees to maintain reasonable liability insurance to insure against
the above types of liabilities and to name the UNIVERSITY as coinsured. At
the UNIVERSITY's request, COMPANY shall provide UNIVERSITY with
certification of such insurance.
9.3 The provisions of this article shall survive termination of this agreement.
ARTICLE X - WARRANTIES AND LIMITATIONS
10.1 The UNIVERSITY and COMPANY each represent and warrant that they have the
right to enter into this agreement. The UNIVERSITY warrants that it has the
right to convey
<PAGE>
to COMPANY the rights granted under this agreement.
10.2 The UNIVERSITY makes no representation or warranty that is the sole owner
of the TECHNOLOGY.
10.3 The UNIVERSITY makes no representation or warranty that filed APPLICATIONS
will result in issued PATENTS.
10.4 The UNIVERSITY makes no representations or warranties concerning the
validity of scope of any PATENTS.
10.5 The UNIVERSITY does not warrant that any PRODUCT made, used, or sold,
leased or otherwise disposed of under the license of this agreement is or
will be free from infringement of patents of third persons.
10.6 Nothing herein shall be construed to grant COMPANY rights under any patent
applications or patents other than APPLICATIONS and PATENTS.
10.7 The UNIVERSITY does not make any representations, extend any warranties of
any kind, express or implied, or assume any responsibility whatever
concerning the manufacture., use, or sale, lease or other disposition by
COMPANY or its vendees or transferees of PRODUCTS.
ARTICLE XI - MISCELLANEOUS PROVISIONS
11.1 This agreement shall be binding upon and be to the benefit of the parties
hereto and their heirs, successors and assignees. However, neither party
shall assign this agreement, in whole or in part, without the written
consent of the other, except as provided in Section 4.3.
11.2 This agreement shall be governed by the Laws of the State of Minnesota.
11.3 For purposes of mailings of notices, payments, or other communications,
the addresses of the parties are given below. A party may change its address by
giving written notice to the other party.
In the case of the UNIVERSITY:
Regents of the University of Minnesota
Patents and Technology Marketing
1100 Washington Avenue South, Suite 201
Minneapolis, MN 55415-1226
<PAGE>
In the case of COMPANY:
Steven J. Snyder, Ph.D.
President and Chief Executive Officer
Net Perceptions, Inc.
5720 Green Circle Drive
Minnetonka, MN 55343
Notices shall be deemed given as of the date of mailing by certified mail,
postage prepaid, to the above addresses (or such other addresses as may be
specified in writing by a party).
11.4 No term or provision of this agreement shall be waived and no breach
excused unless such waiver or consent shall be in writing and signed by the
party claimed to have waived or consented. No waiver of a breach shall be
deemed to be a waiver of a different or subsequent breach.
11.5 This agreement may not be modified, changed or terminated orally. No
change, modification, addition or amendment shall be valid unless in
writing and signed by the parties hereto.
11.6 In the event any provision of this agreement is determined to be invalid or
unenforceable, the remaining provisions shall remain in full force and
effect.
11.7 This agreement constitutes and contains the entire agreement of the parties
respecting its subject matter and supersedes any and all prior negotiations,
correspondence, understandings, and agreements, whether written or oral, between
the parties respecting its subject matter.
IN WITNESS of this agreement, the UNIVERSITY and COMPANY have caused this
agreement to be executed by their duly authorized officers on the dates
indicated.
REGENTS OF THE UNIVERSITY OF MINNESOTA NET PERCEPTIONS, INC.
By: /s/ Anthony L. Strauss By: /s/ Steven J. Snyder
------------------------------- ---------------------------------
Anthony L. Strauss
Title: Director, MCEB Technologies Title: President and CEO
Research and Technology Transfer --------------------------------
Date: 7-31-96 Date: 7/31/96
------------------------------ -------------------------------
By their signatures below, Professor John Riedl and Professor Joseph Konstan
acknowledge and
<PAGE>
agree to be personally bound by the provisions of 2.2 and 4.1 which require that
they not engage in UNIVERSITY research related to collaborative filtering which
would grant rights to a sponsor in conflict with the license granted hereunder.
Professor John Riedl and Professor Joseph Konstan also acknowledge and agree to
be personally bound by the provisions of 8.1 which requires prior review of
proposed publications related to the TECHNOLOGY and IMPROVEMENTS.
/s/ John Riedl /s/ Joseph Konstan
--------------------------- -----------------------------
Professor John Riedl Professor Joseph Konstan
31 July 96 7/30/96
--------------------------- -----------------------------
Date Date
<PAGE>
* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
AMENDMENT
This is an amendment ("Amendment") to the July 31, 1996 License Agreement
between Net Perceptions, Inc. and the University of Minnesota (the "Agreement").
This Amendment is effective October 13, 1997. Capitalized terms have the same
meaning as in the Agreement. Except as provided herein, the Agreement remains
unchanged and effective.
1. COMPANY will provide UNVERSITY with [*] to be used for funding
research concerning the TECHNOLOGY during an Elected Academic Year (the
"RESEARCH"), including direct and indirect costs, if applicable, with payment
occurring on or before the 45th day following the beginning of such Elected
Academic Year; any amount not so used will be refunded. Such research shall be
conducted under the direction of Professor John Riedl and/or Professor Joseph
Konstan. Results of that research shall be treated as IMPROVEMENTS. An
"Elected Academic Year" shall mean the 97-98 academic year and, if elected by
COMPANY on or before the start date for the applicable academic year, each of
the 98-99 and 99-00 academic years; each Elected Academic Year will be deemed to
begin on October 1 and end on September 30.
2. Subject to compliance with state and federal securities laws and
execution of COMPANY's standard option documentation, COMPANY will grant
fully-vested options for a total of [*] shares of COMPANY common stock
(subject to adjustment for stock splits and combinations after the date of this
Amendment and with an exercise price equal to fair market value at the time of
grant) to be split between the UNIVERSITY inventors (excluding Professors John
Riedl and Joseph Konstan) for each U.S. APPLICATION that COMPANY requests the
UNIVERSITY to file on an IMPROVEMENT conceived or reduced to practice during an
Elected Academic Year. The split between the inventors shall be determined by
the inventors in light of their respective contributions to the invention
disclosed in the U.S. APPLICATION. The grant date with respect to such options
relating to such U.S. APPLICATION will be within 90 days after filing of that
application. However, in no event will COMPANY be obligated to issue options
for more than an aggregate of [*] shares (subject to adjustment for stock
splits and combinations after the date of this Amendment) in connection with
IMPROVEMENTS conceived or reduced to practice during the first Elected Academic
Year or during any other single Elected Academic Year. In the unlikely event
that more than 3 U.S. APPLICATIONS will be filed on IMPROVEMENTS conceived or
reduced to practice during any given Elected Academic Year, the options
specified herein to be due for each application filed shall be reduced so as to
equally pro-rate the maximum aggregate total options specified herein for that
Elected Academic Year. Any IMPROVEMENTS that may have been conceived or reduced
to practice prior to the start date of the first Elected Academic Year shall be
deemed to have been conceived or reduced to practice during the first Elected
Academic Year.
Page 1
* Confidential treatment requested for redacted portion.
<PAGE>
3. Subject to COMPANY's standard evaluation license agreement terms,
COMPANY will provide Professors Riedl and Konstan access to COMPANY's most
current generally available version of the GroupLens-TM- engine at no charge
throughout Elected Academic Years only and only for non-commercial academic
RESEARCH use during Elected Academic Years by RESEARCH participants in the
laboratories of Professors Riedl and Konstan.
4. COMPANY will sponsor three one-day reviews for RESEARCH participants
during each Elected Academic Year.
5. In exchange for the foregoing and notwithstanding Section 5.1(c) of
the Agreement or otherwise, the UNIVERSITY agrees that any and all rights and
licenses granted in the Agreement relating to PATENTS or APPLICATIONS based on
IMPROVEMENTS conceived of on or before the end of the last Elected Academic
Year, or to related PRODUCTS, are and will be fully paid and perpetually royalty
free, regardless of when such PATENTS and APPLICATIONS are filed or granted, and
accordingly, no royalty need be determined in connection therewith.
NET PERCEPTIONS, INC. UNIVERSITY OF MINNESOTA
By: /s/ Steven Snyder By: /s/ Todd Morrison
--------------------------- ---------------------------
Todd Morrison, [ILLEGIBLE]
Director
Title: President and CEO Title: Sponsored Projects
Administration
-------------------------- --------------------------
Date: 10/13/97 Date: 10/10/97
-------------------------- --------------------------
<PAGE>
* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
NEURAL APPLICATIONS CORPORATION
SOFTWARE TECHNOLOGY LICENSE AGREEMENT
- --------------------------------------------------------------------------------
THIS SOFTWARE TECHNOLOGY LICENSE AGREEMENT ("Agreement") is made and
entered into this 7th day of August, 1998 (the "Effective Date") by and between
Neural Applications Corporation, 2600 Crosspark Road, Coralville, Iowa
52241-3212, a Delaware corporation ("Neural"), and Net Perceptions, Inc., 11200
West 78th Street, Suite 300, Minneapolis, Minnesota 55344, a Delaware
corporation ("NPI").
WHEREAS, Neural, as the result of the expenditure of time, skill, effort
and money, has designed, developed, and produced, and is the owner of the entire
right, title and interest in and to, certain software technology and the
documentation associated therewith as more particularly defined below,
collectively, as the "Software"; and
WHEREAS, Neural has also designed, developed, and produced, and is the
owner of the entire right, title and interest in and to, the trademarks, trade
names, service marks and logos used in connection with the Software (defined
below as the "Neural Trademarks"), and Neural continues to develop, use and
control the Neural Trademarks for the benefit and exclusive use of itself and
its licensees in order to identify to the public the source of the Software; and
WHEREAS, NPI desires to obtain from Neural, and Neural desires to grant
to NPI a license to merge or embed the Software into proprietary software
products developed or licensed by NPI and a license to sell certain products
developed solely by Neural (defined below, collectively, as the "Product(s)")
and to thereafter market, demonstrate, sell, sublicense and distribute the
Products to end user customers on an exclusive basis for use within the Internet
Market, as defined below, and on a non-exclusive basis for use within the
Non-Internet Market, as defined below, and in accordance with the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, which shall be deemed
an integral part of this Agreement and not as mere recitals hereto, and in
consideration of the mutual covenants, representations, agreements and
conditions herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound thereby, agree as follows:
1. DEFINITIONS:
"END USER" shall mean any third party which obtains the Software,
directly or indirectly, from NPI or any Subdistributor pursuant to a
license to a Product.
"DOCUMENTATION" shall mean the standard user manual or other
documentation or explanatory material related to the Software or any
Product as well as anything developed by or for Neural useful to NPI for
use in connection with merging or embedding the Software into the
proprietary software products developed or licensed by NPI, for use in
connection with any subsequent versions thereof receiveed by NPI from
Neural, and for use in the development of any End-User Product
documentation.
<PAGE>
"INTERNET MARKET" means all applications of the Software for End Users
who will use the Software in conjunction with or in support of the
targeting and personalizing of Internet sites or similar networks
including a Internet site itself, content related thereto and targeted
campaigns related to the site profiles but excluding Internet market
segments that are determined to be not core to NPI's business by the
mutual agreement of the parties.
"NON-INTERNET MARKETS" means all other software-related markets for the
Software.
"PRODUCT(S)" means any software product made available to End Users
pursuant to this Agreement which is the result of one or more
integrations of the Software (in whole or in part) into NPI proprietary
technology or a software product made available to NPI by Neural for End
Users pursuant to this Agreement with or without integration or
modification efforts by NPI. Product(s) shall also include Updates or
Upgrades to the Products to be delivered to NPI during the term of this
Agreement pursuant to Section 2.
"SOFTWARE" means Neural's core technology, Aegis-TM-, which includes
Neural Networks, Fuzzy Logic, Genetic Algorithms, Knowledge Based
Methods, Linear Methods, Multivariable Statistics and other
functionality, in object code form and the related Documentation as
released from time to time. Software shall also include Updates and
Upgrades to the Software to be delivered to NPI during the term of this
Agreement pursuant to Section 2.
"UPDATE" shall mean a change, modification or other update of the
Software or Product as applicable made to correct an error (i.e., bug
fix), defect or other problem and/or to maintain the operational quality
of the Software or Product, which is not an Upgrade.
"UPGRADE" shall mean a new release or versions of the Software or Product
as applicable or successors or follow-ons to the Software or Product, or
any part thereof, which adds major new functionality or features to the
last version of the Software or Product.
2. LICENSE AND USE OF SOFTWARE and/or Product
a. DEVELOPMENT AND DEMONSTRATION LICENSE. Neural grants to NPI a
fully-paid nonexclusive worldwide license to use a reasonable number
of copies of the Product(s) (or Software if deemed necessary by by
the parties), in object code form only and for its use in the
development of an interface between the Software or Product(s) and
NPI software applications and for the purpose of demonstrating and
supporting the Product(s).
b. EXCLUSIVE DISTRIBUTION LICENSE. Subject to any terms to the
contrary on any Product Schedule, Neural grants NPI an exclusive
worldwide license within the Internet Market to (i) market,
demonstrate, sell, lease, and sublicense the Software and Product(s)
whether or not incorporated with other software, and (ii) to use the
Neural Trademarks in connection therewith, provided however that the
Products may be sold directly or indirectly only to End-Users
pursuant to the End-User license agreements specified by NPI, and
the rights and limitations of the End-Users shall be solely as set
forth therein, which rights shall never exceed those granted herein.
The exclusivity provision of this license within the Internet Market
applies to all patent rights, copyrights and trade secrets
underlying the Software and Products but is subject to termination
as provided in Section 5 of this Agreement and shall not apply to
the excluded customers listed on Product Schedule #1.
- --------------------------------------------------------------------------------
Page 2 Software License Agreement
<PAGE>
c. NON-EXCLUSIVE DISTRIBUTION LICENSE. Neural grants NPI a
non-exclusive worldwide license within the Non-Internet Markets to
(i) market, demonstrate, sell, lease, and sublicense the Software or
Products whether or not incorporated with other software, and (ii)
to use the Neural Trademarks in connection therewith, provided
however that the Products may be sold directly or indirectly only to
End-Users pursuant to the End-User license agreements specified by
NPI, and the rights and limitations of the End-Users shall be solely
as set forth therein, which rights shall never exceed those granted
herein.
d. USE OF SUBDISTRIBUTORS. NPI may exercise its reproduction and
distribution rights either directly or through Subdistributors
provided that each such Subdistributor agrees in writing to be bound
by the restrictions with respect to the Software on NPI contained in
this Agreement.
e. UPDATES AND UPGRADES. Neural shall correct errors in the Software
and Product(s) from time to time in accordance with SCHEDULE A of
this Agreement and shall provide NPI with copies of all Updates and
Upgrades as they are available by Neural from time to time. All
Updates to Software shall be owned by Neural and shall be subject to
the terms and conditions of this Agreement.
3. LICENSE FEE. As consideration for the licenses granted hereunder NPI
shall pay to Neural the license fees and such other charges as specified in each
Product Schedule, the first of which is attached hereto as Product Schedule #1.
Additional Products to be marketed by NPI under the terms of this Agreement will
require supplemental Schedules shall be prepared by the parties referencing this
Agreement. For each Product, the parties will establish a commercially
reasonable process to determine the number of Products sold, date of their sale,
and applicable royalty fees payable to Neural for each Product.
4. MAINTENANCE AND SUPPORT FEES. Except as otherwise set forth herein, the
fee for any Updates, Upgrades, or consulting or other services relating to the
Software or any Product pursuant to Schedule A which Neural performs shall be as
set forth on Product Schedules attached hereto, and shall be payable in
accordance with the payment schedule set forth therein, as determined under 3
above.
5. TERM. The term of this Agreement shall commence on the Effective Date and
shall remain in full force and effect for a period of thirty-eight (38) months
unless terminated by Neural as provided under Section 6. In the event that the
parties are unable to reach mutually agreeable terms for the renewal (or
non-renewal) of this Agreement during the six (6) month period prior to the
expiration hereof, this Agreement shall automatically renew, with the same terms
and conditions, for one (1) additional year.
6. TERMINATION.
a. The exclusivity provision of the license granted under Section 2(b)
of this Agreement may be terminated by Neural upon written notice to
NPI in the event NPI fails to achieve 100% of the "Minimum
Cumulative Revenue" requirements set forth in subparagrah c hereof.
b. The license granted may be terminated by Neural upon written notice
to NPI in the event NPI fails to achieve twenty-five percent (25%)
of the "Minimum Cumulative Revenue" requirements set forth in
subparagraph c hereof.
- --------------------------------------------------------------------------------
Page 3 Software License Agreement
<PAGE>
c. Minimum Cumulative Revenue is defined as the total cumulative net
revenue due Neural for all Products and related support services
sold by NPI as listed on all current and future Product Schedules
plus any additional amounts NPI may commit to pay Neural. Cumulative
Revenue herein shall mean NPI payments made or owed to Neural at the
end of the periods listed below. Following is a table showing the
Minimum Cumulative Revenue requirement due Neural.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Period First Second Third Fourth Fifth Sixth Seventh
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ending Month from 2 8 14 20 26 32 38
Effective Date
- -----------------------------------------------------------------------------------------------------------------------------------
Neural Minimum Cumulative [*] [*] [*] [*] [*] [*] [*]
Revenue Requirements for
Exclusivity
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
d. This Agreement and the license granted hereunder may be terminated
by either party upon written notice to the other party in the event
either party materially breaches any of the provisions of this
Agreement, which breach has not been remedied within thirty (30)
days of notice thereof. Failure to pay monetary amounts shall not
be subject to the above thirty (30) day cure period, but rather
shall be remedied within fifteen (15) days of notice thereof.
e. Upon termination of this Agreement and of the licenses granted
hereunder, NPI shall cease any further development of any new
Products provided that NPI can sell maintain and support its current
Products at the time of termination and, otherwise, NPI, and must
return to NEURAL or destroy, as requested by NEURAL, all copies of
the Software and Product(s) and related materials in any form in
NPI's possession or control, however, NPI may retain necessary
copies of the Software and Product(s) and related materials
necessary to fulfill its support obligations to End Users of
Products.
f. All licenses granted by NPI to End Users for Products shall continue
in full force and effect in accordance with this Agreement and the
End User license agreements in effect at the time of the termination
of this Agreement or permitted by 6(e) above, notwithstanding the
expiration or termination hereof.
g. The provisions of paragraphs 1,2(a),4,5,9,11,12,13,14,15,16 and 18
of this Agreement shall survive the termination of this Agreement
(for any reason).
7. AUDIT. The parties shall establish a commercially reasonable process for
reporting the identification of each End-User, date of sale, and the fee
charged.
8. SOFTWARE SUPPORT. Neural shall provide NPI and/or the End-User support
for the Software and Product(s) to the extent and in the manner provided
in SCHEDULE B-SOFTWARE SUPPORT attached hereto.
9. EXPRESS LIMITED WARRANTY. Neural represents and warrants to NPI that for
a period of ninety (90) days from delivery to NPI (the "Warranty Period")
the Software and Product will (i)
- --------------------------------------------------------------------------------
Page 4 Software License Agreement
* Confidential treatment requested for redacted portion.
<PAGE>
conform to the functions and specifications stated in the then-current
Documentation, and (ii) be free from defects in material and workmanship
under normal installation, use and service. This warranty does not
include, and Neural disclaims any warranty with respect to, errors in,
damage to or failures, defects or other problems in or with the arising
in any way from (i) fire; (ii) flood, lightning or other acts of God or
other force majeure; (iii) accident or a computer virus not within the
Software; (iv) misuse or negligence; (v) improper handling or operation;
(vi) repair, maintenance, alteration, modification, customization or
tampering of or to the Software by any person or other entity other than
Neural; (vii) any Hardware or other hardware or any external electrical
work; (viii) failure to use, maintain or operate the Software as provided
or in accordance with any Neural software documentation; or (ix) any
software not provided by Neural or any interfaces of the Software with
any other software. If the Software should fail to confirm to the above
warranty during the Warranty Period and subject to the conditions below,
Neural shall only be required to repair or replace the Software. In
addition to any contingency set forth above, the above warranty is
contingent upon NPI notifying Neural in writing of any alleged breach of
said warranty within ten (10) days of the date on which NPI discovers
such breach and in all events within the Warranty Period.
Neural warrants that it is the owner of, or otherwise has a right to
license and sell the Softwareand Product(s), and that the Software and
Product(s) will not infringe upon or violate any copyright, patent,
trademark, trade secret, or other proprietary or intellectual property
right of any third party. Neural further warrants that it is unaware of
any claim or allegation that the Software and Product(s) violates any
such proprietary or intellectual property rights.
Neural warrants that the Software and Product(s) shall be free of
viruses, worms, trojan horses and similar destructive mechanisms.
Neural warrants that the advent of the year 2000 shall not adversely
affect the performance of the Software and Product(s) as delivered by
Neural with respect to date and date dependent data (including, but not
limited to calculating, comparing and sequencing) and that the Software
and Product(s) will be capable of creating, storing, and processing
records related to and including the year 2000 and thereafter without
deficiencies related to the advent of the year 2000.
10. LIMITATION OF EXPRESS WARRANTIES: THE WARRANTIES SET FORTH IN
PARAGRAPH 9 ABOVE ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, WHICH ARE HEREBY DISCLAIMED AND EXCLUDED BY NEURAL, INCLUDING
WITHOUT LIMITATION ANY WARRANTY OR MERCHANTIBILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE.
11. LIMITATION OF REMEDIES: EXCEPT FOR A VIOLATION OF EXCLUSIVITY, NPI
OR NEURAL SHALL NOT BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES OF ANY CHARACTER ARISING OUT OF OR INCLUDING, BUT
WITHOUT LIMITATION, DAMAGES FOR LOST PROFITS, BUSINESS INTERUPTION, LOSS
OF BUSINESS INFORMATION OR INABILITY TO USE THE SOFTWARE, EVEN IF THE
OTHER PARTY WAS ADVISED OF THE POSSIBILITY OF DAMAGES.
12. INTELLECTUAL PROPERTY INFRINGEMENT INDEMNITY.
- --------------------------------------------------------------------------------
Page 5 Software License Agreement
<PAGE>
a. Neural agrees to investigate promptly and defend NPI, its
Subdistributors or End Users against any claim, demand, suit or
action based on any claim that the use by NPI of the Software and
Product(s) infringes any patent, copyright, or other intellectual
property rights or the trade secret or the proprietary rights of a
third party. Neural agrees to assume the defense of such claim,
demand, suit or action, and indemnify and hold harmless NPI, its
Subdistributors or End Users from and against any and all damages
and costs (including reasonable attorneys' fees) as a result of any
such claim, demand, suit or action, provided that NPI notifies
NEURAL promptly in writing of each claim and Neural may control the
settlement of such claim, provided that NPI shall not be bound to
any settlement that it has not approved in writing.
b. Without prejudice to sub-paragraph (a) above, should the Software
and Product(s) become, , the subject of a claim as aforesaid then
Neural shall either: (i) procure for NPI the right to continue using
the Software and/or Products; (ii) replace the Software and/or
Product with non-infringing material provided the replacement
software is substantially similar to the Software and/or Product(s)
in functionality, performance and interoperability; or (iii) modify
the Software and/or Products to make them non-infringing provided
the modified software and/or products are substantially similar to
the Software and/or Products in functionality, performance and
interoperability.
c. Neural shall have no liability for any claim of infringement based
on: (a) use of other than a current release of the Software or
Product(s) released more than twenty-four (24) months after such
release is provided to NPI if such infringement would have been
avoided by use of such current release, or (b) use or combination of
the Software or Product(s) with non-Neural programs or data if such
infringement would have been avoided by the use of the Software or
Product(s) without those other programs or data. The foregoing
states the entire liability of Neural with respect to any claim of
infringement regarding the Software or Products.
d. Subject to applicable defenses, prompt notice of any claims and the
right to control defense and settlement, each party agrees that it
shall defend, indemnify and hold the other party harmless from and
against any and all damages, liabilities, costs and expenses
(including court costs and reasonable attorneys' fees) paid to a
third party that arise from or are in any way related to or
connected with (i) any gross negligence or, recklessness by such
party; or (ii) any breach of warranty or misrepresentation on the
part of such party under this Agreement.
13. PROPRIETARY RIGHTS OF NEURAL. All rights, titles and interests in
and to the Software, subject to those grants or licenses herein made, are
the property of Neural. Nothing herein shall be construed to give NPI
or any End Users any proprietary rights in the Software, or to its
enhancements, modifications, or alterations. NPI agrees that:
a. NPI shall not create, attempt to discover or create or permit others
to create or attempt to discover or create (by any means, methods or
procedures whatsoever) the source code for the Software or any
derivative works from the Software, nor disassemble, decompile,
reverse engineer, reverse compile, reverse assemble, or otherwise
translate any of the Software contrary to the purposes licensed
hereunder, except as permitted under applicable law.
- --------------------------------------------------------------------------------
Page 6 Software License Agreement
<PAGE>
b. NPI agrees that a breach or imminent breach of this paragraph 9
shall constitute a material breach of this Agreement for which
Neural will not have an adequate remedy at law. NPI agrees,
therefore, that Neural's remedies upon a breach or imminent breach
of this paragraph 9 include, without limitation, the right to
preliminary and permanent injunctive relief restraining NPI from any
further violation of this paragraph 9, in addition to any other
remedies available at law or in equity or otherwise to Neural. NPI
further agrees that any such injunction may be granted to Neural
without any requirement of Neural to post bond or surety thereon as
a condition of such relief.
14. PROPERTY RIGHTS OF NPI. All rights, titles and interests in and to
the software interface between the Software and NPI proprietary products
are the property of NPI. In addition, NPI will own all comments,
feedback, ideas and inventions (including intellectual property rights
therein) that arise from its's activity in connection with this Agreement
which relate to applications of the Software ("Feedback") provided
however that Neural shall own all comments, feedback, ideas and
inventions (including intellectual property rights therein) that arise
which relate to the Software or Product if soley developed by Neural.
Notwithstanding anything to the contrary contained in the foregoing, all
ownership rights in any Feedback related to applications for the Software
and/or in any user interface or visual displays developed by NPI for such
applications shall remain with NPI, who will be free to use such feedback
in such applications.
15. JOINT PROPERTY RIGHTS. The parties will be exploring new
applications for each parties software technologies. However, Feedback
relating directly both to the Software (including improvements) and such
NPI applications will be jointly owned and each party grants the other a
royalty-free, nonexclusive, worldwide, perpetual, sublicensable right and
license thereunder to do anything with respect thereto that the other is
authorized to do underthis sentence provided that Neural's rights will
not extend to the Internet Market. The parties hereby makes any
assignments necessary to accomplish the foregoing provisions of Sections
14 and 15.
16. Additional Obligations of Neural.
a. ENGINEERING ASSISTANCE. Neural agrees and upon NPI's reasonable
request, to provide engineering time assistance to NPI in order to
support the ongoing productization and integration of the Software
to deliver Products to End Users. Amounts of time and the scope of
such Neural efforts will be more specifically defined on each
Product Schedule attached to this Agreement.
b. ESCROW. Neural will establish within thirty (30) business days of
the Effective Date and maintain throughout the term of this
Agreement, an escrow of the most current source code and all related
tools and documentation version of the Software. NPI will be
entitled to receive a copy of such source code directly from the
escrow agent upon NPI's documented failure to support NPI and the
End Users pursuant to Schedule B. NPI is entitled (and is granted a
current license) to possess and use such source code only to the
minimal extent necessary to provide such support and only until
Neural can demonstrate to NPI reasonable satisfaction that is again
able and willing to supply such support. The additional terms of
the escrow agreement will be negotiated in good faith by the parties
within thirty (30) days of the Effective Date
17. SALES AND USE TAX. All governmental taxes (including, without
limitation, sales, use, import, export and excise taxes), tariffs,
assessments, duties or levies of any kind or nature relating to or
arising from the license of the Software and Products (excluding taxes on
Neural's income or franchise taxes) or otherwise from this Agreement
shall be the responsibility of NPI.
- --------------------------------------------------------------------------------
Page 7 Software License Agreement
<PAGE>
18. MISCELLANEOUS
RELATIONSHIP. This Agreement does not make either party the employee,
agent or legal representative of the other for any purpose whatsoever.
ASSIGNMENT. This Agreement and any rights granted hereunder may not be
assigned, sub-licensed or otherwise transferred by either party without
the prior written consent of the other party, which consent shall not be
unreasonably withheld, provided, however, that either party may assign
its interests and obligations hereunder to a successor in interest to all
or substantially all of its business.
NOTICES. Notices permitted or required to be given under the terms of
this Agreement shall be deemed sufficient if given by (a) registered or
certified mail, postage prepaid, return receipt requested or (b) private
courier service, addressed to the respective parties at the addresses
shown below their signatures to this agreement, or such other addresses
as they may from time to time designate. Notices shall be effective upon
receipt by the party to which notice is given.
ENTIRE AGREEMENT; AMENDMENT. This Agreement, including attachments
hereto, constitutes the entire agreement of the parties. This Agreement
may not be modified, amended, rescinded, canceled or waived, in whole or
on part, except by written amendments signed by both parties hereto.
GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Minnesota.
SEVERALABILITY. If any provisions of this Agreement is found
unenforceable, such invalidity or unenforceability shall not invalidate
any of the other provisions of this Agreement.
COUNTERPARTS. This Agreement may be executed in two or more
counterparts, and each such counterpart shall be deemed an original
thereof.
WAIVER. No failure of either party to take any action or assert
any right hereunder shall be deemed to be a waiver of such right in the
event of the continuation or repetition of the circumstances giving rise
to such rights.
ATTORNEY'S FEES. The unsuccessful party in any action or proceeding
shall pay for all costs, expenses and reasonable attorneys' fees incurred
by the prevailing party or its agents or both in enforcing the terms and
conditions of the Agreement and this addendum. The term "prevailing
party" as used herein shall include without limitation a party who
utilizes legal counsel and brings an action against the other party by
reason of the other party's breach or default and obtains substantially
the relief sought, whether by compromise, settlement or judgment
NEURAL APPLICATIONS CORPORATION NET PERCEPTIONS, INC.
by /s/ Robert S [ILLEGIBLE] by /s/ Steven J. Snyder
------------------------------ ---------------------------------
its President its President and CEO
--------------------------- ------------------------------
- --------------------------------------------------------------------------------
Page 8 Software License Agreement
<PAGE>
SCHEDULE A
SOFTWARE SUPPORT
Neural will use all commercially best efforts to assist NPI in providing first
and second level telephone support to End Users for the most current version of
the Software and Products, as well as any previous version thereof that was
released within twelve (12) months of the date of such request. Neural will
provide reasonable telephone support to two (2) contacts named by NPI (or to up
to two (2) alternatives named by NPI at any point in time) (the "Authorized
Contact(s)") for technical and related inquiries arising from End Users use of
the Software and Products. Upon receipt of notice of a problem from an
Authorized Contact, and if such problem has been reproduced at a NPI support
facility and can be reproduced at a Neural support facility or via remote access
to the NPI or End User site, NEURAL will use all efforts to correct or
circumvent such problem; provided, that all corrections to the Software and
Product(s) will be made only to the most current generally available release,
except that for a period of twelve (12) months after the introduction of a new
generally available release, Neural will use all best efforts to provide
telephone support for the immediately prior generally released version of the
Software and Product(s). Neural will use all best efforts to follow the support
escalation procedures below. NEURAL will not interact with any End Users
without NPI'S express written consent.
Neural will provide the resolutions and solutions as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PRIORITY CRITERIA RESPONSE RESOLUTION SOLUTION
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Critical Defects 2 hours Within 24 hours provide a Fix incorporated into next release.
Workaround
(The Customer Web site is Engineering working round the
unusable due to a clock if a patch is required.
Software/Product error)
- ----------------------------------------------------------------------------------------------------------------------------------
2 Major Defects 4 hours Within 48 hours provide a Fix incorporated into next release.
workaround
(The Customer Web site is Fix delivered in monthly patch
materially, adversely release.
affected by a
Software/Product error)
- ----------------------------------------------------------------------------------------------------------------------------------
3 Minor Defects 8 hours Within 10 days provide a Workaround Fix in next major release.
Fix delivered in next release.
(The Customer Web site is
immateriality adversely
affected by a
Software/Product error)
- ----------------------------------------------------------------------------------------------------------------------------------
4 Minor Problem 2 days Answer technical information Incorporate into Knowledge Base.
requests. Forward other issues to
(Documentation) appropriate group
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Page 9 Software License Agreement
<PAGE>
PRODUCT SCHEDULE #1
AD-TARGETING PRODUCT ("Product1")
Product Description
Product1 features intelligent Web targeting which optimizes the performance of
banner campaigns. Product1 is a value added system that enhances existing ad
servers to maximize site performance and revenue. Product 1 will be offered
both as a stand-alone "plug-in" system and as a system integrated with NPI
products. Neural will be responsible for generating all Documentation for
Product1 (excluding reproduction and printing costs). Initially, Product1 will
be available on the NT and Solaris platforms. Neural will perform all
engineering efforts related to the productization of Product1.
Royalty Payments
NPI shall pay royalties to Neural based on a set percentage of net license and
maintenance revenue (gross revenue less any taxes, shipping, etc.) derived by
NPI from the Product1 and also based on the cumulative NPI payments made to
Neural for Product1 and maintenance sales during the term of this Agreement in
accordance with the following table:
<TABLE>
<CAPTION>
-------------------------------------
Cumulative NPI
royalties accrued to
Neural Royalty %
-------------------------------------
<S> <C>
[*] [*]
-------------------------------------
[*] [*]
-------------------------------------
[*] [*]
-------------------------------------
-------------------------------------
</TABLE>
Royalty Payment Terms
Due and payable to Neural within thirty (30) days after the end of the calendar
month of collection from End Users by NPI.
NEURAL DIRECT SALES ACTIVITY PROVISIONS
It is understood between the parties that NPI's exclusive license grant under
section 2(b) of the Agreement will not include the following set of named
accounts for Product1 which Neural may choose to sell through its direct sales
force or through co-selling efforts with NPI. :
- -----------------------
[*]
- -----------------------
[*]
- -----------------------
[*]
- -----------------------
[*]
- -----------------------
[*]
- -----------------------
[*]
- -----------------------
[*]
- -----------------------
[*]
- -----------------------
- --------------------------------------------------------------------------------
Page 10 Software License Agreement
* Confidential treatment requested for redacted portion.
<PAGE>
- -----------------------
[*]
- -----------------------
[*]
- -----------------------
[*]
- -----------------------
[*]
- -----------------------
[*]
- -----------------------
It is understood between the parties that all revenue realized directly by
Neural from the above accounts(excluding DoubleClick) will apply to the
cumulative revenue requirements for NPI to maintain its Internet license
exclusivity under Section 6 of the Agreement. In cases where NPI receives
commissions in joint sales situations, only the net revenue, after deducting the
commission paid to NPI, will apply to the cumulative revenue requirements for
NPI to maintain its Internet license exclusivity under Section 6 of the
Agreement.
The parties each desire to motivate the other party (and its top executive,
marketing and sales personnel) to close the above accounts through joint sales
efforts and, therefore, Neural agrees to pay the NPI for such performance in
accordance with the following:
- - Lead referral or contact introduction with limited sales involvement -
[*];
- - Lead referral or contact introduction with NPI assuming significant sales
[*].
The above percentages will be calculated on the "net revenue" (i.e., gross sales
revenue less any taxes, shipping, etc.) actually received by the Neural from any
sale or license of the Product1.
In addition, for Internet financial markets NPI will be the primary sales agent.
However it is anticipated that Neural's sales force can add value in the sales
process for Internet financial markets. Therefore, NPI desires to motivate
Neural (and its top executive, marketing and sales personnel) to assist in the
closing of Internet financial markets through joint sales efforts and,
therefore, NPI agrees to pay the Neural for such performance which shall apply
to the cumulative revenue requirements for NPI to maintain its Internet
exclusivity under Section 7. Fees shall be in accordance with the following:
- - Lead referral or contact introduction with limited sales involvement -
[*];
- - Lead referral or contact introduction with Neural assuming significant
sales responsibility [*].
PROMOTION REQUIREMENTS. NPI will cobrand its offering with the "powered by
Neural-TM-" logo. NPI will include reference to Neural in all press releases
related to their clients' use of Neural's technology. This will include joint
press releases as well as individual press release from each firm. Neural will
be allowed to reference NPI clients using Neural technology in its marketing
efforts. In the event NPI is prohibited from issuing a press releases due to a
non-disclosure agreement with a client Neural will also abide by the same
non-disclosure agreement. Neural will allow NPI to include references to Neural
within their branding and positioning of Product1. All references must use
Neural logo and trademark from the approved Neural style guide.
- --------------------------------------------------------------------------------
Page 11 Software License Agreement
* Confidential treatment requested for redacted portion.
<PAGE>
* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ORBIX-REGISTERED TRADEMARK- DEVELOPMENT AND RUNTIME LICENSE AGREEMENT
THE ORBIX-Registered Trademark- DEVELOPMENT AND RUNTIME SOFTWARE (THE
"SOFTWARE") AND THE ACCOMPANYING DOCUMENTATION (THE "RELATED MATERIALS")
(COLLECTIVELY, THE "PRODUCT") ARE PROTECTED BY UNITED STATES, IRISH AND
INTERNATIONAL COPYRIGHT LAWS, AND THE COPYRIGHTS AND OTHER INTELLECTUAL
PROPERTY RIGHTS ARE OWNED BY IONA TECHNOLOGIES PLC OF 8-10 LOWER PEMBROKE
ST., DUBLIN 2, IRELAND. THE PRODUCTS ARE LICENSED BY IONA TECHNOLOGIES INC.,
60 ABERDEEN AVENUE, CAMBRIDGE, MA 02138, USA ("IONA") TO NET PERCEPTIONS OF
11200 West 78th Street, Suite 300 Minneapolis, MN 55344 ("Customer"). THE
PRODUCT IS COPYRIGHTED AND LICENSED (NOT SOLD).
1. OWNERSHIP
The Software (including any header files and demonstration code that may be
included) and Related Materials, and all associated copyrights and other
intellectual property rights, are the property of IONA Technologies PLC or
its licensors. IONA warrants that it has all the rights necessary to enter
into this Agreement. Customer acquires no title, right or interest in the
Software or Related Materials other than the license granted herein by IONA
and the title to the media upon which the Software is delivered.
2. PROPRIETARY NOTICES
Customer shall not remove any trademark, tradename, copyright notice or
other proprietary notice from the Software or Related Materials, and shall
be responsible for the conservation of the same on all copies of the
Software and Related Materials received under this Agreement and on any
back-up copy of the Software created in accordance with this Agreement.
Customer shall also accurately and faithfully reproduce all reasonable and
customary proprietary notices of IONA on any portion of the Software that
is incorporated in Developed Software (as defined in Section 4 below).
Customer may not reproduce any portion of the Software or Related
Materials, except as permitted by this Agreement.
3. DEVELOPMENT LICENSE
3.1. "Development Software" means the development environment of the
Products and excludes the Runtime Components (as defined below).
3.2. Subject to the terms and conditions of this Agreement, and payment of
the appropriate license fees, IONA hereby grants to Customer a
nonexclusive, nontransferable, limited license to use the Development
Software and Related Materials solely in connection with Customer's
development of CORBA-based application(s) and/or program(s) on the
operating system platform(s) set forth on Schedule A (the "Permitted
Purpose"). Customer acknowledges and agrees that additional licenses
are needed for additional operating system platforms.
3.3. Customer further agrees that a license fee must be paid by Customer to
IONA for each and every employee or consultant of Customer who has
used or will use the Development Software and Related Materials for
the Permitted Purpose (a "Developer"). Once a person becomes a
Developer, he or she shall remain so until it is reasonably expected
by Customer that the Developer will cease to use the Development
Software for a period of six (6) months. In no event may the number
of Developers exceed the number for which license fees have been
received by IONA. Upon request, Customer agrees to certify in writing
that Customer has paid
<PAGE>
for a sufficient number of license fees for each Developer. Upon
reasonable notice, IONA will have the right to audit Customer's
compliance with this section.
3.4. The source code of the Software (other than included header files and
demonstration code) and design documentation are confidential and
proprietary information and trade secrets of IONA, its suppliers
and/or licensors, are never considered part of the Software, and are
neither delivered to Customer nor under any circumstances licensed to
Customer hereunder.
3.5. In the event the Software is provided to Customer as an upgrade to a
previous version of the Software, the license granted hereunder
applies to such upgrade only if Customer had previously obtained from
IONA a license to the Software and upon the continued existence in
force of such prior license. In the event such prior license is
terminated for whatever reason, the license to all Software, including
upgrades, granted hereunder is automatically terminated as of the same
date of termination of such prior license.
3.6. At Customer's reasonable request, upon reasonable notice, and at
Customer's expense, IONA will make Customer the beneficiary of a
source code escrow for the Software. Any such escrow shall be
released only in the event that IONA becomes insolvent, files for
bankruptcy, or ceases to conduct its software and service business in
the ordinary course; and upon release, use of the released materials
shall be solely for maintenance and support of the Developed Software
and Customer's end users and for no other purpose whatsoever.
4. RUNTIME LICENSE
4.1. Definitions.
4.1.1. The term "Developed Software," as used herein, means any
application or program developed by Customer using the Software
on the operating system platform(s) permitted pursuant to this
Agreement.
4.1.2. The term " Runtime Components," as used herein, means any
software program or components of the Software which are
incorporated in any Developed Software developed by Customer and
which are used in the execution of Customer's Developed Software.
4.2. GRANT OF LICENSE.
4.2.1. IONA hereby grants to Customer, subject to the conditions herein,
a license to use, copy and distribute for use to third parties
the Runtime Components ("Runtime License"), but solely as (i)
part of the Developed Software owned by Customer and (ii) for
execution to the extent Customer has paid the appropriate license
fees set forth on Schedule A. Customer must ensure that any such
third parties have agreed to be bound by terms and conditions no
less strict that in this Agreement and IONA shall be entitled to
enforce the terms of such agreement directly in the event of a
breach thereof. Customer may distribute the Runtime Components
through third parties provided that such distributors are bound
by the terms herein and that Customer remains ultimately liable
for any breaches hereof.
4.2.2. Customer further agrees that the Runtime License granted herein
does not give Customer or any other party any rights other than
those specifically granted herein, and that such License
specifically does not grant the Customer or any other party the
rights to:
-2-
<PAGE>
- execute the Software IDL compiler;
- develop and link programs with the Software libraries or classes;
or
- read and use the Software header files.
4.3. LICENSE FEE.
4.3.1. Customer agrees that the appropriate Runtime License fee is
payable by the Customer to IONA for each and every copy of the
Developed Software Customer distributes.
4.3.2. Customer must have a reasonable process in place to ensure that a
Runtime License fee has been paid for each copy of the Developed
Software Customer distributes. Customer will, upon the request
of IONA, certify to IONA the number of Runtime Licenses in use.
Executing, or permitting the execution of, the Runtime Software
on more CPUs than the number of Runtime Licenses granted herein
is a violation of this Agreement
4.3.3. If requested by IONA, Customer shall provide to IONA quarterly
reports of actual sales and forecasts of estimated sales under
this Agreement for each quarter covered hereby. The forecasts
shall be prepared in good faith and reasonably accurate and
detailed based on the best information and shall be transmitted
by means of a mutually agreeable method and format. Each
quarterly forecast shall be delivered not later than the last
business day of the second month in quarter which it covers.
5. COPY RESTRICTIONS AND OTHER RESTRICTIONS
5.1. Customer may make copies of the Development Software in
machine-readable, object code form, as permitted by applicable law,
solely for backup or archival purposes, provided that such copies of
the Development Software shall include all applicable copyright,
trademark and other proprietary notices of IONA in accordance with
Section 2 above. Customer may not copy any of the Related Materials.
Customer may obtain additional copies of any Related Materials from
IONA or an authorized IONA distributor upon payment of the prices in
effect at the time of ordering.
5.2. Customer will not display, disclose or sublicense the Development
Software to third parties, and also will not rent, lease, loan,
modify, adapt, translate, reverse engineer, disassemble or decompile
the Product or any portion thereof, or create derivative works of the
Product (except for derivative works that are Developed Software),
even for purposes of interoperability or error correction. In the
event that Customer wishes information relating to the Software for
purposes of achieving interoperability with independently created
computer software, Customer may make a written request to IONA for
such information. Customer shall promptly report to IONA any actual
or suspected violation of this section and shall take further steps as
may reasonably be requested by IONA to prevent or remedy any such
violation.
6. GOVERNMENT END-USERS
The Software and the Related Materials are "commercial items" as that term
is defined in 48 C.F.R. 2.101 (October 1995) consisting of "commercial
computer software" and "commercial computer software documentation" as such
terms are used in 48 C.F.R. 12.212 (September 1995). Consistent with 48
C.F.R. 12.212 and 48 C.F.R. 227.7202-1, 227.7202-3 and 227.7202-4 (June
1995), if the licensee hereunder is the U.S. Government or any agency or
department thereof, the Software and the Related
-3-
<PAGE>
Materials are licensed hereunder (i) only as a commercial item, and (ii)
with only those rights as are granted to all other end users pursuant to
the terms and conditions of this Agreement.
7. SUPPORT
Customer shall purchase from IONA the support services for the Software set
forth on Schedule A, if any, for the additional fees set forth on Schedule
A, if any, and pursuant to the terms and conditions set forth on Schedule
B.
8. LIMITED WARRANTY
8.1. IONA warrants that the Software will conform to published
specifications for a period of ninety (90) days from the date Customer
has obtained the Software.
8.2. IONA warrants that the medium on which the Software is
recorded is free from defects in materials or workmanship under
normal use and service for a period of ninety (90) days from the
date Customer has obtained the Software. If Customer discovers any
physical defects in the medium on which the Software is recorded,
IONA will replace such medium at no charge to Customer, provided
that Customer returns the item to be replaced with proof of payment
to IONA during the ninety (90) day period after Customer has
obtained the Software. This warranty gives Customer specific legal
rights. Customer may also have rights which vary from jurisdiction
to jurisdiction. THIS RIGHT OF REPLACEMENT IS CUSTOMER'S EXCLUSIVE
REMEDY AND IONA'S ONLY LIABILITY FOR ANY DEFECTS IN THE MEDIUM.
8.3. IONA warrants that the Software will record, store, process, manage
and present calendar dates (and data or functions involving or based
on calendar dates) falling on or after January 01, 2000 in the same
manner and with the same functionality, accuracy, data integrity and
performance as the Software records, stores, processes, manages and
presents calendar dates (and data involving or based on calendar
dates) falling on or before December 31, 1999. IONA SPECIFICALLY
DISCLAIMS ANY WARRANTY THAT THE FUNCTIONS CONTAINED IN THE SOFTWARE OR
THE RESULTS OF USE WILL MEET CUSTOMER'S REQUIREMENTS, OR THAT THE
OPERATION OF THE SOFTWARE WILL BE UNINTERRUPTED OR ERROR FREE. EXCEPT
AS EXPRESSLY SET FORTH ABOVE, THE PRODUCT IS PROVIDED TO CUSTOMER "AS
IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, STATUTORY
OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT. THE ENTIRE RISK AS TO THE SUITABILITY, QUALITY AND
PERFORMANCE OF THE PRODUCT IS WITH CUSTOMER AND NOT WITH IONA. SOME
JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO
SUCH EXCLUSION MAY NOT APPLY TO YOU.
9. INTELLECTUAL PROPERTY INFRINGEMENT INDEMNITY
9.1. Any action brought against Customer, its third party distributors or
its end users on a claim that the Products infringe any patent,
copyright, or other intellectual property rights or the trade secret
or the proprietary rights of a third party shall be defended by IONA
at its expense. IONA shall pay any costs, damages and settlements and
reasonable legal fees finally awarded against Customer in such action
and which are attributable to such claim provided always that Customer
notifies IONA promptly in writing of each claim and IONA may control
fully the
-4-
<PAGE>
defence and/ or the settlement of such claim, provided that Customer
shall not be bound to any settlement that it has not approved in
writing.
9.2. Without prejudice to Sub-Section 9.1, should the Products become, or
in IONA's reasonable opinion are likely to become, the subject of a
claim as aforesaid then IONA may either: (I) procure for Customer the
right to continue using the Products; (II) replace the Products with
non-infringing material; (III)modify the Products to make them
non-infringing; or (IV) remove the Products and refund to Customer all
fees and sums paid by Customer in respect thereof prorated based on a
product lifetime of 60 months.
9.3. IONA shall have no liability for any claim of infringement based on:
(a) use of other than a current release of the Products if such
infringement would have been avoided by use of a current release,
or(b) use or combination of the Products with non- IONA programs or
data if such infringement would have been avoided by the use of the
Products without those other programs or data. The foregoing states
the entire liability of IONA with respect to any claim of infringement
regarding the Products.
10. LIMITED LIABILITY
IN NO EVENT SHALL IONA, ITS SUPPLIERS OR LICENSORS BE LIABLE FOR ANY
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES
(INCLUDING, BUT NOT LIMITED TO, DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, DATA, GOODWILL OR
OTHER PECUNIARY LOSS) ARISING OUT OF THE USE OR INABILITY TO USE THE
SOFTWARE, EVEN IF FORSEEABLE OR IF IONA HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. IN NO EVENT SHALL IONA BE RESPONSIBLE OR HELD LIABLE FOR
ANY DAMAGES RESULTING FROM PHYSICAL DAMAGE TO TANGIBLE PROPERTY OR DEATH OR
INJURY OF ANY PERSON WHETHER ARISING FROM IONA'S NEGLIGENCE OR OTHERWISE.
BECAUSE SOME JURISDICTIONS DO NOT ALLOW CERTAIN OF THE ABOVE EXCLUSIONS OR
LIMITATIONS OF LIABILITY, THE ABOVE LIMITATIONS MAY NOT APPLY TO YOU.
EXCEPT FOR LIABILITY UNDER SECTION 9 ABOVE, IN THE EVENT THAT IONA IS HELD
LIABLE UNDER THIS AGREEMENT, IONA'S, ITS SUPPLIERS' AND LICENSORS'
LIABILITY SHALL BE LIMITED TO THE PRICE PAID BY THE CUSTOMER FOR THE
PRODUCT SUPPLIED.
11. ASSIGNMENT
This Agreement and any rights granted hereunder may not be assigned,
sub-licensed or otherwise transferred by either party without the prior
written consent of the other party, which consent shall not be unreasonably
withheld. . IONA may assign or transfer its rights and obligations under
this Agreement at any time without notice to or the consent of Customer.
12. DURATION
-5-
<PAGE>
12.1. This Agreement shall be effective from the date of delivery to
Customer and shall remain in force for three (3) years unless
terminated by IONA as provided in Section 13. In the event that the
parties are unable to reach mutually agreeable terms for the renewal
(or non-renewal) of this Agreement during the six (6) month period
prior to the expiration hereof, this Agreement, this Agreement shall
automatically renew, with the same terms and conditions, for one (1)
additional year.
13. TERMINATION
13.1. In addition to the termination provisions of Section 3.5 herein, this
Agreement and the license granted hereunder may be terminated by IONA
upon written notice to Customer in the event Customer breaches any of
the provisions of this Agreement, which breach has not been remedied
within thirty (30) days of notification thereof. Failure to pay
monetary amounts shall not be subject to the above thirty day cure
period, but rather shall be remedied within fifteen (15) days of
notice thereof.
13.2. Upon termination of this Agreement and of the license granted
hereunder, Customer shall cease any further use of the Software, and
must return to IONA or destroy, as requested by IONA, all copies of
the Software and Related Materials in any form in Customer's
possession or control.
13.3. All licenses granted by Customer in respect of Developed Software
shall continue in full force and effect in accordance with this
Agreement, notwithstanding the expiration hereof.
13.4. The provisions of Sections 1, 2, 8, 9, and 10 through 15 and the
definitions of this Agreement shall survive the termination of this
Agreement (for any reason). Customer must promptly pay to IONA any
amounts payable by Customer and damages, if any, incurred by IONA.
14. EXPORT ADMINISTRATION ACT.
Customer agrees that unless prior written authorization is obtained from
the United States Bureau of Export Administration, or the United States
Export Administration Regulations explicitly permit the re-export without
such written authorization, or from any other applicable governmental
authority it will not export, re-export, or transship, directly or
indirectly, the Product or any technical data disclosed or provided to
Customer, or the direct product of such technical data, to country groups
Q, S, W, Y or Z (as defined in the Export Administration Regulations) or to
any other country as to which the US or other Government has placed an
embargo against the shipment of products, or types of products, which is in
effect during the term of this Agreement.
15. GENERAL
15.1. AMENDMENT; WAIVER: No modification or waiver of any provision of this
Agreement shall be binding on either party unless specifically agreed
upon in a writing signed by both parties hereto. Any failure or delay
by IONA to exercise or enforce any of the rights or remedies granted
hereunder will not operate as a waiver thereof. No waiver by IONA of
any breach of this Agreement will operate as a waiver of any other or
subsequent breach.
15.2. SEVERABILITY: If any provision of this Agreement is found invalid or
unenforceable, that provision will be reformed, construed and enforced
to the maximum extent permissible, and the other provisions of this
Agreement will remain in full force and effect.
-6-
<PAGE>
15.3. LAW AND JURISDICTION: This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of
Massachusetts and the parties hereby irrevocably submit to the venue
and jurisdiction of the courts of the Commonwealth of Massachusetts.
15.4. ENTIRE AGREEMENT: Customer has read this Agreement and agrees to be
bound by its terms, and further agrees that this Agreement constitutes
the complete and entire agreement of the parties and supersedes all
previous communications, oral or written, and all other communications
between them relating to the subject matter hereof. No
representations or statements of any kind made by either party, which
are not expressly stated herein, shall be binding on such party.
Signed /s/ Lindsey Kiang Signed /s/ Thomas Donnelly
---------------------- ----------------------
Name LINDSAY KIANG Name THOMAS DONNELLY
---------------------- ----------------------
Title SR-VP Title CFO
---------------------- ----------------------
Date 7/9/98 Date 7/9/98
---------------------- ----------------------
FOR AND ON BEHALF OF IONA FOR AND ON BEHALF OF CUSTOMER
-7-
<PAGE>
SCHEDULE A - FEE SCHEDULE
DEVELOPMENT LICENSING
<TABLE>
<S> <C>
Qty (2) Orbix Development License Seats [*]
Platform: Solaris MT
List Unit Price: [*]
Discount Percentage: [*]
Discount Unit Price: [*]
Qty (2) Annual Software Support [*]
Orbix Development License Seats
Platform: Solaris MT
List Unit Price: [*]
Qty (1) Orbix Development License Seats [*]
Platform: Digital UNIX
List Unit Price: [*]
Discount Percentage: [*]
Discount Unit Price: [*]
Qty (1) Annual Software Support [*]
Orbix Development License Seats
Platform: Digital UNIX
List Unit Price: [*]
Qty (2) Orbix Development License Seats [*]
Platform: WindowsNT
List Unit Price: [*]
Discount Percentage: [*]
Discount Unit Price: [*]
Qty (2) Annual Software Support [*]
Orbix Development License Seats
Platform: WindowsNT
List Unit Price: [*]
Qty (1) OrbixWeb Development License Seats [*]
Platform: Solaris MT
List Unit Price: [*]
Discount Percentage: [*]
Discount Unit Price: [*]
Qty (1) Annual Software Support [*]
OrbixWeb Development License Seats
Platform: Solaris MT
List Unit Price: [*]
-----------
TOTAL DEVELOPMENT LICENSING [*]
</TABLE>
[continued]
-8-
* Confidential treatment requested for redacted portion.
<PAGE>
RUNTIME/DEPLOYMENT LICENSING
INSTALLED MAINTENANCE BASE
For a one-time royalty fee of [*], payable net 30 from execution date of
the Agreement, Net Perceptions may deploy Orbix Runtime Components within the
Developed Software (internal code name of "Cleveland") to the Net Perception
installed base as of October 1, 1998.
Installed Base Royalty Fee [*]
-----------
DEVELOPMENT & INSTALLED BASE DEPLOYMENT LICENSING [*]
PERCENTAGE OF REVENUE ROYALTY
For deployment of Orbix Runtime Components to Net Perceptions End Users after
October 1, 1998, deployment royalties shall be based on a set percentage of
net revenue (expressly excluding support and maintenance revenues) derived
from the product(s) in which IONA products are embedded.
Percentage of Net Revenue Royalty Rate:
Orbix (C++) [*]
DEPLOYMENT SOFTWARE SUPPORT
Deployment licenses are not subject to software support. So long as Orbix
development licenses are under a current support agreement, updates and upgrades
received for those development licenses are deployable to each licensed runtime.
-9-
* Confidential treatment requested for redacted portion.
<PAGE>
SCHEDULE B - TERMS FOR SUPPORT AND MAINTENANCE
ORBIX-Registered Trademark- TECHNICAL SUPPORT AND MAINTENANCE TERMS
1. IONA OBLIGATIONS
1.1 IONA will provide an electronic mail Technical Support service for the
Customer between the hours of 4.00 am and 5.30 p.m. Eastern Standard Time (EST),
Monday to Friday, excluding Public Holidays. IONA will provide a single
Internet mail address to which all Technical Support queries may be directed.
IONA will use all commercially reasonable efforts to resolve any support issues
in a timely manner.
1.2 IONA will provide a FAX Technical Support service for the Customer
between the hours of 4.00 am and 5.30 p.m. Eastern Standard Time (EST), Monday
to Friday, excluding Public Holidays. IONA will provide a single FAX number to
which all Technical Support queries may be directed.
1.3 Telephone Technical Support and Technical Support outside of the hours
specified in paragraphs 1.1 and 1.2 can be provided subject to written agreement
between IONA and the Customer on specific terms and fees payable.
1.4 For the duration of the period in which Customer has purchased support,
IONA will provide to the Customer, free of further charge, copies of Minor and
Point Releases to the Products. "Minor Release" shall mean the release of an
IONA Product where, if the product version number is designated as x.y.z, the
digit represented by "y" is changed to one digit higher. A Minor Release
normally includes minor feature and functionality changes and enhancements.
"Point Release" shall mean the release of an IONA Product where, if the product
version number is designated as x.y.z, the digit represented by "z" is changed
to one digit higher. A Point Release normally consists of bug fixes and error
corrections.
1.5 Expedited resolution of software malfunctions can be provided subject to
written agreement between IONA and the Customer on specific terms and fees
payable.
1.6 IONA is not required offer the services of any named individual in
respect of the above Technical Support undertakings except as IONA and Customer
may specifically agree in writing.
2 CUSTOMER RESPONSIBILITIES
2.1 Customer will nominate one representative who will be the primary
representative for the purposes of technical support and will be the named
recipient of software updates. The Customer may change the nominated
representative at any time by notifying IONA in writing.
2.2 The Customer will direct initial support queries to the electronic mail
address or FAX number set forth below and will not direct such queries directly
to IONA personnel.
3 PAYMENT
All fees for technical support and maintenance for each year of support are to
be invoiced at the commencement of the year and shall be payable as set forth in
the Agreement.
4 CONTACT DETAILS
4.1 The IONA Technical Support FAX number is: +353-1-662 5244; or
+1 617 949 9001
4.2 The IONA Technical Support electronic mail address is: [email protected]
-10-
<PAGE>
* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
AGREEMENT AMENDMENT
WHEREAS, Net Perceptions ("Net Perceptions") and IONA Technologies, Inc.
are parties to an agreement "ORBIX-Registered Trademark- DEVELOPMENT AND
RUNTIME LICENSE AGREEMENT" effective as of July 9, 1998 (the "Agreement");
WHEREAS, IONA and Net Perceptions wish to modify the terms of the
Agreement as set forth below;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and other good and valuable consideration the parties
agree as follows:
1. The "DEVELOPING LICENSING" Section of Schedule A - Fee Schedule is
amended to include in addition to the items already set forth, the following
additional development licenses and associated annual support:
Qty(2) OrbixCOMet Development License Seats [*]
Platform: Solaris MT
Unit Price: [*]
Qty(2) OrbixCOMet One Year's Annual Support [*]
Platform: Solaris MT
Unit Price: [*]
Qty(2) OrbixNames Development License Seats [*]
Platform: Solaris MT
Unit Price: [*]
Qty(2) OrbixNames One Year's Annual Support [*]
Platform: Solaris MT
Unit Price: [*]
Subtotal of items to be added: [*]
2. The "RUNTIME/DEPLOYMENT LICENSING" Section of Schedule A - Fee
Schedule is amended to include the following paragraph (to be added
immediately prior to the "Percentage of Revenue Royalty" caption):
"Customer may deploy the OrbixCOMet and OrbixNames Runtime Components as
part of the Developed Software as a royalty rate set forth below; the
royalty payments shall be made quarterly in accordance with the
Agreement."
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
* Confidential treatment requested for redacted portion.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement Amendment as of
the date set forth below:
IONA Technologies, Inc. Net Perceptions
By: /s/ EC Prokopis By: /s/ Thomas Donnelly
--------------------------- ------------------------
Name: EC Prokopis Name: THOMAS DONNELLY
------------------------- ----------------------
Title: COO Title: CFO
------------------------ ---------------------
Date: 10/12/98 Date: 10/12/98
------------------------- ----------------------
APPROVED
AS TO FORM
[ILLEGIBLE] 10/12/98
- --------------------
<PAGE>
STANDARD LEASE AGREEMENT
THIS LEASE, made this 12th day of November, 1998, by and between THE PROTECTIVE
GROUP, INC., hereinafter referred to as "Landlord," and NET PERCEPTIONS, INC.,
hereinafter referred to as "Tenant."
WITNESSETH: In consideration of the mutual covenants contained herein the
parties agree as follows:
1. PREMISES. Landlord leases to Tenant, and Tenant leases from Landlord, that
certain space (the "Premises") shown on the diagram attached hereto and marked
Exhibit A located on the 3rd floor of the office building presently known as the
7901 FLYING CLOUD DRIVE BUILDING (the "Building") located in the city of Eden
Prairie, County of Hennepin and State of Minnesota, said Premises to be used by
Tenant only as office space in which to carry on the business of computer
software development, marketing and sales. In addition to the foregoing
Premises, the Tenant shall have the non-exclusive right to use lavatory
facilities and all other common areas both indoor and outdoor in common with
Landlord and other tenants, occupants and visitors in the Building. The
Premises are leased "as is".
2. COMMON AREAS AND PARKING. Tenant agrees that the use of all corridors,
passageways, elevators, toilet rooms, unrestricted parking areas and landscaped
areas around the Building, by Tenant or Tenant's employees, visitors, or
invitees, shall be subject to the Building Rules and Regulations attached hereto
as Exhibit B and such additional rules and regulations as may from time to time
be made and uniformly applied to all tenants by Landlord for the safety, comfort
and convenience of the owners, occupants, tenants and invitees of the Building.
Tenant agrees that no awnings, curtains, drapes or shades shall be used upon the
Premises except as may be approved by Landlord.
In addition to the Premises, Tenant shall have the right of non-exclusive
use, in common with others, of (i) unrestricted automobile parking areas,
driveways and walkways, and (ii) loading facilities, freight elevators and other
facilities as may be constructed in the Building, all to be subject to the terms
and conditions of this Lease, including without limitation Exhibit B, and to all
such reasonable rules and regulations for the use thereof as prescribed from
time to time by Landlord.
Landlord and Tenant agree that Landlord will not be responsible for any
loss, theft or damage to vehicles, or the contents thereof parked or left in the
parking areas around the Building. Tenant agrees to so advise its employees,
visitors or invitees who may use such parking areas.
3. LEASEHOLD IMPROVEMENTS. Tenant shall promptly, and in a good and
workmanlike manner, finish the Premises as set forth in Exhibit C. All work
performed by Tenant shall conform to the Building Standards set forth in
Exhibits C and D. Landlord is under no obligation to make any structural or
other alterations, decoration, additions or improvements in or to the Premises.
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4. TERM OF LEASE. The Term of this Lease shall be sixty (60) months,
commencing on the first day of January, 1999 (the "Commencement Date"), and
terminating on the last day of December, 2003. Tenant shall surrender the
Premises to Landlord in the condition required by this Lease immediately on
termination of the Lease.
5. OPTION TO RENEW. Tenant shall have the option to renew the Lease for an
additional two (2) years based on the following terms and conditions:
a. Tenant shall give written notice to Landlord no later than June 1,
2003.
b. Tenant shall not be in default of the Lease at the time of said
notice.
c. Rent shall be Market Rent, (as defined below), for the Building, as
reasonably determined by Landlord, at the time of said notice and in
accordance with the procedure listed below.
"Market Rent" means the amount of cash (exclusive of Building operating
costs) which a landlord would receive annually by then renting the space in
question assuming the landlord to be a prudent person willing to lease but being
under no compulsion to do so, assuming the tenant to be a prudent person willing
to lease but being under no compulsion to do so, assuming a lease term equal to
the term in question, and assuming a lease containing the same terms and
provisions as those contained in this Lease.
DETERMINATION OF MARKET RENT Landlord shall initially determine the Market
Rent and shall thereupon give Tenant notice of the amount of such Market Rent
and the basis on which Landlord made its determination of that amount. Upon
receipt of that notice, Tenant shall pay such Market Rent unless such amount is
disputed pursuant to the provisions below.
DISAGREEMENT ON MARKET RENT
a. If Tenant does not agree with the Landlord's determination of Market
Rent, Tenant shall nevertheless pay to Landlord the amount set out in
the notice (if necessary) Landlord gives and Tenant shall give notice
to Landlord of that disagreement within ten (10) days of receipt of
that notice from Landlord.
b. If Tenant gives Landlord notice of disagreement, the parties shall
immediately refer the matter to an individual (the "Expert") mutually
acceptable to both, who shall be deemed to be acting as an expert and
not as an arbitrator. The Expert shall make a determination of Market
Rent as expeditiously as possible.
c. If the Market Rent as determined by the Expert is greater than the
Tenant has paid in accordance with Landlord's notice, Tenant shall
immediately pay to Landlord the difference and shall after that make
the payments of Market Rent as determined by the Expert. If the
Market Rate as determined by the Expert is less than Tenant has paid
in accordance with Landlord's notice, Landlord shall immediately pay
to Tenant the difference and Tenant shall after that make the payments
of Market Rent as determined by the Expert.
d. If the Market Rent as determined by the Expert is less than 95% of the
amount set out in Landlord's notice, Landlord shall bear the costs and
reasonable expenses of the Expert. If the
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<PAGE>
Market Rent as determined by the Expert is 95% or more of the amount
set out in Landlord's notice, Tenant shall bear the costs and
reasonable expenses of the Expert.
e. In no event shall the Market Rent be less than the Base Rent being
paid at the time of the renewal.
6. DELIVERY OF POSSESSION. If, for any reason, Landlord cannot deliver
possession of the Premises on or before the Commencement Date, this Lease shall
not be void or voidable, nor shall Landlord be liable to Tenant for any loss or
damage resulting therefrom; provided, however, unless Landlord's inability to
deliver possession of the Premises is due to an act or omission of Tenant or its
agents, Tenant shall be entitled to reimbursement of rental costs incurred at
its present location for the late delivery period on a monthly basis and a full
abatement in Base Rent covering the period between the Commencement Date and
actual delivery of the Premises to Tenant.
7. BASE RENT. Tenant shall pay as "Base Rent" a total of
Two-Million-Four-Hundred-Nine-Thousand-Six-Hundred-Eighty and 40/lOOths DOLLARS
($2,409,680.40) for the Term of this Lease, payable as follows: $25,000.00 per
month for the first six months of the Lease Term, $39,438.58 per month for the
next eighteen (18) months of the Lease Term, and $43,049.69 for the remaining 36
months of the Lease Term. Each monthly installment is due on the first day of
each month in advance, commencing on the Commencement Date but subject to any
Credit Amount accrued under Exhibit C. Commencing with the monthly installment
for the seventh month of the Lease Term, in no event shall the Base Rent be less
than $39,438.58 per month.
8. ADDITIONAL RENT. In addition to the Base Rent, Tenant agrees for each year
subsequent to the Base Year to pay an additional rent ("Additional Rent") based
upon Tenant's proportional share of the excess of operating costs in each such
subsequent year over Landlord's operating costs in the Base Year. For purposes
of this Lease, the "Base Year" shall be 1999. Additional Rent will be payable in
equal monthly installments during each year based upon the cost increases for
such year, as estimated by Landlord, with an adjustment to be made at such time
as the actual operating costs for such year are determined. Operating Costs as
used herein shall be the Landlord's costs during each calendar year for real
estate taxes and special assessments, heat air conditioning and ventilation,
energy costs, elevator service, cleaning and janitorial services, security,
landscaping and care of grounds, supplies, maintenance, repairs, painting wall
and window washing, tools and equipment (which are not required to be
capitalized for Federal Income Tax purposes) labor, including all wages and
salaries and all Social Security and other taxes which may be levied upon such
wages and salaries, insurance and all other costs properly constituting direct
operating costs according to standard accounting practices including
administrative and management expense but not including depreciation of building
or equipment, interest, income taxes, costs of maintaining the Landlord's
corporate existence or any costs required to be capitalized for Federal Income
Tax purposes or any expenses listed hereinafter under "Exclusions to Operating
Costs". The proportionate share of Tenant shall be computed by multiplying the
excess of Operating Costs, if any, for the applicable subsequent year over the
operating costs for the Base Year by the ratio of the rentable area of the
Premises to the total rentable area of the Building, it being agreed that the
rentable area of the Premises is 23,086 square feet and the total rentable area
of the Building is 61,217 square feet.
Landlord shall, as soon as conveniently possible and in any event not later
than February 1st in
3
<PAGE>
each year, advise Tenant of the amount of Additional Rent and thereafter Tenant
shall pay the Additional Rent indicated, which Additional Rent shall apply to
the then current lease year, such new rates being applied to any months to which
the Base Rent shall then have been paid as well as the unexpired months of the
current lease year, the adjustment for the then expired months to be made at the
payment of the next succeeding monthly rental. Under no circumstances shall the
total monthly rental be less than the scheduled monthly Base Rent provided
herein.
Landlord shall keep separate books of account and records covering all
operating costs of the Building for at least three (3) years after the close of
each calendar year. Tenant and its duly authorized representative shall have
the right to audit and inspect Landlord's books and records relating to such
operating costs. Any such audit (a) shall be conducted at Landlord's
headquarters during regular business hours and upon five (5) business days
advance written notice to Landlord, and (b) shall not be conducted more than
once in any calendar year. If Tenant's inspection of such records shall
disclose that Tenant's aggregate monthly payments on account of such costs were
greater than Tenant's actual pro rata share thereof, Landlord shall, within
twenty (20) days after written notice thereof, refund any excess paid by Tenant
together with interest thereon at the Interest Rate.
EXCLUSIONS TO OPERATING COSTS
a. All costs incurred in connection with or directly related to the
original construction (as distinguished from operation, maintenance
and repair) of the Premises and/or Building or any expansion or
renovation thereof;
b. Depreciation; except to the extent of allowed amortized capital
expenses;
c. Financing and refinancing costs, interest on debt or amortization
payments on any mortgage or mortgages, and rental under any ground or
underlying leases or lease together with all costs incidental to the
items mentioned in this item c;
d. The cost of any repair to remedy damage caused by or resulting from
negligence of any other tenants in the Premises or Building, including
their agents, servants, employees or invitees, if and to the extent
Landlord recovers the cost thereof from such parties in excess of
costs and expenses of recovery incurred by Landlord;
e. Legal and other fees, leasing commissions, so-called "take-over" or
"buy-out" obligations, advertising expenses and other costs incurred
in connection with acquisition of the Building or the original
development or original leasing of the Premises of Building, or future
releasing of the Premises or Building, or disputes with tenants;
f. Costs incurred in renovating or otherwise improving or decorating or
redecorating space for tenants or other occupants in the Premises or
Building or vacant leasable space in the Premises or Building or costs
related thereto;
g. Any items not otherwise excluded to the extent Landlord is reimbursed
by insurance (or would have been reimbursed by insurance if Landlord
carried the insured required by this
4
<PAGE>
Lease) or otherwise compensated, including direct reimbursement by any
tenant, less the out-of-pocket cost of collection;
h. A bad debt loss, rent loss or reserves for bad debt or rent loss, or
any other reserve for anticipated future expenses;
i. The cost (or any amortization thereof) of any alternation, addition,
change, replacement, improvements, repair or other item which is a
capital expenditure, except such capital expenditures (including
equipment) which are required by a governmental authority or insurance
carrier or incurred to improve the operating efficiency or reduce the
cost of operating the Building;
j. Any item of cost which is includable in Operating Costs, but which
represents an amount paid to an affiliate of Landlord or an affiliate
of any partner or shareholder of Landlord, to the extent the same is
in excess of the fair market value of said item or service;
k. All interest or penalties incurred as a result of Landlord's failure
to pay any costs as the same will become due, except resulting from
the failure of Tenant to pay rent or other amounts due hereunder in a
timely manner;
l. Management fees in excess of a management fee of 6% of gross rents for
the Building;
m. Any and all costs associated with the operation of the business of the
entity which constitutes Landlord (excluding items will specifically
include, but not be limited to, formation of the entity, internal
accounting and legal matters, including but not limited to preparation
of tax returns and financial statements and gathering of data
therefor, costs of defending any lawsuits with any mortgagee, costs of
selling, syndicating, financing, mortgaging or hypothecating any of
the Landlord's interests in the Premises or Building, costs of any
disputes between Landlord and its employees, disputes between Landlord
and managers of the building or the Building, and disputes between
Landlord and tenants within the Premises or Building including,
without limitation, Tenant);
n. Any expense incurred as a direct result of the gross negligence of
Landlord, its agents, servants or employees or arising out of
Landlord's gross negligent failure to manage the Premises or the
Building consistently with the standards required by this Lease;
o. Any cost or expense incurred as a direct result of renovating,
painting, decorating, carpet shampooing, drapery cleaning or wall
washing with the rentable areas of the Premises or vacant areas or
utility work related to vacant or vacated space;
p. Environmental costs consisting of costs of removal and/or abatement of
hazardous or toxic substances, wastes or materials from or within the
Premises or Building (excluding the costs required for air
monitoring), fines, penalties, and liens, unless Tenant is responsible
for brining any such items onto the Premises, in which event Tenant
will pay the cost of removal;
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<PAGE>
q. Land acquisition costs;
r. Depreciation of the original costs of constructing the common areas;
s. Costs of correcting defects in the construction of the Premises or the
material used in the construction of the Premises (including latent
defects in the Premises or the inadequacy of design of the Premises)
or in the Premises equipment or appurtenances thereto, except that for
the purposes of this section conditions (not occasioned by
construction defects) resulting from ordinary wear and tear and use
will not be deemed defects;
t. The wages, salaries, bonuses and benefits of all management personnel
above the administrative level of any on-site building manager and the
costs of preparation and handling of accounts receivable and accounts
payable; and
u. All costs and expenses incurred in connection with or required as a
result of construction necessary to bring restrooms, elevators,
corridor firewalls and entries in the Building into compliance with
applicable fire codes, building codes or the ADA. Notwithstanding the
foregoing, expenses for installation of automatic doors, restriping of
the parking lot, and installation of lever hardware on all common area
doors shall be included within "Operating Costs."
9. RESTRICTION ON USE OF PREMISES. Tenant shall not use or permit the Premises
or any part thereof to be used for any purposes other than those set forth
herein. Tenant shall neither permit on the Premises any act, sale or storage
that may be prohibited under standard forms of fire insurance policies nor use
the Premises for any such purpose. In addition, no use shall be made or
permitted to be made that shall result in (i) waste of the Premises, (ii) a
public or private nuisance that may disturb the quiet enjoyment of other tenants
in the building, (iii) improper, unlawful or objectionable generation of odors
on the Premises; or (iv) noises or vibrations that may disturb other tenants.
Tenant shall not install, use, generate, store or dispose of in or about the
Premises any hazardous substance, toxic chemical, pollutant or other material
regulated by the Comprehensive Environmental Response, Compensation and
Liability Act of 1985 or the Minnesota Environmental Response and Liability Act
or any applicable law or regulation, including without limitation any material
containing asbestos, PCB, CFC or HCFC (collectively "Hazardous Materials")
without Landlord's written approval of each Hazardous Material. Landlord shall
not unreasonably withhold its approval of use by Tenant of immaterial quantities
of Hazardous Materials customarily used in office business operations so long as
Tenant uses such Hazardous Materials in accordance with all applicable laws.
Tenant shall indemnify, defend and hold Landlord harmless from and against any
claim, damage or expense arising out of Tenant's installation, use, generation,
storage, or disposal of any Hazardous Materials, regardless of whether Landlord
has approved the activity. Tenant shall comply with all governmental regulations
and statutes affecting the Premises either now in force or hereafter enacted.
Tenant shall also comply with the Building Rules and Regulations attached hereto
as Exhibit B and with such other reasonable rules and regulations as may be
prescribed by Landlord from time to time.
To Landlord's actual knowledge, there are no Hazardous Materials
present in the Premises or
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Building and the Premises and Building are in compliance with all applicable
environmental and health laws.
10. ASSIGNMENT AND SUBLETTING.
10.1 Tenant shall not assign this Lease or sublet the Premises or any
part thereof without first obtaining the written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. If Tenant shall desire
to assign this Lease or sublet the whole or any portion of the Premises, Tenant
shall, not later than thirty (30) days prior to the proposed effective date of
the assignment or sublease, submit to Landlord a written request ("Tenant's
Transfer Notice") specifying the name and address of, and type of business and
proposed use of the Premises by, the proposed assignee or subtenant, the terms
and conditions of the proposed assignment or subletting, and all financial
information available to Tenant with respect to said proposed party. If
Landlord does not deny consent in writing setting forth a detailed statement of
the reasons for the denial of consent within ten (10) days after Landlord's
receipt of Tenant's Transfer Notice, Landlord shall be deemed to have consented
to such assignment or subletting.
10.2 Notwithstanding anything to the contrary contained in this Lease,
Tenant shall have the right, without Landlord's consent or approval, to enter
into an assignment or transfer of this Lease, or a sublease of the Premises for
any use which is not inconsistent with the Building to (a) any corporation or
entity which is owned by or closely affiliated with Tenant; or (b) any
subsidiary of Tenant or Tenant's parent corporation; or (c) any corporation or
entity which shall acquire all or substantially all of the stock or all or
substantially all of the assets of Tenant as a result of a consolidation, merger
or sale or Tenant's business.
11. SERVICES; MAINTENANCE; RIGHT OF ENTRY. Landlord will furnish such heat, air
conditioning, electricity and general janitor or cleaning services as shall be
reasonably necessary to the comfortable use or occupancy of the Premises during
normal business hours, Sundays and holidays excepted, upon the condition that
the Landlord shall not be liable for damages for failure to do so due to causes
beyond its reasonable control. Landlord agrees to furnish all electricity
required by Tenant in the normal conduct of business activities on the premises,
but Landlord shall be entitled to renew the proposal of Tenant to add any
equipment requiring large electrical power supplies, and to charge Tenant for
the additional cost of the increased electrical service, if Landlord deems the
necessity therefore to be reasonable.
Landlord shall be responsible for making all routine repairs and for
performing routine maintenance to the Premises. Tenant shall permit Landlord and
its agents to enter the Premises at all reasonable times to inspect the
Premises; clean windows; perform other janitorial services; maintain the
Building and Premises; make repairs, alterations or additions to the Premises or
any portion of the Building, including the erection of scaffolding, props or
other mechanical devices; and to post notices of nonliability for alterations,
additions, or repairs, without any rebate of rent to Tenant or damages for any
loss of occupation or quiet enjoyment of the premises. Landlord shall make
repairs/enter the Premises so as to cause the least disruption possible to
Tenant's business, always with prior notice except in the event of an emergency.
Landlord and its agents may at any time within one hundred-twenty (120) days
prior to the expiration of this Lease enter on the Premises at reasonable hours
and exhibit same to prospective tenants.
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12. CARE OF THE PREMISES; ALTERATIONS. Tenant has inspected the Premises, and
acknowledges that the Premises are now in a tenantable and good condition.
Tenant shall take reasonable care of the Premises and shall not alter, repair or
change the Premises without the written consent of Landlord, which consent may
be withheld by Landlord in its sole discretion, except that Tenant shall be
allowed to make nonmaterial, nonstructural alterations to the Premises without
Landlord's consent. Except as provided under Exhibit C, all alterations,
improvements and changes that Tenant may desire shall be done either by or under
the direction of the Landlord, but at the expense of Tenant and shall become the
property of Landlord, and remain on the Premises, except at the option of the
Landlord, and Tenant shall, at Tenant's expense, remove from the Premises all
personal property when surrendering the Premises. All damage or injury done to
the Premises by Tenant or by any person who may be in or on the Premises with
the consent of Tenant shall be paid for by Tenant. Tenant shall at the
termination of this Lease, surrender the Premises to Landlord in as good
condition and repair as reasonable and proper use thereof will permit, ordinary
wear and tear excepted.
13. MECHANIC'S LIEN. In the event any mechanic's lien shall at any time be
filed against the Premises or any part of the Building by reason of work, labor,
services or materials performed or furnished to Tenant or to anyone holding the
Premises through or under Tenant, Tenant shall have the right to contest such
mechanic's lien by bonding over such lien or cause the lien to be discharged of
record. If Tenant shall fail to cause such lien forthwith to be discharged
within twenty-five (25) days after being notified of the filing thereof, or such
lien is not properly bonded, then, in addition to any other right or remedy of
Landlord, Landlord may, but shall not be obligated to, discharge the same by
paying the amount claimed to be due, or by bonding, and the amount so paid by
Landlord and all costs and expenses, including reasonable attorney's fees
incurred by Landlord in procuring the discharge of such lien, shall be due and
payable in full by Tenant to Landlord on demand.
14. INDEMNIFICATIONS. Tenant agrees to indemnify, defend and hold Landlord and
its partners, officers and employees and property manager harmless from and
against any claim, loss or expense arising out of injury, death or property loss
or damage occurring in the Premises, except to the extent caused by the
negligent act or intentional misconduct of Landlord or its partners, officers or
employees or property manager. Landlord agrees to indemnify, defend and hold
Tenant and its partners, officers and employees harmless from and against any
claim, loss or expense arising out of injury, death or property loss or damage
occurring in the common areas of the Building, except to the extent caused by
the negligent act or intentional misconduct of Tenant or its partners, officers
or employees.
15. LIABILITY OF LANDLORD. Notwithstanding anything apparently to the
contrary in this Lease, Landlord and its partners, officers and employees and
property manager shall not be liable to Tenant, and Tenant hereby releases
such parties from all damage, compensation or claims from any cause other
than the intentional misconduct or negligence of Landlord or its partners,
officers or employees or property manager arising from: loss or damage to
personal property or trade fixtures in the Premises including but not limited
to books, records, files, computer equipment, computer data, money,
securities, negotiable instruments or other papers; lost business or other
consequential damage arising out of interruption in the use of the Premises;
and any criminal act by any person other than Landlord or its partners,
officers or employees.
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16. WAIVER OF SUBROGATION RIGHTS. Notwithstanding anything apparently to the
contrary in this Lease, Landlord and Tenant hereby release one another and their
respective partners, officers and employees and property manager from any and
all liability (to the other or anyone claiming through or under them by way of
subrogation or otherwise) for any loss or damage covered by property insurance
or coverable by a customary policy of insurance required by this Lease, even if
such loss or damage shall have been caused by the fault or negligence of the
other party, or anyone for whom such party may be responsible. It is the
intention and agreement of Landlord and Tenant that the rentals reserved by this
Lease have been fixed in contemplation that each party shall fully provide its
own property insurance protection at his own expense, and that each party shall
look at its respective property insurance carrier for reimbursement of any such
loss, and further, that the insurance carriers involved shall not be entitled to
subrogation under any circumstances against any party to this Lease. Neither
Landlord nor Tenant shall have any interest or claim in the other's insurance
policy or policies, or the proceeds thereof unless specifically covered therein
as a joint insured.
17. INSURANCE. Tenant agrees to purchase in advance and to carry in full force
and effect throughout the Term of this Lease the following insurance:
a. "All risk" property insurance covering the full replacement value of
all of Tenant's leasehold improvements, trade fixtures and personal
property within the Premises.
b. Comprehensive general public liability insurance covering all acts
of Tenant, its employees, agents, representatives or guests on or
about the Premises, containing a contractual liability endorsement,
in a combined single limit amount of not less that $1,000,000.00 and
written on an "occurrence" basis.
All such policies shall name Landlord as an additional insured and contain a
clause requiring the insurer to provide Landlord with thirty (30) days written
notice prior to cancellation of the policy. If at any time Tenant allows said
insurance to lapse, Landlord shall have the right to place said insurance on
behalf of Tenant and immediately bill Tenant for the amount of the insurance
premium, which amount shall constitute Additional Rent under this Lease.
With the exception of any intentional misconduct or negligence on the part
of Landlord, its employees, and its agents, Tenant shall be responsible for the
security and safeguarding of the Premises and all property kept, stored or
maintained in the Premises. Landlord will make available to Tenant, at Tenant's
request, the plans and specifications for construction of the Building and the
Premises. Tenant represents that it is satisfied that the construction of the
Building and Premises, including the floors, walls, windows, doors and means of
access thereto are suitable for the particular needs of Tenant's business.
Tenant further represents that it is satisfied with the security of said
Building and Premises for the protection of any property which may be owned,
held, stored or otherwise caused or permitted by Tenant to be upon the Premises.
The placement and sufficiency of all safes, vaults, cash or security drawers,
cabinets or the like placed upon the Premises by Tenant shall be at the sole
responsibility and risk of Tenant. Tenant shall maintain in force throughout the
Term, insurance upon all contents of the Premises, including that owned by
others and Tenant's equipment and any alterations, additions, fixtures, or
improvements in the Premises acknowledged by Landlord to be the Tenant's.
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Landlord agrees to purchase in advance and to carry in full force and
effect throughout the Term of this Lease the following insurance:
a. "All risk" property insurance coverage on the Building, exclusive of
Tenant's leasehold improvements, in such amount as Landlord deems
prudent.
b. Comprehensive general public liability insurance covering the
Building, in a combined single limit amount of not less that
$2,000,000.00 and written on an "occurrence" basis.
18. DAMAGE BY FIRE OR OTHER CAUSES AND REPAIR. It is agreed between Landlord
and Tenant that if, during the Term of this Lease, the Premises shall be injured
or destroyed by fire or the elements, or through any other cause, so as to
render the Premises unfit for occupancy, or make it impossible to conduct the
business of Tenant thereon, and the Premises cannot be repaired with reasonable
diligence within sixty (60) days from the happening of such injury, then either
party may by written notice to the other terminate this Lease and the Term
herein demised from the date of such damage or destruction, and Tenant shall
immediately surrender the Premises and all interest therein to Landlord, and
Tenant shall pay rent only to the time of such surrender. If the Premises can
reasonably be restored within sixty (60) days from the happening of the injury
thereto, and Landlord within fifteen (15) days from the occurrence of such
injury elects in writing to so repair or restore the Premises within said sixty
(60) days, then this Lease shall not end or terminate on account of such injury
by fire or otherwise, and the Base Rent and Additional Rent shall continue to
accrue after the injury and during the process of repair and up to the time when
the repair shall be completed, except that Tenant shall during such time pay
only a pro rata portion of such rent apportioned to the portion of the Premises
which may be actually occupied during such repairing. If, however, the Premises
shall be so slightly injured by any cause aforesaid as not to be rendered unfit
for occupancy then Landlord shall repair same with reasonable promptness and in
that case the rent shall not cease or be abated during such repairing. Unless
this Lease is terminated as provided herein above, all improvements or
betterments placed by Tenant on the Premises shall be repaired and replaced by
Tenant at its own expense and not at the expense of Landlord.
19. CONDEMNATION. A condemnation of a material portion of the Building, parking
lot (e.g. Tenant's employees are unable to park) or any portion of the Premises
shall result in a termination of this Lease as of the date the condemning
authority takes possession thereof. All future rent installments to be paid by
Tenant under this Lease shall be paid up to the effective date of termination.
Landlord shall receive the total of any amount awarded as damages as a result of
condemnation proceedings. Tenant shall retain any separate award made for
relocation and other benefits provided to it under state and federal law.
20. ABANDONING PREMISES OR PERSONAL PROPERTY. Tenant shall not vacate or
abandon the Premises at any time during the Term of this Lease, but if Tenant
does vacate or abandon the Premises or is dispossessed by process of law, any
personal property belonging to Tenant and left on the Premises shall be deemed
abandoned at the option of Landlord and shall become the property of Landlord.
21. BREACH OR DEFAULT. Tenant shall have breached this Lease and shall be
considered in default hereunder if (i) Tenant makes an assignment of this Lease
or subleases all or any part of the
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Premises, except as provided pursuant to Section 10 of this Lease, (ii) Tenant
fails to pay any rent when due and does not make the delinquency good within ten
(10) days after receipt of written notice thereof from Landlord, (iii) Tenant
fails to perform or comply with any of the other covenants or conditions of this
Lease and such failure continues for a period of thirty (30) days after receipt
of written notice thereof from Landlord, (iv) Tenant shall file or have filed
against it or any guarantor of this Lease any bankruptcy or other creditor's
action or make an assignment for the benefit of creditors, except that Tenant
shall have a sixty (60) day cure period to dismiss any involuntary bankruptcy
proceedings, or (v) Tenant fails more than three (3) times in any calendar year
during the Term of this Lease to pay when due any installment of rent or other
payment required to be made by Tenant hereunder (the fourth such failure
constituting a non-curable default for which no notice from Landlord shall be
required).
22. EFFECT OF BREACH. In the event of a breach of this Lease by Tenant as set
forth above, Landlord shall have the following rights:
a. Landlord shall have the right to terminate this Lease, as well as
all of the right, title and interest of Tenant hereunder, by giving
to Tenant written notice of termination. On expiration of the time
fixed in the notice, this Lease and the right, title, and interest
of Tenant hereunder shall terminate in the same manner and with the
same force and effect, except as to Tenant's liability, as if the
date fixed in the notice of cancellation and termination were the
end of the Term herein originally specified. Neither the passage of
time after the occurrence of the breach nor the exercise by Landlord
of any other remedy with regard to such breach shall limit
Landlord's rights under this section.
b. Landlord may enter the Premises for the purpose of correcting or
remedying any such default and to remain until the default has been
corrected or remedied, but any expenditure for the correction by
Landlord shall not be deemed to waive or release Tenant's default or
Landlord's right to take any action which may otherwise be
permissible hereunder in the case of any default.
c. Whether or not Landlord elects to terminate this Lease, Landlord may
re-enter and repossess the Premises immediately and remove the
property and personnel of Tenant, and store the property in a public
warehouse or at a place selected by Landlord, at the expense of
Tenant. After re-entry Landlord may terminate this Lease by giving
written notice of termination to Tenant. Without said notice,
re-entry will not terminate the lease. On termination, Landlord may
recover from Tenant all damages proximately resulting from the
breach, including the cost of recovering the Premises.
From time to time after re-entry and repossession of the Premises,
whether or not this Lease has been terminated, Landlord may relet the
Premises or any part thereof for any term and at such rent and upon such
terms as Landlord may choose. Landlord may, but shall not be obligated to,
make alterations and repairs to the Premises. Any rent received from any
such reletting shall be applied against Tenant's obligations hereunder, but
Landlord shall not be responsible or liable for any failure to collect any
rent due upon any such reletting. Landlord may at any time after a reletting
terminate the Lease for the breach on which Landlord has based the re-entry
and subsequently relet the Premises.
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No termination of this Lease or repossession of the Premises by Landlord
pursuant to this section or otherwise shall relieve Tenant of its liabilities
and obligations under this Lease, all of which shall survive any such
termination or repossession. In the event of any such termination or
repossession, whether or not the Premises shall have been relet, Tenant shall
pay to Landlord the Base Rent and other sums and charges to be paid by Tenant up
to the time of such termination or repossession, and thereafter Tenant, until
the end of what would have been the Term in the absence of such termination or
repossession, shall pay to Landlord, as and for liquidated and agreed current
damages for Tenants default the equivalent of the amount of the Base Rent and
such other sums and charges which would be payable under this Lease by Tenant if
this Lease were still in effect, less the net proceeds, if any, of any reletting
effected pursuant to the provisions of this section after deducting all of
Landlord's expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage and management commissions,
operating expenses, legal expenses, attorneys' fees, alteration costs, and
reasonable expenses of preparation for such reletting. Tenant shall pay such
current damages to Landlord monthly on the days on which the Base Rent would
have been payable under this Lease if this Lease were still in effect, and
Landlord shall be entitled to recover the same from Tenant on each such day. At
any time after such termination or repossession, whether or not Landlord shall
have collected any current damages as aforesaid, Landlord shall be entitled to
recover from Tenant, and Tenant shall pay to Landlord on demand, as and for
liquidated and agreed final damages for Tenant's default, an amount equal to the
then present value of the excess of the Base Rent and other sums or charges
reserved under this Lease from the day of such termination or repossession for
what would be the then unexpired term if the same had remained in effect, over
the amount of rent Tenant demonstrates that Landlord could in all likelihood
actually collect for the Premises for the same period, said present value to be
arrived at on the basis of a discount of four percent (4%) per annum.
23. DISPUTES AND ATTORNEY'S FEES. In the event either party shall bring any
action or proceeding to enforce its rights under this Lease, in addition to any
relief granted in such action or proceeding, the non-prevailing party shall pay
to the prevailing party all reasonable attorneys' fees and out-of-pocket
expenses incurred in such action or proceeding.
24. LATE PAYMENT; REMEDIES OF LANDLORD CUMULATIVE. If any installment of rent
or any other charge payable hereunder is not paid by Tenant when due, the unpaid
balance due Landlord shall bear interest at the Interest Rate from the due date
thereof until paid, and such interest shall constitute additional rent hereunder
which shall be immediately due and payable. The "Interest Rate" as used herein
shall mean the lesser of twelve percent (12%) or the maximum rate permitted by
law. Further, in the event Tenant fails to pay any installment of rent or other
charge hereunder as and when such installment or charge is due, Tenant shall pay
to Landlord on demand a late charge of $200.00 and failure to pay such late
charge within ten (10) days after demand therefor shall be a default hereunder.
The provision for such late charge is to defray the cost to Landlord of handling
delinquent payments and shall be in addition to, not in lieu of, accrued
interest as provided above and any and all of Landlord's other rights and
remedies hereunder or at law, and shall not be construed as liquidated damages
or as limiting Landlord's remedies in any manner.
The remedies herein given to Landlord shall be cumulative and the exercise
of any one remedy by Landlord shall not be to the exclusion of any other remedy.
Failure of Landlord to assert any or all of its
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rights under this Lease in the event of breach of any condition hereof by Tenant
shall not be construed to be a waiver of Landlord's rights hereunder in the
event of any other breach hereof.
25. SUBORDINATION.
a. Subordination. This Lease is and shall be subject and subordinate
in all respects to all mortgages now or hereafter encumbering the
Building and to all renewals, modifications, supplements,
consolidations and replacements thereof; provided however, the
foregoing subordination of this Lease shall be effective only if the
mortgage, or a separate instrument signed by the holder of the
mortgage, provides that Tenant's possession of the Premises shall
not be disturbed upon any foreclosure of the mortgage so long as
Tenant is not in default under this Lease. However, a holder of
any mortgage may elect to subordinate, in whole or in part, by an
instrument in form and substance satisfactory to the holder, the
mortgage to this Lease.
b. Attornment. Subject to subsection "c" below, if the interest of
Landlord is transferred to any person (herein called "Purchaser"),
whether by reason of foreclosure or other proceedings for
enforcement of a mortgage, or by delivery of a deed in lieu of such
foreclosure or other proceedings, Tenant shall immediately and
automatically attorn to Purchaser.
c. Nondisturbance. No attornment under subsection "b" above, shall be
effective unless (and until):
1. the holder of the mortgage has subordinated, in whole or in
part, the mortgage to this Lease, or
2. Purchaser delivers to Tenant a written undertaking, in a
form satisfactory to Tenant, binding upon Purchaser and
enforceable by and for the benefit of Tenant under
applicable law, that this Lease and Tenant's rights
hereunder shall continue undisturbed while Tenant is not in
default despite such enforcement proceedings and transfer.
d. Effect of Attornment. Upon attornment under subsection "b" above,
this Lease shall continue in full force and effect as a direct lease
between Purchaser and Tenant, upon all of the same terms, conditions
and covenants as are set forth in this Lease except that, after such
attornment, Purchaser shall not be:
1. subject to any offsets or defenses which Tenant might have
against Landlord, or
2. bound by any prepayment by Tenant of more than one month's
installment of Rent, or by any previous modification of this
Lease, unless such prepayment or modification shall have
been approved in writing by any
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mortgagee of Landlord's interest in the Building, by
Purchase or by any predecessor in interest except Landlord,
or
3. subject to the obligations of Landlord hereunder except
during the period of Purchaser's ownership of the Building.
26. COVENANT OF QUIET ENJOYMENT. Landlord covenants that it has the right to
make this Lease for the term aforesaid and covenants that if Tenant shall pay
the rent and perform all of the covenants, terms and conditions of this Lease to
be performed by Tenant, Tenant shall, during the Term hereby created, freely,
peaceably and quietly occupy and enjoy the full possession of the Premises. The
term "Landlord" as used in this Lease shall mean solely the owner of the
Building and underlying land, or in the case of a sale-leaseback, the lessee of
the underlying land, at the relevant time. In the event of the sale of the
Building or the transfer of the title thereto, upon notification to Tenant,
Landlord shall be relieved of all of the covenants and obligations created by
this Lease, except as to breaches thereof occurring prior to such sale or
transfer, and such sale or transfer shall automatically result in the purchaser
or transferee assuming and agreeing to carry out all of the covenants and
obligations of Landlord herein from and after such sale or transfer. The
liability of the original Landlord and any successor Landlord under this Lease
is limited to its interest in the Building.
27. NO REPRESENTATIONS BY LANDLORD. Neither Landlord nor any agent or employee
of Landlord has made any representations or promises with respect to the
Premises or the Building except as herein expressly set forth, and no right,
privileges, easements or licenses are acquired by Tenant except as herein
expressly set forth. No exhibit attached to this Lease nor any other materials
provided by Landlord shall constitute a warranty or agreement as to the
configuration of the Building or the occupants thereof. Landlord reserves the
right from time to time to modify the Building, including common areas,
appurtenances and rentable areas, without in any case reducing the obligations
of Tenant hereunder provided, however, that such modifications to the Building
and common areas shall not materially diminish Tenant's use and enjoyment
thereof. Tenant has no right to light or air over any premises adjoining the
Building. Tenant, by taking possession of the Premises, shall accept the same
"as is" except as expressly provided in this Lease and such taking of possession
shall be conclusive evidence that the Premises and the Building are in good and
satisfactory condition at the time of such taking of possessions. In addition to
and without limitation of the immediately preceding sentence, Tenant agrees that
it is leasing the Premises on an "AS IS', "WHERE IS" and "WITH ALL FAULTS"
basis, based upon its own judgment, and hereby disclaims any reliance upon any
statement or representation whatsoever made by Landlord or Landlord's agent.
LANDLORD MAKES NO WARRANTY WITH RESPECT TO THE PREMISES, THE BUILDING OR ANY
PART THEREOF, EXPRESS OR IMPLIED, AND LANDLORD SPECIFICALLY DISCLAIMS ANY
WARRANTY OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE AND ANY
LIABILITY FOR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OF OR THE INABILITY
TO USE THE PREMISES, THE BUILDING OR ANY PART THEREOF. NOTWITHSTANDING ANYTHING
TO THE CONTRARY CONTAINED IN THIS LEASE, LANDLORD REPRESENTS AND WARRANTS THAT
AS OF THE COMMENCEMENT DATE THE PREMISES AND BUILDING AND THEIR USE AND
OCCUPANCY COMPLY IN ALL RESPECTS WITH THE AMERICANS WITH DISABILITIES ACT
("ADA") AND THE APPLICABLE PROVISIONS OF THE MINNESOTA HUMAN RIGHTS ACT OR THAT
A PLAN HAS BEEN IMPLEMENTED TO ENSURE COMPLIANCE WITH SUCH
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PROVISIONS AT NO ADDITIONAL COST OR EXPENSE TO TENANT. LANDLORD SHALL DEFEND,
INDEMNIFY, AND HOLD TENANT HARMLESS FROM AND AGAINST ALL LOSS, DAMAGE, INJURY,
EXPENSE AND PENALTIES ARISING FROM OR IN CONNECTION WITH LANDLORD'S FAILURE TO
SO COMPLY. ANY FUTURE MODIFICATIONS TO THE BUILDING OR PREMISES THAT MAY BE
REQUIRED IN ORDER TO COMPLY WITH THE ADA OR MINNESOTA HUMAN RIGHTS ACT SHALL BE
THE SOLE EXPENSE OF LANDLORD.
28. HOLDING OVER. If Tenant holds possession of the Premises after the Term of
this Lease, Tenant shall, at Landlord's option, become a 'Tenant from
month-to-month on terms herein specified, but at a monthly gross rental of one
hundred-fifty percent (150%) of monthly Base Rent per month plus any operating
cost escalator as herein provided payable monthly in advance on the first day of
each month and Tenant shall continue to be a month-to-month tenant until the
tenancy shall be terminated by Landlord, or until Tenant has given to Landlord a
written notice at least one month prior to the date of termination of the
monthly tenancy of Tenant's intention to terminate the tenancy.
29. NOTICE. Where notice is required to be given by either Landlord or Tenant
such notice shall be in writing and shall be hand delivered or sent by
registered or certified first class mail, postage prepaid, (i) if to Landlord at
the office of Landlord C/O The O'Neill Real Estate Group, 7901 Flying Cloud
Drive, Suite 117, Eden Prairie, Minnesota 55344 and (ii) if to Tenant, at the
Premises, unless notice of a change of address is given in accordance with the
provisions hereof.
30. ESTOPPEL CERTIFICATES. Each party hereto agrees that at any time, and from
time to time during the term of this Lease (but not more often than twice in
each calendar year), within twenty (20) days after request by the other party
hereto, it will execute, acknowledge and deliver to such other party or to any
prospective purchaser, assignee or mortgagee designated by such other party, an
estoppel certificate in a form mutually acceptable to Landlord and Tenant.
31. BROKERAGE. Each of the parties represents and warrants that there are no
claims for brokerage commissions or finder's fees in connection with this Lease
Agreement except for The O'Neill Real Estate Group which is representing
Landlord and paid by Landlord, and Frauenshuh Companies which is representing
Tenant and paid by The O'Neill Real Estate Group on the following basis: The
O'Neill Real Estate Group and Frauenshuh shall split the leasing commission of
$4.50 per rentable square foot on an equal (50-50) basis. Fifty percent (50%)
of said commission shall be paid within ten (10) days of the full execution of
this Lease and fifty percent (50%) of said commission shall be paid within ten
(10) days of the Commencement Date. Furthermore, each of the parties agrees to
indemnify the other against, and hold it harmless from, all liabilities arising
from any other brokerage claims arising through the indemnifying party,
including without limitation, the cost of attorney" fees in connection
therewith.
32. DEPOSIT. Tenant has deposited with Landlord the sum of $70,000.00 (due at
Lease execution). Said sum shall be held in accordance with Minnesota law as
security for the faithful performance by Tenant of all of the terms, covenants,
and conditions of this Lease to be kept and performed by Tenant. The deposit may
be applied by Landlord to any default or nonpayment by Tenant. If Tenant shall
fully and faithfully perform every provision of this Lease to be performed by
it, a portion of the security deposit, $30,561.42, shall be applied to the
nineteenth rent installment of the Lease Term, and the balance of the security
deposit shall be returned to Tenant within five (5) days of the termination of
this Lease.
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33. MISCELLANEOUS.
a. This is a Minnesota contract and shall be construed according to the
laws of Minnesota.
b. The captions in this Lease are for convenience only and are not a
part of this Lease.
c. If more than one person or entity shall sign this Lease as Tenant,
the obligations set forth herein shall be deemed joint and several
obligations of each such party.
d. Time is of the essence.
e. The provisions of this Lease which relate to periods subsequent to
the expiration of the Term shall survive expiration.
f. If any provision of this Lease is invalid or unenforceable to any
extent, then such provision and the remainder of this Lease shall
continue in effect and be enforceable to the fullest extent
permitted by law.
g. This Lease contains the entire agreement of the parties hereto with
respect to the Premises and Building. This Lease may be modified
only by a writing executed and delivered by both parties
h. Nothing contained in this Lease shall be deemed or construed to
create a partnership or joint venture of or between Landlord and
Tenant, or to create any other relationship between the parties
other than that of landlord and tenant.
i. This Lease shall be binding upon and inure to the benefit of the
parties hereto and, subject to the restrictions and limitations
herein contained, their respective heirs, successors and assigns.
j. The parties hereto agree that the addendums set forth in Exhibits A,
B and C and such other addendums as may be attached hereto, shall
become a part of this Lease.
34. SIGNAGE. In addition to having signage in the Building's tenant directory,
located in the main lobby of the Building, and signage outside Tenant's suite
entrance (all subject to Landlord's reasonable approval), Tenant shall have the
right, at Tenant's sole expense, to install signage on the outside of the
Building and the Building's sign monument in the same locations as the signage
for the last occupant of the Premises prior to this Lease, subject to approval
by the City of Eden Prairie and Landlord's reasonable approval. Upon the
termination of this Lease, Tenant shall be responsible for the removal of said
signage, and returning the Building and monument to their original condition (as
of the time said signage is installed). Any damage to the Building or the
monument resulting from the installation and/or removal of said signage shall be
the responsibility of Tenant.
35. MOVING ALLOWANCE. Tenant shall receive a moving allowance of $17,315.00
from
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Landlord. Said allowance shall be paid to Tenant within ten (10) days of the
Commencement Date.
36. INDOOR PARKING. Tenant shall have the right to use three indoor parking
stalls at no additional rent to Tenant throughout the entire Lease Term.
37. PUBLIC AREA IMPROVEMENTS. Landlord agrees to improve the Building's public
corridors and lobbies by replacing the existing carpeting, wallcovering and
finishes with new carpeting, wallcovering and finishes. Landlord agrees to
allow Tenant to have input on the selection of the color scheme for said
improvements. Landlord agrees to make said improvements to the second and third
floors of the Building by February 28, 1999, and to the first floor of the
Building by August 1, 1999.
38. BUILDING'S PARKING LOT. Landlord agrees to repair and maintain the
Building's parking lots during the Lease Term. Landlord agrees to sealcoat and
restripe the Building's parking lots and repaint parking lot lighting fixtures
by July 1, 1999. In addition, Landlord agrees to remove the drive through
lanes adjacent to the parking lot during 1999.
39. PAINTING THE EXTERIOR OF THE BUILDING. Landlord agrees to repaint the
exterior of the Building and the monument sign prior to August 1, 1999, using
the same color, or another color requested by Tenant which is acceptable to
Landlord.
40. CLEANING OF WINDOWS. Landlord agrees to clean the exterior and interior of
all windows in the Premises no less than two (2) times during each calendar
year.
41. RIGHT OF FIRST OFFER. Landlord shall give Tenant written notice of the
availability of any space ("Offer Space") in the Building whenever the Offer
Space first becomes available to Landlord for releasing after expiration or
earlier termination of the existing lease for such Offer Space. The notice
shall set out the Landlord's determination of rent for such Offer Space. Tenant
shall have the right to lease the Offer Space upon terms and conditions mutually
acceptable to Landlord and Tenant provided that:
a. Tenant is not in default under this Lease at the time such option is
exercised and at the time such option is to commence; and
b. Tenant delivers to Landlord written notice exercising its rights to
lease the Offer Space within fifteen (15) days of receipt of
Landlord's notice of availability of such Offer Space.
The foregoing rights shall be subject to any other rights of a similar
nature for any tenant in the Building which is in existence as of the date of
this Agreement.
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IN WITNESS WHEREOF, This Lease has been duly executed by the parties hereto on
the day and year first written above.
TENANT LANDLORD
NET PERCEPTIONS, INC. THE PROTECTIVE GROUP, INC.
By By
------------------------ ----------------------------
Its Its
------------------------ ----------------------------
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EXHIBIT "A"
PREMISES FLOOR PLAN
See attached floor plan, numbered as page 19A
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EXHIBIT "B"
BUILDING RULES AND REGULATIONS
NO SMOKING IN PUBLIC AREAS OF THE BUILDING: The Building is a "smoke free"
building in all areas of the Building except for space leased by tenants.
Tenants shall not smoke in any non-tenant leased area of the building.
OBSTRUCTIONS: Tenants shall not obstruct sidewalks, entries, halls or stairways
nor use the same for any purpose other than for ingress and egress to and from
their respective premises.
SIGNS: No sign, advertisement of notice shall be placed or painted on any
part of the outside or inside of the Building or leased premises except on
doors and directory boards and then only m such location, size, color, style
and material as shall be designated by Landlord; and Landlord reserves the
right to remove all other at the expense of tenants.
DOGS AND OTHER ANIMALS: Tenants shall not bring or harbor any dogs or other
animals in or about the Building.
SAFES: All metal safes shall be moved in and out of the Building as designated
by Landlord and Landlord shall at all times have the right to prescribe the
weight and position thereof in the leased premises.
FURNITURE AND BULKY ARTICLES: All furniture, boxes and other bulky articles
belonging to tenants shall be carried in and out of the Building and moved from
place to place therein at the times and in the manner prescribed by Landlord.
PASS KEYS: Landlord shall have the right to keep pass keys to all leased
premises and to use the same to enter such premises in any emergency for
inspection.
DISTURBANCE OF TENANTS: No tenant or his employees or visitors shall disturb
other tenants by the use of musical instruments, radios, sound systems, unseemly
noises or other means and annoyances.
TELEGRAPH AND TELEPHONE CONNECTIONS: Landlord shall have the right to direct all
electric wiring and cabling in the Building for telegraph, telephone and other
purposes and tenants shall not do or permit any boring or cutting for such
purposes except with the consent and direction of Landlord.
DEFACEMENT OF WALLS AND WOODWORK: Tenants shall not allow spikes, hooks, nails,
screws or tacks to be driven into woodwork of leased premises and nothing shall
be allowed to be attached to walls or woodwork except with the permission and
under the direction of Landlord.
LOCKS AND KEYS: Tenants shall not place additional locks on any of the doors in
said Building and shall have no additional keys made except as shall be
furnished by Landlord upon request.
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REMOVAL OF FURNITURE AND FIXTURES: Tenants shall remove any and all furniture,
fixtures and goods whenever requested to do so by Landlord for purposes of
repairs.
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EXHIBIT "C"
LEASEHOLD IMPROVEMENTS
Subject to a construction plan approved and executed by Landlord and Tenant,
Tenants representative will provide the leasehold improvements per said
construction plan (attached hereto as Exhibit "D" and incorporated herein by
reference) at the Tenant's expense. If any revision or supplement to such plans
or outline specifications are deemed necessary by Landlord, those revisions and
supplements shall be submitted to Tenant for approval. The amounts paid by
Tenant construct such leasehold improvements ("Credit Amount") shall be credited
towards Tenant's obligation to pay Base Rent and Additional Rent under the Lease
commencing on the Commencement Date and continuing until such time that the
Credit Amount is exhausted. Landlord and Tenant agree the Credit Amount will
not exceed $230,000. In the event the leasehold improvement costs are less than
$230,000, the Credit Amount will be reduced to the actual leasehold improvement
costs. Tenant will bear any costs of leasehold improvements in excess of
$230,000.
22
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EXHIBIT "D"
CONSTRUCTION DOCUMENTS
23
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[LOGO]
MASTER PURCHASE AGREEMENT
No. E/W
This Master Purchase Agreement ("Agreement") is entered into between Net
Perceptions-TM-, Inc., a Delaware corporation with an office at 11200 West 78th
Street, Suite 300, Minneapolis, MN 55344-3814 (Phone: 612-903-9424; Fax:
612-912-9425; E-mail: [email protected]) ("NPI") and the "Customer" listed
below.
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C>
Customer: Contact:
- --------------------------------------------------------------------------------
Address: Phone:
- --------------------------------------------------------------------------------
Fax:
- --------------------------------------------------------------------------------
E-Mail:
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- --------------------------------------------------------------------------------
</TABLE>
The terms of this Agreement shall apply to each software license granted and to
all services provided by NPI under this Agreement.
1. DEFINITIONS
1.1. "SOFTWARE" means the computer software described in the applicable
Order Schedule, along with any Updates (as defined below) licensed
to Customer pursuant to this Agreement. Unless otherwise indicated,
the term "Software" will include the "Documentation."
1.2. "DOCUMENTATION" means the reference materials, whether in printed or
machine readable form, generally furnished with the Software.
1.3. "UPDATES" means maintenance releases, improvements, and enhancements
to the Software and/or the Documentation which are generally
provided by NPI to customers receiving Support Services at no
additional charge. Updates do not include releases, improvements,
and enhancements for which NPI elects to charge separately.
1.4. "ORDER SCHEDULE" means an order form including a description of the
specific Software and Services that Customer is ordering. Each
Order Schedule will be signed by the parties and, when accepted and
signed by NPI, becomes a part of this Agreement.
1.5. "SUPPORT SERVICES" means the remote telephone, fax, or e-mail
consultation, bug fixes, error corrections, workarounds, and Updates
as more specifically detailed in Section 4 and Exhibit A of this
Agreement.
1.6. "PROFESSIONAL SERVICES" means services provided to Customer pursuant
to an Order Schedule for training, installation, education,
application design, custom development or other consulting services.
1.7. "SERVICES" means any combination of Support Services and
Professional Services being provided to Customer by NPI pursuant to
an Order Schedule.
1.8. "SUPPORTED SOFTWARE LICENSE" means a Software license for which
Customer has ordered Support Services for the relevant time period.
1.9. "SOFTWARE KEY" means a device installed in the Software that is
necessary for the operation of the Software and which may restricts
the use of the Software.
2. SOFTWARE LICENSE
2.1. The Software, if any, ordered from time to time by Customer from NPI
will be set forth on the Order Schedule attached hereto or on a
subsequent Order Schedule. Subject to all the terms of this
Agreement and payment of all fees, NPI grants Customer a
nonsublicensable, nonexclusive, nontransferable license to use such
Software in object code form only. Except as otherwise indicated in
an Order Schedule, for each license granted, Customer will have the
right to: (a) use the Software solely for Customer's own internal
data processing operations; (b) move the Software temporarily in
case of computer system malfunction; (c) makes copies of the
Software solely for backup and archival purposes, provided that any
such copy is subject to the terms of this Agreement; and (d) merge
the Software into other programs for Customer's own use, provided
that any portion of the Software so merged will be subject to the
terms of this Agreement. NPI retains ownership of all Software and
copies. Customer will maintain the copyright notice and any other
notices that appear on the Software on any copies and any media.
2.2. Customer's use of the Software is limited to that specifically
permitted in this Agreement and the applicable Order Schedule(s),
and shall be configured so as to require the presence of a Software
Key in order for Customer to operate the Software. The Software Key
may restrict Customer's access to the Software. Customer will not
(and will not allow any third party to) reverse engineer or attempt
to discover any source code or underlying ideas or algorithms of any
Software (except to the extent that applicable law prohibits reverse
engineering restrictions), provide, lease, lend, use for timesharing
or service bureau purposes or otherwise use or allow others to use
the Software for the benefit of any third party.
2.3. Within the United States or Canada, Customer may transfer the
Software to another CPU or Server of like kind in Customer's
possession upon written notice to NPI so long as Customer uses the
Software in accordance with the license(s) granted under this
Agreement. Transfer of the Software
<PAGE>
outside the United States or Canada may be permitted only with NPI's
prior written consent. In such case, Customer agrees to: (a) comply
fully with any relevant United States export controls; and
(b) obtain all licenses and approvals required under applicable
export laws and regulations.
3. PROFESSIONAL SERVICES
3.1. The Professional Services, if any, being ordered from time to time
by Customer from NPI will be set forth on the Order Schedule
attached hereto or on a subsequent Order Schedule. NPI will use its
commercially reasonable efforts to complete the Professional
Services within the time period specified on the applicable Order
Schedule, provided that NPI shall have no liability for failure to
meet the time period specified.
3.2. Fees and other charges for Professional Services will be as provided
in the applicable Order Schedule. Unless otherwise agreed,
compensation for additional services not set forth on the applicable
Order Schedule shall be on a time and expense basis at NPI's then
current rates. NPI retains ownership of the results of all
Professional Services.
3.3. Customer may terminate any Professional Services ordered at any time
prior to the completion thereof upon NPI's receipt of written notice
of such suspension, provided that Customer is obligated to pay all
monies owed to NPI prior to such termination (including any expenses
incurred by NPI prior to such termination or as a result of such
termination). In the event Customer suspends performance of
Professional Services, in whole or part, under this Agreement for a
period of ninety (90) days or more through no fault of NPI and
subsequently requests NPI to resume such Professional Services,
NPI's fees for the remainder of such Professional Services shall be
at NPI's then current rates for such Professional Services.
3.4. All documents furnished to NPI by Customer and all documents and
supportive data (excluding any and all software) prepared by NPI
under this Article 3 shall be Customer's property and shall be
delivered to Customer at or before completion of the Professional
Services. Nothing herein shall be deemed to transfer to Customer
the ownership of any software developed by NPI. However, if
Customer retains NPI to develop software or software applications
specifically for Customer, Customer shall have a fully-paid up
license to such software or software applications, subject to all of
the terms and conditions of this Agreement. However, as between the
parties, NPI will own all rights, title, interest and intellectual
property with respect to the Software and all derivatives,
enhancements and modifications of NPI's products, all of which are
hereby retained by, or assigned to it, by Customer.
3.5. Notwithstanding anything to the contrary in this Agreement, NPI
shall not be prohibited or enjoined at any time by Customer from
utilizing any "skills or knowledge of a general nature" acquired
during the course of performing the Professional Services specified
under this Agreement. For purposes of this Agreement, "skills or
knowledge of a general nature" shall include, without limitation,
information publicly known or that could reasonably have been
acquired in similar work performed for another customer.
4. SUPPORT SERVICES
4.1. The Support Services, if any, being ordered from time to time by
Customer from NPI will be set forth on the Order Schedule attached
hereto or on a subsequent Order Schedule. NPI will provide Support
Services to Customer so long as Customer has a Supported Software
License. Support Services are available for the most current
version of the Software and for the immediately previous sequential
release for up to six 6 months after the current version becomes
generally available. Detailed terms and conditions of Support
Services are attached to this Agreement as Exhibit A.
4.2. Except as set forth on the applicable Order Schedule, the initial
term of Support Services for the Software begins on the later of
(a) the delivery date of the Software (as applicable) or (b) the
date specified in the applicable Order Schedule and shall continue
in effect for twelve (12) consecutive months thereafter or until
terminated by either party upon ninety (90) days prior written
notice to the other party ("Support Period"). NPI will have no
support obligation to Customer: (a) at the end of any Support Period
unless Customer elects to obtain additional Support Services by
paying NPI an annual Support Services renewal fee; (b) where
Customer is using a version of the Software that is not the
then-current or immediately previous sequential release; or (c)
where the Software has been modified by Customer. In the event
Customer elects not to obtain or renew Support Services, Customer
may retain the Software but will have no further right to Support
Services for the Software. Customer may reinstate any lapsed
Support Services contract by paying NPI an amount equal to 120% of
the amounts remaining on the contract to be reinstated.
4.3. The Support Services rates on the applicable Order Schedule shall be
effective for the initial term of the Support Services as defined
therein. Rates for extension periods shall be at NPI's then current
rates for the applicable Support Services.
5. CONFIDENTIAL INFORMATION
5.1. By virtue of this Agreement, either party may have access to the
other party's information that is confidential ("Confidential
Information"). Each party agrees to hold the other party's
Confidential Information in confidence during the term of this
Agreement and for a period of three years after termination. Each
party further agrees that unless required by law and after written
notice to the other party, it will not make any part of the other
party's Confidential Information available in any form to any third
party or use such Confidential Information for any purpose other
than the implementation of this Agreement. Each party agrees to
take commercially reasonable steps to ensure that Confidential
Information is not disclosed or distributed by its employees or
agents in violation of the terms of this Agreement.
5.2. "Confidential Information" means non-public information clearly
identified as proprietary or confidential. Confidential Information
may include (but is not limited to) information concerning business
methods, business plans, customer information, data warehousing
methodologies, the Software, the Documentation, pricing terms, and
test results, including
2
<PAGE>
the results of any evaluation of the Software or of a pre-production
release thereof.
5.3. Confidential Information does not include information that: (a) is
or becomes generally available to the public through no act or
omission of the other party; (b) is disclosed to the other party by
a third party without restriction on disclosure and without breach
of a nondisclosure obligation; or (c) is previously known (as
evidenced by contemporaneous written evidence) to the other party
without nondisclosure obligations.
6. INDEMNIFICATION
6.1. NPI shall hold Customer harmless from liability to third parties
resulting from infringement by Software of any United States patent
issued sixty (60) days or more before delivery of such Software or
any copyright or misappropriation of any trade secret, provided NPI
is promptly notified of any and all threats, claims and proceedings
related thereto and given reasonable assistance and the opportunity
to assume sole control over defense and settlement; NPI will not be
responsible for any settlement it does not approve in writing. The
foregoing obligations do not apply with respect to the Software or
portions or components thereof (i) not supplied by NPI, (ii) made in
whole or in part in accordance to Customer specifications,
(iii) that are modified after delivery by NPI, (iv) combined with
other products, processes or materials where the alleged
infringement relates to such combination, (v) where Customer
continues allegedly infringing activity after being notified thereof
or after being informed of modifications that would have avoided the
alleged infringement, or (vi) where Customer's use of such Software
is not strictly in accordance with this Agreement. Customer will
indemnify NPI from all damages, settlements, attorneys' fees and
expenses related to any claim of infringement or misappropriation
excluded from NPI's indemnity obligation by the preceding sentence.
7. LIMITED WARRANTY AND DISCLAIMER
7.1. With respect to Software, NPI warrants for a period of thirty (30)
days from Customer's first acquisition of Software that such
Software will materially conform to NPI's then current user
Documentation for such Software. This warranty covers only problems
reported to NPI during the warranty period. ANY LIABILITY OF NPI
WITH RESPECT TO THE SOFTWARE OR THE PERFORMANCE THEREOF UNDER ANY
WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY WILL BE
LIMITED EXCLUSIVELY TO SOFTWARE REPLACEMENT OR, IF REPLACEMENT IS
INADEQUATE AS A REMEDY OR, IN NPI'S OPINION, IMPRACTICAL, TO REFUND
OF THE LICENSE FEE. EXCEPT FOR THE FOREGOING, ALL SOFTWARE IS
PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND INCLUDING WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR NONINFRINGEMENT. FURTHER, NPI DOES NOT WARRANT
RESULTS OF USE, THAT THE SOFTWARE IS BUG FREE OR THAT CUSTOMER'S USE
WILL BE UNINTERRUPTED.
7.2. NPI may provide Customer with a preproduction release of the
Software (often labeled "beta release"). These releases are not
suitable for commercial use. Such releases are provided on an "AS
IS" basis. NPI does not warrant preproduction releases.
7.3. With respect to Professional Services, NPI, EXCEPT FOR THE EXPRESS
WARRANTIES STATED IN THE APPLICABLE ORDER SCHEDULE, IF ANY,
DISCLAIMS ALL WARRANTIES, INCLUDING ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, and the stated
express warranties, if any, are in lieu of all other obligations or
performance liabilities arising out of, or in connection with, the
rendering of the Professional Services hereunder.
8. LIMITATION OF LIABILITY
NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, AND EXCEPT
FOR BODILY INJURY, NPI SHALL NOT BE LIABLE OR OBLIGATED WITH RESPECT TO THE
SUBJECT MATTER OF THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY (I) FOR ANY AMOUNTS IN EXCESS
IN THE AGGREGATE OF THE FEES PAID TO IT HEREUNDER WITH RESPECT TO THE
APPLICABLE SOFTWARE OR SERVICE DURING THE SIX MONTH PERIOD PRIOR TO THE
CAUSE OF ACTION; (II) FOR ANY COST OF PROCUREMENT OF SUBSTITUTE GOODS,
TECHNOLOGY, SERVICES OR RIGHTS; (III) FOR ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES; (IV) FOR INTERRUPTION OF USE, LOSS OR CORRUPTION OF DATA; OR (V)
FOR ANY MATTER BEYOND ITS REASONABLE CONTROL.
9. TERM AND TERMINATION
9.1. This Agreement will take effect on the Effective Date. This
Agreement and each license granted hereunder, unless otherwise
agreed, will remain in effect unless and until terminated by mutual
agreement of the parties or as set forth herein.
9.2. Customer may terminate this Agreement or any license(s) at any time
upon written notice to NPI. NPI will have the right to terminate
this Agreement or any license(s) granted hereunder if Customer fails
to perform any material obligation under this Agreement (including
the obligation to pay amounts due hereunder) and fails to cure such
nonperformance within thirty (30) days following written notice of
such failure.
9.3. Except as otherwise provided herein, upon the effective date of any
license termination, Customer shall cease using the Software
provided under such license, return to NPI or destroy all copies of
the Software (including copies in storage media) and Documentation,
and provide NPI with written confirmation thereof. This requirement
applies to all copies in any form, partial or complete, and whether
or not merged into other materials. Upon the effective date of any
license termination, the Customer relinquishes all rights granted
under this Agreement with respect to the affected license(s).
9.4. The following obligations will survive termination of this Agreement
for any reason: (a) prohibitions against the use or
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<PAGE>
nondisclosure of Confidential Information; (b) indemnification;
(c) obligations to make payments of amounts that become due under
this Agreement prior to termination.
10. GENERAL TERMS
10.1. PAYMENT. Customer agrees to pay NPI the license and service fees
indicated in applicable Order Schedules. All fees are payable in
full to NPI as specified in applicable Order Schedules. For any
overdue payments, late fees will accrue at the lesser of: (a) 1% per
month; or (b) the maximum rate allowed under law. All fees are
payable in U.S. dollars and do not include taxes. If NPI is
required to pay any sales, use, GST, value-added withholding, or
similar taxes or levies, such amounts (other than taxes based on
NPI's income) will be billed to and paid by Customer.
10.2. NOTICES. Any notices (including address change notices) will be in
writing and will be deemed given when: (1) delivered personally; (2)
sent by first class mail, return receipt requested; or (3) upon
receipt by prepaid express courier. Notices will be addressed to
NPI and Customer at the addresses set forth in this Agreement.
10.3. ASSIGNMENT. The rights and obligations of Customer under this
Agreement are not assignable without the prior written consent of
NPI and any attempt to assign them without such consent will be
void. NPI may assign, upon written notice to Customer, both the
rights and obligations of this Agreement to any surviving
corporation in any merger or consolidation to which it is a party or
to any party that acquires all or substantially all of its capital
stock or assets.
10.4. WAIVER. The failure of a party to prosecute its rights with respect
to a default or breach hereunder shall not constitute a waiver of
the right to enforce its rights with respect to the same or any
other breach.
10.5. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of Minnesota, USA.
10.6. FORCE MAJEURE. Neither party shall be responsible for any delay in
its performance due to causes beyond its reasonable control.
10.7. U.S. GOVERNMENT USERS. If Customer is a unit or agent of the United
States Government, or if a license hereunder is acquired pursuant to
a contract with any such unit or agency, Customer agrees that the
Software and Documentation are provided with Restricted Rights:
Use, duplication, or disclosure is subject to the restrictions as
set forth in the Rights in Technical Data and Computer Software
clause at DFARS 252.227-7013 subparagraph (c)(1)(ii), or the
Commercial Computer Software - Restricted Rights at CFR 52.227 19,
subparagraphs (c)(1) and (2), as applicable. Manufacturer is Net
Perceptions, Inc., 11200 West 78th Street, Suite 300, Eden Prairie,
MN 55344.
10.8. SEVERABILITY. In the event that any provision of this Agreement is
found invalid or unenforceable, it will be enforced to the extent
permissible and the remainder of this Agreement will remain in full
force and effect.
10.9. DUPLICATE ORIGINALS. This Agreement may be executed in any number
of counterparts. Each counterpart shall be an original, and when
taken together with all existing executed counterparts, shall form
one and the same document.
10.10. ENTIRE AGREEMENT. This Agreement constitutes the complete agreement
between the parties and supersedes all prior or contemporaneous
discussions, representations, and proposals, written or oral, with
respect to the subject matters discussed herein. No modification of
this Agreement will be effective unless contained in writing signed
by an authorized representative of each party. No term or condition
contained in Customer's purchase order will apply unless expressly
agreed to by NPI in writing.
The Effective Date of this Agreement is the later of the dates on which it is
signed.
Accepted by Customer Net Perceptions, Inc.
- ----------------------------------- -----------------------------------
Authorized Signature Authorized Signature
Name: Name:
------------------------------ ------------------------------
Title: Title:
----------------------------- -----------------------------
Date: Date:
------------------------------ ------------------------------
NET PERCEPTIONS, THE NET PERCEPTIONS LOGO AND GROUPLENS
ARE TRADEMARKS OF NET PERCEPTIONS, INC.
4
<PAGE>
EXHIBIT A
SUPPORT SERVICES
TERMS AND CONDITIONS
1. SUPPORT SERVICES TERMS AND CONDITIONS. Capitalized terms not defined in
Section 4 below have the same meaning as in the Agreement. NPI is
obligated under this Exhibit A only with respect to Support Services for
which it is obligated under Section 4 of the main body of the Agreement.
Support Services consist of (a) Error Correction and Telephone Support
provided to a single technical support contact concerning the installation
and use of the then current release of Software and the immediately
Previous Sequential Release and (b) updates that NPI in its discretion
makes generally available without additional charge.
2. ERROR PRIORITY LEVELS. NPI shall exercise commercially reasonable efforts
to correct any Error reported by Customer in the current unmodified release
of Software in accordance with the priority level reasonably assigned to
such Error by NPI.
PRIORITY A ERRORS - NPI SHALL PROMPTLY COMMENCE THE FOLLOWING PROCEDURES:
(i) ASSIGN NPI ENGINEERS TO CORRECT THE ERROR; (ii) NOTIFY NPI MANAGEMENT
THAT SUCH ERRORS HAVE BEEN REPORTED AND OF STEPS BEING TAKEN TO CORRECT
SUCH ERROR(S); (iii) PROVIDE CUSTOMER WITH PERIODIC REPORTS ON THE STATUS
OF THE CORRECTIONS; AND (iv) INITIATE WORK TO PROVIDE CUSTOMER WITH A
WORKAROUND OR FIX.
PRIORITY B ERRORS - NPI MAY INCLUDE THE FIX FOR THE ERROR IN THE NEXT MAJOR
RELEASE OF THE SOFTWARE.
If NPI believes that a problem reported by Customer may not be due to an
Error in Software, NPI will so notify Customer. At that time, Customer may
(1) instruct NPI to proceed with problem determination at its possible
expense as set forth below or (2) instruct NPI that Customer does not wish
the problem pursued at its possible expense. If Customer requests that NPI
proceed with problem determination at its possible expense and NPI
determines that the error was not due to an Error in the Software, Customer
shall pay NPI, at NPI's then-current and standard consulting rates, for all
work performed in connection with such determination, plus reasonable
related expenses incurred therewith. Customer shall not be liable for
(i) problem determination or repair to the extent problems are due to
Errors in the Software; (ii) work performed under this paragraph in excess
of its instructions; or (iii) work performed after Customer has notified
NPI that it no longer wishes work on the problem determination to be
continued at its possible expense (such notice shall be deemed given when
actually received by NPI). If Customer instructs NPI that it does not wish
the problem pursued at its possible expense, or if such determination
requires effort in excess of Customer's instructions, NPI may, at its sole
discretion, elect not to investigate the error with any liability therefor.
3. EXCLUSIONS. NPI shall have no obligation to support: (i) altered or damaged
Software or any portion of Software incorporated with or into other
software; (ii) Software that is not the then current release or immediately
Previous Sequential Release; (iii) Software problems caused by Customer's
negligence, abuse or misapplication, use of Software other than as
specified in the NPI's user manual or other causes beyond the control of
NPI; or (iv) Software installed on any hardware that is not supported by
NPI. NPI shall have no liability for any changes in Customer's hardware
that may be necessary to use the Software due to a Workaround or
maintenance release.
4. DEFINITIONS.
"Error" means an error in the Software that significantly degrades such
Software as compared to NPI's published performance specifications.
"Error Correction" means the use of reasonable commercial efforts to
correct Errors.
"Fix" means the repair or replacement of object or executable code versions
of Software to remedy an Error.
"Previous Sequential Release" means the release of Software that has been
replaced by a subsequent release of the same Software. Notwithstanding
anything else, a Previous Sequential Release will be supported by NPI only
for a period of six (6) months after release of the subsequent release.
"PRIORITY A ERROR" MEANS AN ERROR WHICH: (1) RENDERS THE SOFTWARE
INOPERATIVE; (2) CAUSES SUCH SOFTWARE TO FAIL CATASTROPHICALLY; (3)
SUBSTANTIALLY DEGRADES THE PERFORMANCE OF THE SOFTWARE; OR (4) MATERIALLY
RESTRICTS CUSTOMER'S USE OF SUCH SOFTWARE.
"PRIORITY B ERROR" MEANS AN ERROR THAT CAUSES ONLY A MINOR IMPACT ON THE
CUSTOMER'S USE OF THE SOFTWARE.
"Support Services" means NPI support services as described in Section 4.
"Telephone Support" means technical support telephone assistance provided
by NPI to the Technical Support Contact during normal business hours
concerning the installation and use of the then current release of Software
and the Previous Sequential Release.
"Workaround" means a change in the procedures followed or data supplied by
Customer to avoid an Error without substantially impairing Customer's use
of Software.
THESE TERMS AND CONDITIONS CONSTITUTE A SERVICE CONTRACT AND NOT A PRODUCT
WARRANTY. ALL SOFTWARE AND MATERIALS RELATED THERETO ARE SUBJECT EXCLUSIVELY TO
THE WARRANTIES SET FORTH IN THE AGREEMENT. THIS ATTACHMENT IS AN ADDITIONAL PART
OF THE AGREEMENT AND DOES NOT CHANGE OR SUPERSEDE ANY TERM OF THE AGREEMENT
EXCEPT TO THE EXTENT UNAMBIGUOUSLY CONTRARY THERETO.
<PAGE>
January 22, 1999
Mr. George Moser
9011 Douglas Drive
Eden Prairie, MN 55347
Dear George:
I am writing to confirm the agreement between you and Net Perceptions, Inc.
(the "Company") regarding your severance pay.
If your employment is terminated by the Company without "Cause" on or before
October 31, 1999, the Company will pay you a lump sum severance payment equal
to three (3) months of your then current base salary, less all applicable
withholdings.
For purposes of this agreement, "Cause" shall mean willful misconduct,
including without limitation, misappropriation of Company property or
proprietary information, or gross neglect of duties. Nothing in this agreement
alters or modifies in any way the at-will employment relationship between you
and the Company.
This letter sets forth the full and complete agreement regarding your
severance pay and supercedes and replaces any prior agreements or
representations regarding this matter. In addition, this agreement may only
be modified in writing, signed by you and me.
Sincerely,
/s/ Steven Snyder
Steven J. Snyder
President and CEO
Net Perceptions, Inc.
I have read, understand and agree with the terms set forth in this letter.
Signed /s/ George Moser Dated: 1/23/99
----------------------------- -----------------
George Moser
<PAGE>
THIS SECURITIES OFFERED HEREBY ARE BEING OFFERED IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933
(THE "SECURITIES ACT"), PROVIDED BY REGULATION S (RULES 901
THROUGH 905 OF THE RULES AND REGULATIONS PROMULGATED UNDER THE
SECURITIES ACT, AND PRELIMINARY NOTES). THE SECURITIES OFFERED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD IN THE
UNITED STATES OR TO U.S. PERSONS (AS DEFINED IN RULE 902(k) OF THE
RULES AND REGULATIONS PROMULGATED UNDER THE SECURITIES ACT) UNLESS
THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
IS AVAILABLE.
THE TRANSFER OF THE SECURITIES OFFERED HEREBY IS PROHIBITED EXCEPT
IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S, PURSUANT TO
REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION. HEDGING TRANSACTIONS INVOLVING THE
SECURITIES OFFERED HEREBY MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE SECURITIES ACT.
THIS NOTE PURCHASE AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL
TO, OR A SOLICITATION OF AN OFFER TO BUY FROM, ANY U.S. PERSON,
ANYONE IN THE UNITED STATES OR ANYONE IN ANY COUNTRY OR OTHER
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS UNLAWFUL.
THE SECURITIES OFFERED HEREBY MAY NOT BE OFFERED OR SOLD, DIRECTLY
OR INDIRECTLY, AND THIS NOTE PURCHASE AGREEMENT MAY NOT BE
DISTRIBUTED OR PUBLISHED, IN ANY COUNTRY OR JURISDICTION EXCEPT
UNDER CIRCUMSTANCES THAT WILL RESULT IN COMPLIANCE WITH ANY
APPLICABLE LAWS AND REGULATIONS. NET PERCEPTIONS, INC. MAKES NO
REPRESENTATION TO ANY OFFEREE REGARDING THE LEGALITY OF AN
INVESTMENT IN THESE SECURITIES BY SUCH OFFEREE UNDER APPLICABLE
SECURITIES LAWS OR SIMILAR LAWS OF HIS OR HER JURISDICTION.
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT is made as of the 4th day of
February, 1999, by and between Net Perceptions, Inc., a Delaware corporation
(the "Company"), and Trans Cosmos, Inc. ("TCI" or the "Investor").
RECITALS
WHEREAS, TCI has agreed to loan the Company four million dollars
(U.S.$4,000,000.00), subject to certain conditions as described below;
WHEREAS, in consideration for the loan, the Company has agreed to
issue TCI a Convertible Promissory Note in the form attached hereto as EXHIBIT A
(the "Note"), and has granted TCI certain additional rights as described in this
Agreement; and
WHEREAS, the Company and TCI have agreed that the Company's
issuance of the Note shall be exempt from registration by virtue of Regulation S
of the Rules and Regulations promulgated under the Securities Act of 1933 (the
"Securities Act").
1
<PAGE>
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. THE LOAN. Upon execution of this Agreement, TCI will loan
the Company four million dollars (U.S.$4,000,000.00), which it shall deliver to
the Company by wire transfer. Upon receipt of the wire transfer from TCI, the
Company will issue to TCI a Convertible Promissory Note in the form attached
hereto as EXHIBIT A.
2. OTHER RIGHTS. Upon conversion of the Note into equity
securities of the Company in accordance with the Note's terms, the Company will
use its best efforts to amend (i) that certain Amended and Restated Investors'
Rights Agreement, dated December 18, 1997, to make TCI an Investor (as such term
is defined in such agreement) in such agreement; and (ii) that certain Amended
and Restated First Refusal and Co-Sale Agreement, dated December 18, 1997, to
make TCI an Investor (as such term is defined in such agreement) in such
agreement. The parties acknowledge that, pursuant to Section 6.1 of the Amended
and Restated First Refusal and Co-Sale Agreement, such agreement shall terminate
upon an initial public offering of the Company's Common Stock. If conversion of
the Note occurs at the time of the initial public offering, TCI agrees that it
will not be entitled to any rights of first refusal or co-sale rights as
provided in the Amended and Restated First Refusal and Co-Sale Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Investor that:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to own and operate its properties and to carry on its business as
now conducted and as proposed to be conducted. The Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure to so qualify would have a material adverse effect on its business or
properties.
3.2 CAPITALIZATION AND VOTING RIGHTS. As of December
31, 1998, the authorized capital of the Company consisted of:
(a) PREFERRED STOCK. Fifteen million
(15,000,000) shares of Preferred Stock (the "Preferred Stock"), of which (i) one
million eighty-five thousand (1,085,000) shares were designated Series A
Preferred Stock (the "Series A Preferred Stock"), one million eighty-four
thousand sixty-five (1,084,065) of which were outstanding, (ii) two million
(2,000,000) shares were designated Series B Preferred Stock (the "Series B
Preferred Stock"), one million nine hundred thirty-two thousand three hundred
sixty-eight (1,932,368) of which were outstanding, and (iii) two million four
hundred thousand (2,400,000) shares were designated Series C Preferred Stock,
two million three hundred seventeen thousand nine hundred seventeen (2,317,917)
of which were outstanding.
(b) COMMON STOCK. Thirty million (30,000,000)
shares of common stock ("Common Stock"), three million three hundred sixteen
thousand six hundred fifty-four (3,316,654) of which were outstanding.
(c) The outstanding shares of Common Stock,
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
are all duly and validly
2
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authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the
Securities Act and any relevant state securities laws or pursuant to valid
exemptions therefrom.
(d) There were outstanding options to purchase
seven hundred four thousand two hundred eighty-two (704,282) shares of Common
Stock under the Company's 1996 Stock Plan. In addition, the Company had
reserved five hundred twenty-nine thousand sixty-four (529,064) shares of Common
Stock for issuance upon exercise of options to be granted in the future under
the Company's 1996 Stock Plan. There was outstanding a warrant to purchase five
thousand nine hundred ninety-one (5,991) shares of Series C Preferred Stock and
held by Silicon Valley Bank.
3.3 SUBSIDIARIES. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity.
3.4 AUTHORIZATION. All corporate action on the part of
the Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement and the Note, the
performance of all obligations of the Company hereunder and thereunder, and the
authorization, issuance, sale and delivery of the securities being sold
hereunder and the securities issuable upon conversion of the Note have been
taken, and this Agreement and the Note constitute valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms.
3.5 VALID ISSUANCE OF SECURITIES. The Note that is
being purchased hereunder, when issued, sold and delivered in accordance with
the terms of this Agreement for the consideration expressed herein, will be duly
and validly issued, and will be free of preemptive rights and restrictions on
transfer other than restrictions on transfer under this Agreement, and under
applicable securities laws.
3.6 LITIGATION. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company before any
court or governmental agency that questions the validity of this Agreement or
the Note, or the right of the Company to enter into such agreements, or to
consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company. The
foregoing includes, without limitation, actions, suits, proceedings or
investigations pending or threatened involving the prior employment of any of
the Company's employees, their use in connection with the Company's business of
any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
3.7 PATENTS AND TRADEMARKS. The Company has sufficient
title and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights, licenses, inventions
and processes necessary for its business as
3
<PAGE>
now conducted and as proposed to be conducted without any conflict with or
infringement of the rights of others. Except for a letter received from
LikeMinds (a copy of which has been provided to the Investor), the Company
has not received any communications alleging that the Company has violated
or, by conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. The Company is not aware
that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or
subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of his or her best efforts to
promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement or the Note, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will, to the best of the Company's knowledge, conflict
with or result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated. The Company does not believe it is
or will be necessary to utilize any inventions of any of its employees (or
people it currently intends to hire) made prior to their employment by the
Company, except for inventions made by the founders of the Company while at
the University of Minnesota, for which the Company holds a license.
3.8 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is
not in violation or default of any provision of its Amended and Restated
Certificate of Incorporaton or Bylaws, or in any material respect of any
instrument, judgment, order, writ, decree, mortgage, indenture or contract to
which it is a party or by which it is bound, or, to the best of its knowledge,
of any provision of any federal or state statute, rule or regulation applicable
to the Company. The execution, delivery and performance of this Agreement and
the Note, and the consummation of the transactions contemplated hereby and
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice or both,
either a default under any such provision, instrument, judgment, order, writ,
decree, mortgage, indenture or contract or an event that results in the creation
of any lien, charge, pledge, security interest, claim, equitable interest or
encumbrance upon any assets of the Company or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit, license,
authorization, or approval applicable to the Company, its business or operations
or any of its assets or properties.
3.9 DISCLOSURE. The Company has fully provided the
Investor with all the information that such Investor has requested for deciding
whether to purchase the Note. Neither this Agreement or the Note, nor any other
statements or certificates made or delivered in connection herewith or therewith
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein not misleading.
3.10 FINANCIAL STATEMENTS. The Company has delivered
to the Investor its unaudited financial statements (balance sheet, income
statement and statement of cash flows), at December 31, 1998, and for the
period then ended (the "Financial Statements"). The Financial Statements
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated and
with each other, except that the Financial Statements may not contain all
footnotes required by generally accepted accounting
4
<PAGE>
principles. The Financial Statements fairly present the financial condition
and operating results of the Company as of the dates, and for the periods,
indicated therein.
3.11 NO DIRECTED SELLING EFFORTS. The Company and its
affiliates have not made any directed selling efforts (as defined in Rule 902(c)
of the Rules and Regulations promulgated under the Securities Act) in the United
States.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The
Investor hereby represents and warrants that:
4.1 AUTHORIZATION. Such Investor has full power and
authority to enter into this Agreement, and such Agreement constitutes its valid
and legally binding obligation, enforceable against such Investor in accordance
with its terms.
4.2 REGULATION S REPRESENTATIONS.
(a) Such Investor is not a U.S. person (as
defined in Rule 902(k) of the Rules and Regulations promulgated under the
Securities Act), nor is such Investor acquiring the Note or the securities
issuable upon conversion thereof (collectively, the "Securities") for the
account or benefit of any U.S. person. Such Investor did not receive an offer
to enter into this Agreement or to purchase the Securities while in the United
States. At the time the buy order was originated, the Investor was outside of
the United States. The decision by Investor to purchase the Securities was made
outside of the United States.
(b) Such Investor agrees that the sale,
disposition or transfer of the Securities by such Investor is prohibited, except
if in accordance with the provisions of Regulation S (Rules 901 through 905 of
the Rules and Regulations promulgated under the Securities Act, and Preliminary
Notes). Such Investor acknowledges that the Securities have not been registered
under the Securities Act, or any state securities laws, and may not be offered
or sold in the United States or to U.S. persons unless the Securities are
registered under the Securities Act or an exemption from the registration
requirements of the Securities Act is available.
(c) Such Investor agrees that it will not engage
in hedging transactions with regard to the Securities unless in compliance with
the Securities Act.
(d) Such Investor acknowledges that the Company
will refuse to register any transfer of the Securities not made in accordance
with the provisions of Regulation S, pursuant to registration under the
Securities Act, or pursuant to an available exemption from registration.
4.3 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement
is made with such Investor in reliance upon such Investor's representation to
the Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Securities will be acquired for investment for such
Investor's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, such Investor further
represents that such Investor does not have any
5
<PAGE>
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities.
4.4 DISCLOSURE OF INFORMATION. Such Investor believes
it has received all the information it considers necessary or appropriate for
deciding whether to purchase the Securities. Such Investor further represents
that it has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the Securities and
the business, properties, prospects and financial condition of the Company. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 3 of this Agreement or the right of the Investor to
rely thereon.
4.5 INVESTMENT EXPERIENCE. Such Investor is an investor
in securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Securities.
Investor also represents it has not been organized for the purpose of acquiring
the Securities.
4.6 ACCREDITED INVESTOR. Such Investor is an
"accredited investor" within the meaning of Securities and Exchange Commission
("SEC") Rule 501 of Regulation D, as presently in effect.
4.7 RESTRICTED SECURITIES. Such Investor understands
that the Securities it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such Securities may be resold
without registration under the Securities Act only in certain limited
circumstances.
4.8 FURTHER LIMITATIONS ON DISPOSITION. Without in any
way limiting the representations set forth above, such Investor further agrees
not to make any disposition of all or any portion of the Securities unless and
until:
(a) There is then in effect a Registration
Statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (ii) if reasonably requested by the Company, such Investor shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company that such disposition will not require registration of such shares under
the Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
4.9 LEGENDS. It is understood that the certificates
evidencing the Securities may bear one or all of the following legends:
6
<PAGE>
(a) "This securities offered hereby are being
offered in reliance upon an exemption from registration under the Securities Act
of 1933 (the "Securities Act"), provided by Regulation S (Rules 901 through 905
of the Rules and Regulations promulgated under the Securities Act, and
Preliminary Notes). The securities offered hereby have not been registered
under the Securities Act or any state securities laws, and may not be offered or
sold in the United States or to U.S. persons (as defined in Rule 902(k) of the
Rules and Regulations promulgated under the Securities Act) unless the
securities are registered under the Securities Act or an exemption from the
registration requirements of the Securities Act is available."
(b) "The transfer of the securities offered
hereby is prohibited except in accordance with the provisions of Regulation S,
pursuant to registration under the Securities Act, or pursuant to an available
exemption from registration. Hedging transactions involving the securities
offered hereby may not be conducted unless in compliance with the Securities
Act."
(c) "The securities represented by this
certificate have not been registered under Chapter 80A of the Minnesota
Securities Laws and may not be sold, transferred or otherwise disposed of except
pursuant to registration or an exemption therefrom."
4.10 FURTHER REPRESENTATIONS BY FOREIGN INVESTOR. Such
Investor has satisfied itself as to the full observance of the laws of its
jurisdiction in connection with any invitation to subscribe for the Securities
or any use of this Agreement, including (i) the legal requirements within its
jurisdiction for the purchase of the Securities, (ii) any foreign exchange
restrictions applicable to such purchase, (iii) any governmental or other
consents that may need to be obtained, and (iv) the income tax and other tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale, or transfer of the Securities. Such Investor's subscription and payment
for, and its continued beneficial ownership of the Securities, will not violate
any applicable securities or other laws of its jurisdiction.
5. NO TRANSFERS WILL BE MADE UNLESS IN COMPLIANCE WITH
REGULATION S. From and after the date hereof, the Company shall refuse to
register any transfer of the Note and the securities issuable upon conversion
thereof not made in accordance with the provisions of Regulation S, pursuant to
registration under the Securities Act, or pursuant to an available exemption
from registration.
6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. The warranties,
representations and covenants of the Company and Investor contained in or
made pursuant to this Agreement shall survive the execution and delivery of
this Agreement and the Closing and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the
Investor or the Company.
6.2 SUCCESSORS AND ASSIGNS. Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective successors and assigns of
the parties (including transferees of any Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other
than
7
<PAGE>
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
6.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Minnesota as applied to agreements
among Minnesota residents entered into and to be performed entirely within
Minnesota.
6.4 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.5 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement or the Note shall be given in writing and shall
be deemed effectively given (i) upon personal delivery to the party to be
notified, (ii) upon deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties, or (iii) upon delivery by facsimile transmission to the party
to be notified at the facsimile number indicated for such party on the signature
page hereof, or at such other facsimile number as such party may designate by
ten (10) days' advance written notice to the other parties.
6.7 EXPENSES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement or the Note, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
6.8 AMENDMENTS AND WAIVERS. Any term of this Agreement
or the Note may be amended and the observance of any term of this Agreement or
the Note may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and TCI.
6.9 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
6.10 ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
6.11 LOCK-UP AGREEMENT. The Investor will enter into the
form lock-up agreement attached hereto as EXHIBIT B upon execution of this
Agreement.
8
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
NET PERCEPTIONS, INC.
By:
--------------------------------
Steven J. Snyder, President
Address: 7901 Flying Cloud Drive
Minneapolis, Minnesota 55344
<PAGE>
Trans Cosmos, Inc.
By:
-----------------------------
Shozo Okuda, Managing Director
Address: Sumitomoseimei Akasaka Building
3-3-3 Akasaka, Minato-ku
Tokyo, 107 Japan
<PAGE>
EXHIBIT A
THIS SECURITIES REPRESENTED HEREBY ARE BEING OFFERED IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), PROVIDED BY REGULATION S (RULES 901
THROUGH 905 OF THE RULES AND REGULATIONS PROMULGATED UNDER THE
SECURITIES ACT, AND PRELIMINARY NOTES). THE SECURITIES
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD
IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED IN RULE 902(k)
OF THE RULES AND REGULATIONS PROMULGATED UNDER THE SECURITIES ACT)
UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT OR
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT IS AVAILABLE.
THE TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS PROHIBITED
EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S, PURSUANT
TO REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM REGISTRATION. HEDGING TRANSACTIONS
INVOLVING THE SECURITIES REPRESENTED HEREBY MAY NOT BE CONDUCTED
UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER CHAPTER 80A OF THE MINNESOTA SECURITIES LAWS AND
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM.
CONVERTIBLE PROMISSORY NOTE
U.S.$4,000,000.00 February 4, 1999
FOR VALUE RECEIVED, Net Perceptions, Inc., a Delaware corporation
(the "Borrower"), hereby promises to pay to Trans Cosmos, Inc. (the "Lender"),
the principal sum of four million dollars (U.S.$4,000,000.00), together with
interest thereon from the date of this Note on the unpaid principal balance.
Interest shall accrue at a rate of eight percent (8.00%) per annum, compounded
annually. Principal and any accrued but unpaid interest shall be due and
payable on January 31, 2000.
All payments shall be made in lawful money of the United States of
America at the principal office of the Borrower, or at such other place as
Lender may from time to time designate in writing to the Borrower. Payment
shall be credited first to the accrued interest then due and payable and the
remainder applied to principal. Prepayment of principal, together with accrued
interest, may NOT be made prior to the maturity date of this Note without the
prior written consent of Lender.
In the event Borrower shall default and not pay all outstanding
principal and accrued but unpaid interest within two business days after January
31, 2000, interest shall thereafter accrue at a rate of ten percent (10%) per
annum, compounded annually (rather than 8%, as described above).
<PAGE>
In the event the Borrower (i) is acquired by another entity by
means of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation) that results in the
transfer of fifty percent (50%) or more of the outstanding voting power of
Borrower; or (ii) sells all or substantially all of its assets, then (A) this
Note shall no longer be convertible into equity securities and (B) Borrower
shall pay Lender $80,000 in connection with the closing of the transaction
described in (i) or (ii) above.
This Note shall be governed by and construed in accordance with
the laws of the State of Minnesota as applied to agreements among Minnesota
residents entered into and to be performed entirely within Minnesota.
The Borrower hereby agrees, subject only to any limitation imposed
by applicable law, to pay all expenses, including reasonable attorneys' fees and
legal expenses, incurred by the Lender in endeavoring to collect any amounts
payable hereunder which are not paid when due, whether by declaration or
otherwise.
The outstanding principal balance and unpaid accrued interest on
this Note shall automatically convert without any further action by the Lender
or the Borrower into the same class and, if applicable, series of the Borrower's
equity securities and at the same time as the closing of the Borrower's next
transaction or series of related transactions in which the Borrower sells equity
securities and in which the gross proceeds to the Borrower received from persons
or entities not currently stockholders of the Borrower equal or exceed two
million dollars (U.S.$2,000,000) ("Next Equity Financing"). The number of
shares of such equity securities to be issued upon such conversion shall be
equal to the quotient obtained by dividing (a) the aggregate outstanding
principal and unpaid accrued interest due on this Note on the date of
conversion, by (b) the price per share of such equity securities sold to the
investors in the Next Equity Financing. The Borrower currently anticipates
that, if the Borrower's Next Equity Financing is a private round of financing,
the securities issuable to investors in the Next Equity Financing will be shares
of Borrower's Series D Preferred Stock. The Borrower currently has no shares of
Series D Preferred Stock authorized. The class of capital stock or series of
preferred stock issuable upon conversion of this Note shall be the same class or
series as shall be issued in the Next Equity Financing. Accordingly, if the
Borrower issues Series D Preferred Stock to the investors in the Next Equity
Financing, this Note shall be convertible into shares of the Borrower's Series D
Preferred Stock. Conversely, if the Borrower issues another series of Preferred
Stock or another class of capital stock to the investors in the Next Equity
Financing, this Note shall be convertible into such other series of the
Borrower's Preferred Stock or such other class of the Borrower's capital stock,
as the case may be. If the Borrower's Next Equity Financing is the Borrower's
initial public offering, this Note shall be convertible into shares of the
Borrower's Common Stock. In such case, the shares of Common Stock issued and
sold to Lender shall be unregistered shares of Common Stock issued from the
Borrower's authorized but unissued Common Stock. Such shares shall not be
registered in the initial public offering. No fractional shares will be issued
upon the conversion of this Note. Lender agrees to execute all necessary
documents as may be reasonably requested in connection with the conversion of
this Note.
<PAGE>
This Note may not be transferred except as permitted by the Note
Purchase Agreement of which this Note is an exhibit. Interest and principal are
payable only to the Lender.
The Borrower hereby expressly waives presentment, demand for
payment, dishonor, notice of dishonor, protest, notice of protest, and any other
formality.
NET PERCEPTIONS, INC.
By:
----------------------------------
Steven J. Snyder, President
<PAGE>
EXHIBIT B
Form of Lock-Up Agreement
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 4, 1999 relating
to the financial statements of Net Perceptions, Inc., which appears in such
Prospectus. We also consent to the application of such report to the Financial
Statement Schedule for the period from July 3, 1996 (inception) to December 31,
1996 and for each of the two years in the period ended December 31, 1998 listed
under Item 16(b) of this Registration Statement when such schedule is read in
conjunction with the financial statements referred to in our report. The audits
referenced to in such report also included this schedule. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 4, 1999
