<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 15, 1999
REGISTRATION NO. 333-87717
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NETRATINGS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 77-0461990
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or organization) Classification Code number)
</TABLE>
------------------------------
830 HILLVIEW COURT, SUITE 225
MILPITAS, CALIFORNIA 95035
(408) 957-0699
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------------
DAVID J. TOTH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NETRATINGS, INC.
830 HILLVIEW COURT, SUITE 225
MILPITAS, CALIFORNIA 95035
(408) 957-0699
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
--------------------------
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
DENNIS C. SULLIVAN, ESQ. RICHARD A. BOEHMER, ESQ.
PAUL A. BLUMENSTEIN, ESQ. GEOFFREY J. SPOLYAR, ESQ.
CHIRAG V. KARIA, ESQ. O'MELVENY & MYERS LLP
GRAY CARY WARE & FREIDENRICH LLP 400 SOUTH HOPE STREET
400 HAMILTON AVENUE LOS ANGELES, CALIFORNIA 90071-2899
PALO ALTO, CALIFORNIA 94301-1825 (213) 430-6000
(650) 833-2000
</TABLE>
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 being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 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 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 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 number of the earlier effective registration statement for the same
offering. / / ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
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 which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this registration statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to
Section 8(a), may determine.
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<PAGE>
The information in this prospectus is not complete and may be changed. The
Company 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 it is not soliciting an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
<PAGE>
Subject to Completion, dated November 15, 1999.
PROSPECTUS
4,000,000 SHARES
[NETRATINGS LOGO]
COMMON STOCK
------------------------------------------------------------
This is our initial public offering of shares of common stock. We are
offering 4,000,000 shares. No public market currently exists for our shares.
We have applied to have our common stock approved for listing on the Nasdaq
National Market under the symbol "NTRT." We expect the public offering price to
be between $12.00 and $14.00 per share.
In connection with this offering, Nielsen Media Research, Inc. has agreed to
exercise its right to purchase additional shares of common stock such that,
after completion of this offering and the purchase of additional shares by
Nielsen Media Research, our officers and directors and their affiliates,
including our majority shareholder Nielsen Media Research, will beneficially own
approximately 81.5% of our outstanding shares in the aggregate. The purchase by
Nielsen Media Research is subject to compliance with applicable federal
antitrust laws.
INVESTING IN THE SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 8.
<TABLE>
<CAPTION>
Per
Share Total
--------- ---------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to NetRatings...................................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 600,000
additional shares of common stock on the same terms and conditions as set forth
above solely to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Lehman Brothers expects to deliver the shares on or about , 1999.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
C.E. UNTERBERG, TOWBIN
FIDELITY CAPITAL MARKETS
A DIVISION OF NATIONAL
FINANCIAL SERVICES CORPORATION
, 1999
<PAGE>
[inside front cover]
[NETRATINGS LOGO]
NetRatings, working with Nielsen Media Research, provides audience research on
how people are using the Internet.
The Nielsen//NetRatings-branded services:
- Use industry-accepted research methodology developed by Nielsen Media
Research
- Collect Internet usage data in real time from over 37,000 panel members
- Report audience profiles of site visits, advertising, and e-commerce
activity
- Deliver information daily, weekly and monthly
- Provide market research and trend analysis on Internet sectors and
companies
[Logo: Nielsen Media Research]
[Graphic: Global sphere showing users accessing Internet. Illustration:
tracking/gathering of market intelligence translated into online reports and
market analysis studies.]
[inside spread]
INFORMATION QUALITY FOR NEW MEDIA [IQ button graphic]
- Panel research methodology and practices are based on industry-accepted
Random Digit Dialing.
- Representative sample of the Internet user population addresses the
industry demand for accurate and reliable data.
REAL-TIME INTERNET MEASUREMENT COLLECTION
- NetRatings' proprietary technology captures comprehensive data about site,
advertising and e-commerce user activity as it occurs and simultaneously
transmits it to our database.
- Daily, weekly and monthly reports are available online via a flexible,
easy-to-use interface.
[Screen shots: BannerTrack screen and Top Sites Report screen with Demographic
Report screen overlap.]
[Caption:] BannerTrack reports provide advertisers, site publishers and media
planners with ad banner information for use in competitive research, media
buying/selling and creative analysis.
[Caption:] Drill down capability: Clicking on the unique audience for a site
instantly brings up the detailed demographics for the site's visitors.
ANALYTICAL SERVICES
- E-commerce and Internet Investment Strategies services provide the market
intelligence required for companies to make business-critical decisions.
- Trend analysis of emerging sectors and companies based on Internet
activity information.
[Screen shots: Commerce Data report, Spotlights report]
[Photo: E-commerce and Investment Trend Books]
[Logo: Nielsen Media Research] Through the combination of our Internet
measurement software and audience measurement panels recruited by Nielsen
Media Research using its proprietary panel methodology based on Random Digit
Dialing, we have developed and delivered Nielsen// NetRatings-branded
research services to over 170 customers.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 8
Use of Proceeds...................... 22
Dividend Policy...................... 22
Capitalization....................... 23
Dilution............................. 25
Selected Financial Data.............. 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 28
Business............................. 36
</TABLE>
<TABLE>
Management........................... 54
<CAPTION>
PAGE
----
<S> <C>
Related Party Transactions........... 63
Principal Stockholders............... 67
Description of Capital Stock......... 70
Shares Eligible for Future Sale...... 73
Underwriting......................... 75
Legal Matters........................ 77
Experts.............................. 77
Where You Can Find More Information.. 78
Index to Financial Statements........ F-1
</TABLE>
ABOUT THIS PROSPECTUS
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. This prospectus is not an offer to sell or a
solicitation of an offer to buy our common stock in any jurisdiction where it is
unlawful. 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 common stock.
This preliminary prospectus is subject to completion prior to this offering.
Some of the statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are "forward-looking statements." These forward-looking statements
include, but are not limited to, statements about our plans, objectives,
expectations and intentions and other statements contained in the prospectus
that are not historical facts. When used in this prospectus, the words
"anticipates," "believes," "continue," "could," "estimate," "expects,"
"intends," "may," "plans," "seeks," "should," or "will" or the negative of these
terms or similar expressions are generally intended to identify forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements, including the factors discussed under "Risk Factors."
NetRatings, NetRatings Insight, NetRatings Online Observer, BannerTrack and
CommerceTrack are trademarks for which we have applied for registration in the
United States. Other trademarks and trade names appearing in this prospectus are
the property of their respective holders.
Until , 1999, all dealers selling shares of the common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This 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.
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING AND OUR FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS APPEARING
ELSEWHERE IN THIS PROSPECTUS.
EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES
THAT THE UNDERWRITERS DO NOT EXERCISE THE OPTION GRANTED BY NETRATINGS TO
PURCHASE ADDITIONAL SHARES IN THIS OFFERING, THAT WE SELL 8,382,844 SHARES OF
COMMON STOCK TO NIELSEN MEDIA RESEARCH IN A PRIVATE PLACEMENT CLOSING
CONCURRENTLY WITH THE COMPLETION OF THIS OFFERING, THAT NIELSEN MEDIA RESEARCH
EXERCISES WARRANTS TO PURCHASE 6,553,054 OF COMMON STOCK IMMEDIATELY FOLLOWING
THE COMPLETION OF THIS OFFERING, THAT AN ADDITIONAL 177,726 SHARES OF SERIES B
PREFERRED STOCK ARE ISSUED TO HOLDERS OF OUR SERIES B PREFERRED STOCK UPON THE
EXERCISE OF WARRANTS FOR WHICH WE HAVE RECEIVED EXERCISE NOTICES TO DATE, THAT
ALL OF OUR OUTSTANDING PREFERRED STOCK IS CONVERTED INTO COMMON STOCK UPON THE
CLOSING OF THIS OFFERING, AND THAT A ONE-FOR-TWO REVERSE SPLIT OF OUR COMMON
STOCK IS EFFECTED BEFORE THE COMPLETION OF THIS OFFERING.
NETRATINGS
We provide Internet audience measurement information and analysis. Our
products and services enable our customers to make informed business-critical
decisions regarding their Internet strategies. We deliver accurate and timely
Internet audience information, collected from a representative sample of
Internet users, and augment this information with detailed, flexible reporting
and analysis. In order to provide our customers with the highest-quality
products and services, we have formed strategic relationships with Nielsen Media
Research, the leading source of television audience measurement and related
services in the United States and Canada, and ACNielsen, a leading provider of
market research information and analysis to the consumer products and services
industries. Through these relationships, we gain access to these companies'
proprietary sampling methodologies and marketing capabilities. Through our
relationship with Nielsen Media Research, we currently market our products and
services under the Nielsen//NetRatings brand in the U.S., Canada and Japan. In
addition, through our joint venture with ACNielsen, we intend to offer
Nielsen//NetRatings-branded Internet audience measurement services, based on
data collected from foreign-based panels of Internet users. We currently have
more than 170 customers, including leading e-commerce companies, advertising
agencies, media companies, Internet companies and financial institutions.
We were incorporated in July 1997, began offering Internet audience
measurement services in March 1998 and began offering services under the
Nielsen//NetRatings brand in the quarter ended March 31, 1999. Accordingly, our
operating history and revenues derived from operations are limited. We incurred
net losses of $3.9 million for the year ended December 31, 1998 and
$10.7 million for the nine months ended September 30, 1999, and as of
September 30, 1999, we had an accumulated deficit of $16.3 million. We will
continue to incur significant capital and operating expenses over the next
several years in connection with our planned marketing efforts and expansion,
and we expect to continue to incur operating losses for the foreseeable future.
As the Internet evolves and online advertising and electronic commerce
continue their dramatic growth, companies conducting business online are
continually challenged to define and reach their target audiences and to develop
increasingly sophisticated online business strategies. At the same time, the
Internet presents advertisers and online businesses with a unique global
opportunity to both target prospective consumers and to measure the return on
their advertising or marketing investment. Internet users visiting the same Web
page at the same moment can be presented with different advertisements based on
their Internet usage behavior. The Internet also makes it possible for an
advertiser or e-commerce company to track how its audience interacts with a
banner advertisement or an e-commerce site.
3
<PAGE>
The unique dynamics of the Internet require that online market participants
understand their markets and quickly recognize and adapt to changing conditions
in their particular industries. In order to remain competitive, these online
companies demand detailed audience measurement information and analysis that
will enable them to make informed business decisions in a timely manner. We
believe that our product and service offering meets the needs of this market by
providing the following benefits:
- ESTABLISHED SAMPLING METHODOLOGIES. Through our strategic relationships
with Nielsen Media Research and ACNielsen, we provide independent
information using established sampling methodologies to create
statistically-representative groups of Internet users, referred to as
panels.
- PROPRIETARY MEASUREMENT TECHNOLOGY. Our proprietary activity tracking and
data collection software gathers comprehensive and detailed information
regarding Internet site and advertising activity as it occurs, in real
time, and simultaneously transmits it over the Internet to our database.
- POWERFUL, FLEXIBLE REPORTING SYSTEMS. We provide a variety of daily,
weekly and monthly reports that can be modified by our customers, enabling
them to easily manipulate data to meet specific information requirements.
- MEANINGFUL ANALYSIS. We augment audience behavior information with
meaningful analysis delivered on a daily, weekly or monthly basis,
enabling our customers to take decisive strategic actions.
- COMPATIBLE, PORTABLE ARCHITECTURE. All of our information is collected
using proprietary software that is compatible with devices that operate on
a Java-enabled platform permitting integration with many new Internet
access devices.
Our objective is to become the standard for Internet audience measurement
and the worldwide leader in Internet market research. The key elements of our
strategy include:
- leveraging our strategic relationships by utilizing established audience
sampling methodologies developed by Nielsen Media Research and ACNielsen
and capitalizing on the brand recognition of these companies under the
Nielsen//NetRatings brand;
- increasing the size, scope and number of our audience measurement panels
to enable us to offer more detailed and accurate information and analysis;
- developing additional products, such as new types of reports or analytical
services, to better enable our customers to evaluate Internet audience
behavior as such behavior rapidly evolves, and entering new markets, such
as analysis of business-to-business e-commerce activity, as their
significance in the overall Internet marketplace increases;
- expanding the Nielsen//NetRatings brand internationally to enable us to
reach the large proportion of Internet users and Internet-related
businesses that reside outside the U.S. and Canada; and
- positioning ourselves to capitalize on the convergence of television and
the Internet by capturing and analyzing Internet audience behavior on
devices that deliver both Internet and television content, as well as
Internet audience behavior involving combined Internet content and
television programming.
4
<PAGE>
Our market is highly-competitive, and we face the risk that another
company's Internet audience measurement service will become the accepted
standard for Internet audience measurement services. Our future success is
subject to other significant risks and uncertainties, including the following:
- We may not be successful in managing future growth of our business;
- The Internet may not achieve broad acceptance as an effective advertising
medium;
- Nielsen Media Research may fail to maintain the quality of its audience
sampling methodologies; and
- We may not be successful in expanding our services to include measurement
of audience behavior on new types of Internet access devices or at-work
Internet audience behavior.
We formed our joint venture with ACNielsen in September 1999. ACNielsen has
an 80.1% ownership interest in the joint venture, and we have a 19.9% interest.
ACNielsen has agreed to fund all of the venture's initial panel development
costs. After this initial stage, we may be required to either contribute
additional capital to the joint venture or to allow ACNielsen to dilute our
ownership interest by making such capital contributions unilaterally. Our plans
to expand internationally are substantially dependent on this joint venture. If
we encounter significant problems in our working relationship with ACNielsen, or
if the joint venture is ineffectively managed, our international expansion is
likely to fail.
Nielsen Media Research has elected to exercise its right to purchase
additional shares of our common stock in a private placement closing
concurrently with the completion of this offering or as soon thereafter as
practicable following expiration or early termination of the required waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, at the
initial public offering price, in an amount such that Nielsen Media Research
will own 52% of our issued and outstanding common stock as of the closing of
this offering, assuming the exercise of all outstanding options and warrants,
including the underwriters' over-allotment option. Nielsen Media Research has
also advised us that it intends to exercise its warrants to purchase 6,553,054
shares following this offering, at a weighted average exercise price of $7.75
per share, based on an assumed initial public offering price of $13.00 per
share. We have agreed that, after the exercise of these warrants, we will elect
a number of Nielsen Media Research representatives to our board of directors
such that its representatives will constitute a majority of our board. The
number of shares to be purchased by Nielsen Media Research will be increased to
the extent that, at the time the purchase is consummated, Nielsen Media Research
would own less than a majority of our then-oustanding common stock, assuming the
exercise of all outstanding options and warrants. After its purchase of
additional shares, Nielsen Media Research, as a majority stockholder, will have
the ability to control the election of our entire board of directors, and our
directors, officers and their affiliates, together with Nielsen Media Research,
will beneficially own approximately 81.5% of our outstanding common stock.
Our principal executive offices are located at 830 Hillview Court,
Suite 225, Milpitas, CA 95035. Our telephone number is (408) 957-0699. We were
incorporated in Delaware on July 2, 1997. Our Web site address is
www.netratings.com. Information on our Web site does not constitute part of this
prospectus.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by NetRatings................... 4,000,000 shares
Common stock to be outstanding after the offering.... 29,543,570 shares
Use of proceeds...................................... For general corporate purposes, including
working capital and capital expenditures. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol............... NTRT
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding as of September 30, 1999, 8,382,844
shares to be issued and sold in a private placement to Nielsen Media Research
concurrently with the completion of this offering or as soon thereafter as
practicable following expiration or early termination of the Hart-Scott-Rodino
waiting period, 6,553,054 shares that are issuable pursuant to warrants expected
to be exercised by Nielsen Media Research following the completion of this
offering, and 88,863 shares expected to be issued upon the exercise of warrants
immediately prior to the completion of this offering and excludes:
- 3,410,000 shares issuable under our 1998 Stock Plan, consisting of:
- 1,722,000 shares issuable upon exercise of options outstanding as of
September 30, 1999, with a weighted average exercise price of $2.04 per
share;
- 831,600 shares issuable upon exercise of options issued subsequent to
September 30, 1999, with a weighted-average exercise price of $9.73 per
share; and
- 856,400 shares available for future grants;
- 83,468 shares issuable upon the exercise of warrants outstanding as of
September 30, 1999, at a weighted average exercise price of $1.15 per
share;
- 43,293 shares issuable upon exercise of a warrant issued subsequent to
September 30, 1999, with an exercise price of $6.24 per share; and
- 250,000 shares available for issuance under our 1999 Employee Stock
Purchase Plan.
6
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes financial data regarding our business and
should be read together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements and the
related notes included elsewhere in this prospectus. The financial results for
the nine months ended September 30, 1998 are unaudited.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
PERIOD FROM JULY 2, YEAR ENDED SEPTEMBER 30,
1997 (INCEPTION) TO DECEMBER 31, -----------------------
DECEMBER 31, 1997 1998 1998 1999
-------------------- ------------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................. $ -- $ 237 $ 132 $ 1,486
Gross profit (loss)..................... -- (824) (230) (2,783)
Loss from operations.................... (1,787) (3,768) (2,301) (10,645)
Net loss................................ (1,781) (3,879) (2,358) (10,670)
Basic and diluted net loss per common
share................................. $ (2.03) $ (2.78) $ (1.79) $ (5.19)
Shares used to compute basic and diluted
net loss per common share............. 878 1,393 1,320 2,056
Pro forma basic and diluted net loss per
common share.......................... $ (1.67) $ (1.04) $ (2.31)
Shares used to compute pro forma basic
and diluted net loss per common
share................................. 2,319 2,270 4,626
</TABLE>
The following table provides a summary of our balance sheet as of
September 30, 1999. The as adjusted column reflects:
- the sale of 4,000,000 shares of common stock in this offering at an
assumed initial public offering price of $13.00 per share, after deducting
the estimated underwriting discount and offering expenses;
- the sale of the 8,382,844 shares to be sold to Nielsen Media Research
concurrently with the completion of this offering;
- the exercise of warrants by Nielsen Media Research to purchase 6,553,054
shares of common stock;
- the exercise of warrants to purchase 177,726 shares of Series B redeemable
convertible preferred stock and the automatic conversion of those shares
into 88,863 shares of common stock; and
- the conversion of 14,677,952 shares of redeemable convertible preferred
stock, which are currently outstanding, into 6,626,476 shares of common
stock.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $28,650 $235,881
Working capital............................................. 24,262 231,493
Total assets................................................ 31,086 238,317
Current amounts due to Nielsen Media Research............... 2,164 2,164
Long-term debt and capital lease obligations, less current
portion................................................... 320 320
Total stockholders' equity (deficit)........................ (10,728) 232,246
</TABLE>
7
<PAGE>
RISK FACTORS
ANY INVESTMENT IN OUR COMMON STOCK INVOLVES A SIGNIFICANT DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AS WELL AS THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS. IF ANY OF THE FOLLOWING RISKS ACTUALLY
OCCUR, OUR BUSINESS WOULD BE HARMED, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
WE HAVE INCURRED LOSSES SINCE INCEPTION AND WE MAY BE UNABLE TO ACHIEVE
PROFITABILITY
We have experienced operating losses in each quarterly and annual period
since inception. We incurred net losses of $3.9 million for the year ended
December 31, 1998 and $10.7 million for the nine months ended September 30,
1999, and as of September 30, 1999, our accumulated deficit was $16.3 million.
We intend to make significant expenditures related to panel development and
maintenance, marketing, hiring of additional personnel and further development
of our technology and infrastructure. As a result, we will need to generate
significant revenue to achieve and maintain profitability. Although our revenue
has grown in recent periods, we may not be able to achieve significant revenue
growth in the future. Our operating results for future periods are subject to
numerous uncertainties, and we may not achieve sufficient revenue to become
profitable.
OUR LIMITED OPERATING HISTORY IN THE EVOLVING MARKET FOR INTERNET AUDIENCE
MEASUREMENT INCREASES THE POSSIBILITY THAT THE VALUE OF YOUR INVESTMENT WILL
DECLINE
We were incorporated in July 1997 and did not start generating revenue until
the quarter ended March 31, 1998. We introduced our Nielsen//NetRatings Internet
audience measurement service in the quarter ended March 31, 1999. Accordingly,
we are still in the early stages of development and have only a limited
operating history upon which you can evaluate our business. You should evaluate
our likelihood of financial and operational success in light of the risks,
uncertainties, expenses, delays and difficulties associated with an early-stage
business in an evolving market, many of which may be beyond our control,
including:
- the risk that a competing company's Internet audience measurement service
will become the accepted standard for Internet audience measurement;
- our potential inability to successfully manage any significant growth we
achieve in the future;
- our potential inability to develop our brand; and
- the risks associated with our international expansion.
FLUCTUATIONS IN OUR QUARTERLY REVENUES AND OPERATING RESULTS MIGHT LEAD TO
REDUCED PRICES FOR OUR STOCK
Due to our limited operating history and the evolving nature of the market
in which we compete, our future revenue is difficult to forecast. Factors that
may cause fluctuations in our revenues or operating results on a quarterly basis
include the following, many of which are beyond our control:
- the amount and timing of operating costs and capital expenditures related
to the expansion of our business;
- the amount and timing of costs related to changes in the size or
composition of our panel, particularly as a result of turnover among panel
members;
- changes in demand for our products and services due to the announcement or
introduction of new products and services by us or our competitors;
- changes in the pricing of our products and services in light of the
services and pricing offered by our competitors;
8
<PAGE>
- the impact of possible acquisitions both on our operations and on our
reported operating results due to associated accounting charges; and
- technical difficulties or service interruptions that significantly harm
our ability to deliver our products and services on schedule.
BECAUSE OUR EXPENSE LEVELS ARE BASED IN LARGE PART ON OUR ESTIMATES OF FUTURE
REVENUES, AN UNEXPECTED SHORTFALL IN REVENUE WOULD SIGNIFICANTLY HARM OUR
OPERATING RESULTS
Our expense levels are based largely on our investment plans and estimates
of future revenue. We may be unable to adjust our spending to compensate for an
unexpected shortfall in revenue. Accordingly, any significant shortfall in
revenue relative to our planned expenditures in a particular quarter would harm
our results of operations and could cause our stock price to fall sharply,
particularly following quarters in which our operating results fail to meet the
expectations of securities analysts or investors.
THE MARKET FOR INTERNET AUDIENCE MEASUREMENT AND ANALYSIS IS HIGHLY COMPETITIVE,
AND IF WE CANNOT COMPETE EFFECTIVELY, OUR REVENUES WILL DECLINE
The market for Internet audience measurement and analysis is new, rapidly
evolving and becoming increasingly competitive. In the market for Internet
audience measurement services, our principal competitor is Media Metrix, which
we believe to be the leading provider of Internet audience measurement services,
based on annual revenues. We are not aware of any other significant competitors
in this market, although we expect competition to intensify in the future. With
respect to the provision of analytical services, we compete with companies such
as Forrester Research, Gartner Group and Jupiter Communications that provide
Internet market research and industry analysis based on data derived from
surveys.
We believe that the market for Internet audience measurement services will
eventually gravitate toward a uniform standard, based on data collected by a
single service provider, that will allow companies to make meaningful decisions
regarding online advertising. We therefore believe that one leading provider is
likely to emerge in the market for Internet audience measurement services. Media
Metrix has provided Internet audience measurement services since 1995 and, as
the "first mover" in this market, has a head start in becoming the industry
standard for such services.
We believe that the principal competitive factors in our market are:
- the development of independent, reliable measurement panels that are
representative of the entire target audience;
- the timeliness of reported results;
- the breadth and depth of measurement services offered and their
flexibility and ease of use;
- the ability to provide quality analytical services derived from Internet
audience measurement information;
- the ability to offer products and services in international markets; and
- pricing.
Most of our competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial and
marketing resources than we have. In addition, some of our competitors may be
able to:
- devote greater resources to marketing and promotional campaigns;
- adopt more aggressive pricing policies; or
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- devote more resources to technology and systems development.
In light of these factors, we may be unable to compete successfully in our
market.
WE ARE DEPENDENT ON NIELSEN MEDIA RESEARCH FOR THE DEVELOPMENT AND MAINTENANCE
OF PANELS OF INTERNET USERS IN THE UNITED STATES AND CANADA AND ON ACNIELSEN FOR
THE DEVELOPMENT AND MAINTENANCE OF SUCH PANELS IN INTERNATIONAL MARKETS
Our audience measurement data is collected from randomly-selected groups of
Internet users that are generally referred to as audience measurement panels.
Our at-home Internet audience measurement panel in the United States is, and in
Canada will be, developed and maintained by Nielsen Media Research as part of
our strategic relationship with that company. Similarly, our Internet audience
measurement panels and other sampling methodologies which we intend to employ in
geographic locations outside of the United States, Canada and Japan will be
developed and maintained by ACNielsen as part of our joint venture with that
company. Any failure on the part of Nielsen Media Research or ACNielsen to
devote adequate resources to the development or maintenance of such panels or
other sampling methodologies, or to maintain the overall quality of these
methodologies, will harm our business. In October 1999, Nielsen Media Research
was acquired by VNU N.V., a Netherlands-based international publishing company.
Should this acquisition result in significant changes in the composition of
Nielsen Media Research's management team or its business strategies, our
relationship with Nielsen Media Research could be harmed. In addition, Nielsen
Media Research may terminate its obligations with respect to Internet audience
measurement panels in the event it no longer holds at least 5% of our
outstanding stock on a fully-diluted basis.
WE EXPECT NIELSEN MEDIA RESEARCH TO ACQUIRE A MAJORITY OF OUR OUTSTANDING STOCK
AFTER THE COMPLETION OF THIS OFFERING AND TO CONTROL A MAJORITY OF OUR BOARD OF
DIRECTORS
In connection with this offering Nielsen Media Research will exercise its
right to purchase additional shares of our common stock, pursuant to which we
expect it to purchase 8,382,844 shares from us and 626,793 shares from other
stockholders. Nielsen Media Research has also advised us that, following the
completion of this offering, it will exercise its warrants to purchase
6,553,054 shares of our common stock, after which it will own a majority of our
outstanding stock. If it exercises these purchase rights in full, Nielsen Media
Research will have sufficient voting power to control the direction and policies
of NetRatings, including the election of our board of directors, amendment of
our certificate of incorporation and decisions regarding mergers,
consolidations, and the sale of all or substantially all of our assets. We have
agreed that, after Nielsen Media Research exercises its purchase rights, we will
elect a number of Nielsen Media Research representatives to our board of
directors such that its representatives will constitute a majority of our board.
This control may have the effect of discouraging certain types of transactions
involving a change of control, including transactions in which the other holders
of our common stock might otherwise receive a premium for their shares over the
then current market price.
AFTER NIELSEN MEDIA RESEARCH ACQUIRES A MAJORITY OF OUR OUTSTANDING STOCK, IT
COULD USE ITS MAJORITY OWNERSHIP POSITION TO ALTER OUR STRATEGIC RELATIONSHIP
WITH NIELSEN MEDIA RESEARCH TO THE DETRIMENT OF OUR OTHER STOCKHOLDERS
Nielsen Media Research's majority stock ownership position and its control
of our board of directors will enable it to control or influence the terms of
our important commercial transactions, including our strategic relationship with
Nielsen Media Research. Nielsen Media Research will have a conflict of interest
with respect to the administration and potential future alteration of this
strategic relationship and will be bound by a fiduciary duty not to use its
majority position to the detriment of our other stockholders. Notwithstanding
this duty, it is possible that future actions taken by Nielsen Media Research
may adversely affect our other stockholders. For example Nielsen Media Research
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could take actions which would increase the number of our customers for whom it
is entitled to receive sales commissions, increase the amount paid to Nielsen
Media Research for maintenance of audience measurement panels, decrease the
sales goals that Nielsen Media Research must achieve in order to prevent us from
selling advertising expenditure measurement data from third parties, or take
other action detrimental to our other stockholders.
BECAUSE THE CORPORATE PARENT OF NIELSEN MEDIA RESEARCH WILL BE REQUIRED TO
CONSOLIDATE OUR OPERATING RESULTS WITH ITS OWN, NIELSEN MEDIA RESEARCH
MAY ATTEMPT TO INFLUENCE OUR EXPENDITURES IN ORDER TO LIMIT OUR LOSSES IN THE
SHORT TERM TO THE DETRIMENT OF OUR LONG-TERM STRATEGIES
During any time that Nielsen Media Research is a majority stockholder, its
parent company, VNU N.V., will be required to consolidate our operating results
with its own for financial reporting purposes. Our business strategy will
require us to incur significant losses as we attempt to establish our brand by
increasing our marketing efforts and establishing strategic relationships.
Incurring large expenses for these purposes may conflict with the interests of
VNU in maximizing its net earnings, and VNU, acting through Nielsen Media
Research's representatives on our board, may therefore attempt to influence our
expenditures in order to limit our losses in the short term to the detriment of
our long-term strategies.
THE EXERCISE BY NIELSEN MEDIA RESEARCH OF ITS PURCHASE RIGHTS IS SUBJECT TO
SCRUTINY BY FEDERAL ANTITRUST REGULATORS, AND IF NIELSEN MEDIA RESEARCH IS
PREVENTED FROM PURCHASING ADDITIONAL SHARES FROM US, WE WILL NOT RECEIVE THE
$159.7 MILLION IN PROCEEDS THAT WE EXPECT FROM THE SALE OF THESE ADDITIONAL
SHARES AND COULD, AS A RESULT, BE REQUIRED TO SEEK ADDITIONAL FINANCING IN THE
FUTURE
The exercise by Nielsen Media Research of its warrants and other purchase
rights is subject to the expiration or early termination of the required waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and
associated regulations. Under this law, the proposed investment by Nielsen Media
Research may not proceed until federal antitrust regulators at the Federal Trade
Commission or the Department of Justice have had an opportunity to review the
transaction to determine whether it may have an anticompetitive effect. The
antitrust regulators may grant early termination of the required waiting period,
may allow the waiting period to expire without further action or may formally
request additional information. A formal request for additional information
would significantly delay the transaction, possibly for many months, or could
prevent the transaction from occurring altogether. If the antitrust regulators
find that the proposed investment is anticompetitive, they could impose
conditions on the transaction such as a divestiture of other assets by Nielsen
Media Research. In the event Nielsen Media Research is unable to exercise its
purchase rights prior to February 1, 2000, then it will have the right to cancel
its exercise of these rights.
If the transaction cannot proceed, our proceeds from this offering will be
limited to the approximately $47.4 million we will receive from the sale of
shares to the public, assuming the underwriters do not exercise their
over-allotment, as opposed to the approximately $207.2 million we would receive
from the combined transactions if Nielsen Media Research is permitted to
exercise its stock purchase rights in full. Such circumstances would greatly
increase the likelihood that we would need to raise additional funds through
public or private debt or equity financing.
WE CANNOT FORECAST THE RATE AT WHICH SUBSCRIPTIONS FOR OUR SERVICES MAY BE
RENEWED, AND WE MAY NOT ACHIEVE SUFFICIENTLY-HIGH RENEWAL RATES TO BECOME
PROFITABLE
We derive substantially all of our revenue from annual subscriptions for our
services. As our business becomes more established, we expect subscription
renewals to account for an increasing proportion of our revenue. Any
unexpectedly-low renewal rates would harm our operating results and could
prevent us from becoming profitable. Because of our limited operating history,
our historical renewal rates are not meaningful, and accordingly, we have no
historical basis for projecting the rate at
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which our customers will renew their subscriptions. Additionally, because most
Internet-related businesses are still in the early stages of development,
consolidations in our customer base or the failure of a significant number of
our customers could cause a decline in renewal rates for our products and
services.
WE MAY NOT BE SUCCESSFUL IN DEVELOPING OUR BRAND, WHICH COULD PREVENT US FROM
REMAINING COMPETITIVE
We believe that our future success will depend on our ability to maintain
and strengthen the Nielsen//NetRatings brand, which will depend, in turn,
largely on the success of our marketing efforts and our ability to provide our
customers with high-quality products. To promote the Nielsen// NetRatings brand,
we intend to increase our marketing expenses, and we may incur other types of
expenses in order to create and maintain brand loyalty among our clients.
However, we cannot assure you that our efforts will succeed in maintaining and
strengthening our brand. If we fail to successfully promote and maintain our
brand, or incur excessive expenses attempting to promote and maintain our brand,
our business will be harmed.
OUR BRAND IS DEPENDENT ON THE REPUTATIONS OF THIRD PARTIES OVER WHICH WE HAVE NO
CONTROL
The strength of the Nielsen//NetRatings brand is also closely dependent on
the reputations of Nielsen Media Research and ACNielsen and the strength of
their brands. Therefore, any negative publicity generated by Nielsen Media
Research or ACNielsen, whether or not directly related to any
Nielsen//NetRatings-branded products or services, as well as any erosion of the
strength of either of their brands, will adversely affect our own brand
identity.
COSTS TO DEVELOP AND MAINTAIN ACCURATE AUDIENCE MEASUREMENT PANELS ARE
SIGNIFICANT AND MAY INCREASE
The expense of recruiting and maintaining our audience measurement panels
comprises substantially all of the cost of revenue reported on our financial
statements and, therefore, any increase in this expense will result in a
corresponding decrease in our gross margin. We believe that the expansion of the
number of our panels as well as the size and scope of our panels is critical to
the success of our business. This expansion is likely to increase our expenses
for recruiting and maintaining our panels. The costs of recruiting and
maintaining our panels are dependent on many factors beyond our control,
including the cooperation rate of potential panel members and turnover among
existing panel members, and accordingly we cannot control these costs to match
increases or decreases in revenue. To the extent that such additional expenses
are not accompanied by increased revenue, our results of operations will be
harmed.
THE DEVELOPMENT OF HIGH-QUALITY AT-WORK MEASUREMENT PANELS IS PARTICULARLY
DIFFICULT, AND IF WE ARE UNABLE TO DEVELOP SUCH A PANEL, WE MAY BE UNABLE TO
COMPETE WITH OTHER INTERNET AUDIENCE MEASUREMENT SERVICES
A significant percentage of Internet usage takes place at the workplace, and
as such, our customers are increasingly requiring audience measurement
information from this user segment. In order to measure and analyze this usage,
we must develop high-quality panels of at-work Internet users. Our principal
competitor, Media Metrix, currently has an at-work panel. In September 1999, we
began the development of our initial at-work measurement panel, from which we
recently began collecting data, and expect to recruit more than 3,000 panel
members by the end of 1999. However, we may encounter difficulties in the
development of these panels. Participation in our audience measurement panels
requires that the panel member install our data collection software on the
member's PC. Information technology managers are often reluctant to permit
employees to install software obtained outside the workplace due to concerns
about exposing the employer's network to computer viruses and concerns about
incompatibilities between such software and the existing configuration of
hardware and software
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on employees' personal computers. Employers may also object to their employees
providing us with data regarding their Internet usage because such data could
compromise the confidentiality of sensitive activities that involve Internet
research.
WE MAY NOT BE ABLE TO RECRUIT OR RETAIN QUALIFIED PERSONNEL
Our future success depends on our ability to attract, retain and motivate
highly skilled employees. Competition for employees in Internet-related
industries, particularly management, technical, sales and marketing personnel,
is intense. Although we provide compensation packages that include stock
options, cash incentives and other employee benefits, and although we have
experienced no significant turnover to date, we may be unable to retain our key
employees or to attract, assimilate and retain other highly qualified employees
in the future, which would harm our business.
OUR PLANNED INTERNATIONAL EXPANSION COULD FAIL
Our current strategy includes expansion of our services to measure Internet
audiences outside the United States and Canada. Through our joint venture with
ACNielsen, we plan to develop audience measurement panels in Australia, Ireland,
New Zealand and the United Kingdom in the first half of 2000 and in Austria,
Denmark, Finland, France, Germany, Norway and Sweden by the end of 2000. Our
expansion into international markets will require management attention and
resources. In addition, there can be no assurance of the continued growth of
Internet usage in international markets. The international markets for audience
measurement services have historically been localized and difficult to
penetrate. The success of our international expansion will depend on our ability
to:
- recruit and maintain at-home and at-work panels that are representative of
a geographic area;
- control costs and effectively manage foreign operations; and
- effectively develop, market and sell new products and services in new,
unfamiliar markets.
In addition, if we are successful in establishing our international
operations, we will be subject to a number of inherent risks, including:
- changes in regulatory requirements;
- deficiencies in the telecommunications infrastructure in some countries;
- reduced protection for intellectual property rights in some countries;
- more rigorous levels of privacy protection in some countries;
- potentially adverse tax consequences;
- economic and political instability; and
- fluctuations in currency exchange rates.
THE SUCCESS OF OUR INTERNATIONAL EXPANSION WILL BE LARGELY DEPENDENT ON THE
EFFORTS OF ACNIELSEN AND OUR WORKING RELATIONSHIP WITH ACNIELSEN
The challenges we face in expanding internationally require skills and
expertise in foreign countries that we do not currently have. To enable us to
expand globally in a rapid timeframe, we have entered into a joint venture with
ACNielsen, which will control 80.1% of the joint venture. ACNielsen has agreed
to fund all of the venture's initial panel development costs. After this initial
stage, however, we may be required to either contribute additional capital to
the joint venture or to allow ACNielsen to make such capital contributions
unilaterally with resulting dilution of our ownership interest in the venture.
Furthermore, if we encounter significant problems in our working relationship
with ACNielsen, or if our joint venture is ineffectively managed, our
international expansion is likely to fail.
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WE MIGHT NOT BE SUCCESSFUL IN THE DEVELOPMENT OR INTRODUCTION OF NEW PRODUCTS
AND SERVICES TO KEEP UP WITH THE PROLIFERATION OF ALTERNATIVE INTERNET ACCESS
DEVICES AND TECHNOLOGIES RELATED TO THE EXPECTED CONVERGENCE OF THE INTERNET AND
TELEVISION
We believe that an increasing proportion of Internet use will involve
alternative Internet access devices such as Web-enabled phones and that there
will eventually be a convergence of Internet content and television programming.
Accordingly, in order to continue to provide information about audience behavior
throughout all major segments of the Internet, we will be required to develop
new products and services that address these evolving technologies. We may be
unsuccessful in identifying new product and service opportunities or in
developing or marketing new products and services in a timely or cost-effective
manner. In addition, product innovations may not achieve the market penetration
or price stability necessary for profitability. Finally, we may not be
successful in adapting our data collection software to evolving types of
Internet access devices or content. If we are unable to provide audience
measurement information regarding any significant segments of Internet use,
demand for our product and service offerings may suffer.
BECAUSE THE INTERNET AUDIENCE MEASUREMENT INDUSTRY IS IN ITS INFANCY, THE
PRICING AND ACCEPTANCE OF OUR PRODUCTS AND SERVICES IS UNCERTAIN
Because our industry is still in its infancy, the pricing of our products
and services is subject to rapid and frequent change. We may be forced for
competitive or technical reasons to reduce prices for some of our products or
services or to offer them free of charge. Such circumstances would reduce our
revenue and could harm our business. Additionally, our market is still evolving,
and we have little basis to assess demand for different types of products or
services or to evaluate whether our products and services will be accepted by
the market. If our products and services do not gain broad market acceptance,
our business may fail.
THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET ADVERTISING IS UNCERTAIN, AND IF
THE MARKET FOR INTERNET ADVERTISING FAILS TO DEVELOP OR DEVELOPS MORE SLOWLY
THAN WE EXPECT, OUR BUSINESS WILL SUFFER
Our future success will depend in part on an increase in the use of the
Internet as an advertising medium. The Internet advertising market is new and
rapidly evolving, and the effectiveness of Internet advertising is uncertain. As
a result, there is also uncertainty about the demand and market acceptance for
Internet advertising. Many of our current or potential customers have little or
no experience using the Internet for advertising purposes. The adoption of
Internet advertising, particularly by entities that have historically relied on
traditional media for advertising, requires the acceptance of a new way of
conducting business. These companies may find Internet advertising to be less
effective than traditional advertising for promoting their products and
services. In addition, most current and potential publishers of content on the
Internet have little or no experience in generating revenue from the sale of
advertising space on their Internet sites. Because of the foregoing factors,
among others, the market for Internet advertising may not continue to emerge or
become sustainable. If the market for Internet advertising fails to develop or
develops more slowly than we expect, our business will suffer.
FOLLOWING THIS OFFERING, OUR OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS WILL
BENEFICIALLY OWN 81.5% OF OUR COMMON STOCK AND, ACCORDINGLY, MAY EXERT
SUBSTANTIAL INFLUENCE OVER US
Our executive officers and directors and entities affiliated with them,
including Nielsen Media Research, will, in the aggregate, beneficially own
approximately 81.5% of our common stock following this offering, assuming that
Nielsen Media Research exercises its warrants and other purchase rights in
connection with this offering and that the shares purchased by Nielsen Media
Research include 626,793 shares sold by other stockholders in lieu of shares
issued by us. These stockholders acting together will have the ability to
control all matters requiring approval by our stockholders. These matters
include the election and removal of directors and any merger, consolidation or
sale of all or substantially all of our
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assets. In addition, they may dictate the management of our business and
affairs. This concentration of ownership could have the effect of delaying,
deferring or preventing a change in control, or impeding a merger or
consolidation, takeover or other business combination.
A SALE BY NIELSEN MEDIA RESEARCH OF ITS STAKE IN NETRATINGS COULD ADVERSELY
AFFECT OUR STOCK PRICE AS A RESULT OF A CHANGE IN CONTROL OF NETRATINGS
Other than a 180-day lock-up agreement entered into with the underwriters,
there are no contractual restrictions on the ability of Nielsen Media Research
to sell shares of our common stock, although sales in the public market will be
subject to the volume limitations of SEC Rule 144. Pursuant to these volume
limitations, a controlling stockholder may sell shares under Rule 144 only if
the shares to be sold, together with the shares sold during the past three
months, do not exceed the greater of 1% of the issuer's outstanding shares or
the average weekly trading volume of the issuer's shares during the preceding
four calendar weeks. Nielsen Media Research and several of our other
stockholders have the right, under certain circumstances, to require us to
register their stock for sale on the public market. Should Nielsen Media
Research decide to sell its stake in NetRatings, it could adversely affect our
stock price. Additionally, as a majority stockholder, Nielsen Media Research
will have the ability to transfer control of NetRatings, possibly at a premium
over the then-current market price. Because Nielsen Media Research will have the
ability to effect such a transfer of control unilaterally, other stockholders
could be denied an opportunity to participate in the transaction and receive a
premium for their shares.
OUR BUSINESS MAY BE HARMED IF WE SUPPLY INACCURATE INFORMATION TO OUR CUSTOMERS
If we furnish inaccurate information to our customers, our brand may be
harmed. The information in our databases, like that in any database, may contain
inaccuracies that our customers may not accept. Any dissatisfaction by our
customers with our measurement methodologies or databases could have an adverse
effect on our ability to attract new customers and retain existing customers and
could ultimately harm our brand. Our customer contracts generally provide that
each customer must indemnify us for any damages arising from the use of data,
reports or analyses by the customer or the performance of any consulting,
analytic or other services by us. However, we cannot be certain that our
contract provisions provide sufficient protection. Any liability that we incur
or any harm to our brand that we suffer because of irregularities or
inaccuracies in the data we supply to our customers could harm our business. To
date, we have not been notified of any liability claims or customer
dissatisfaction relating to such problems with our data.
OUR BUSINESS COULD SUFFER IF WE LOSE THE SERVICES OF ANY OF OUR EXECUTIVE
OFFICERS
Our future success depends to a significant extent on the continued service
of our executive officers, who currently consist of David J. Toth, Charles L.
("Tim") Meadows, Simon Chen, Jack R. Lazar and Frank Sammann. The loss of the
services of any of our executive officers could harm our business. We have no
employment agreements with any of our key personnel, and should we enter into
such agreements in the future, they may be ineffective in preventing a key
employee from leaving our company.
SYSTEM FAILURES OR DELAYS MAY HARM OUR BUSINESS, AND OUR FACILITIES AND INTERNAL
COMPUTER OPERATIONS ARE VULNERABLE TO NATURAL DISASTERS AND OTHER UNEXPECTED
LOSSES
Our success depends on the efficient and uninterrupted operation of our
computer and communications systems. A failure of our network could impede the
processing of data, customer orders and day-to-day management of our business
and could result in the corruption or loss of data. To date, we have not
experienced any significant system failures.
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Our internal computer operations are located in leased facilities in San
Jose, California, in an area that is susceptible to earthquakes. We do not have
a backup facility to provide redundant network capacity in the event of a system
failure. Accordingly, if this location experienced a system failure, our online
services would become unavailable to our customers until we were able to bring
an alternative facility online, a process which could take several weeks. These
systems are also vulnerable to damage from fire, floods, power loss,
telecommunications failures, break-ins and similar events. If we seek to
replicate our systems at other locations, we will face a number of technical
challenges, particularly with respect to database replications, which we may not
be able to address successfully. Although we carry property and business
interruption insurance, our coverage may not be adequate to compensate us for
all losses that may occur. Our servers may also be vulnerable to computer
viruses, physical or electronic break-ins and similar disruptions.
A DELAY OR DISCONTINUATION OF OUR SERVER HOSTING SERVICE COULD HARM OUR BUSINESS
The servers on which we collect panel members' data are maintained by
AboveNet at its facilities located in San Jose, California. AboveNet continually
monitors our current utilization rate and the extent of our system capacity
needs. We believe we are currently operating at utilization levels that do not
require additional capacity. Accordingly, our ability to collect Internet
audience data in real time is dependent upon the efficient and uninterrupted
operation of AboveNet's computer and communications hardware and software
systems. Despite any precautions we may take, the occurrence of a natural
disaster or other unanticipated problems at AboveNet's facility could result in
interruptions in the flow of data to our servers. In addition, any failure by
AboveNet to provide our required data communications capacity could result in
interruptions in our service. In the past, we have experienced occasional minor
interruptions in service from AboveNet, although we have never experienced a
significant interruption in service. In the event of a delay in the delivery of
data from AboveNet, or if AboveNet should discontinue its services to us, we
would be required to transfer our data collection operations to an alternative
provider of server hosting services. Such a transfer could result in significant
delays in our ability to deliver our products and services to our customers,
which could damage our reputation and harm our business.
WE ARE SUBJECT TO A PENDING LEGAL PROCEEDING
On November 4, 1999, PaineWebber Incorporated filed a lawsuit against us in
the Supreme Court of the State of New York for the County of New York. The suit
involves an agreement entered into in May 1999 in which we engaged PaineWebber
to act as our financial advisor with respect to a potential strategic
transaction. The specific transaction for which PaineWebber was engaged was not
consummated. However, the lawsuit alleges that we have breached our obligations
under the agreement by failing to pay PaineWebber a fee based upon our
subsequent sale of equity securities to Nielsen Media Research and by failing to
retain PaineWebber as a managing underwriter for this offering. The complaint
seeks damages in the aggregate amount of not less than $1.9 million and
reimbursement for PaineWebber's attorneys' fees relating to the dispute. We
believe, based on consultation with our counsel, that we have substantial
defenses to PaineWebber's claims, and we intend to defend the lawsuit
vigorously. We expect to incur substantial legal fees and expenses in connection
with the litigation, and it may also result in the diversion of our internal
resources. As a result, our defense of this litigation, regardless of its
eventual outcome, will likely be costly and time consuming. The litigation is in
the preliminary stage, and we are unable to predict its final outcome. However,
an adverse outcome could materially affect our results of operations and
financial position.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
We regard our intellectual property as critical to our success. We rely on
patent, trademark, copyright and trade secret laws to protect our proprietary
rights. Notwithstanding these laws, we may be unsuccessful in protecting our
intellectual property rights or in obtaining patents or registered
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trademarks for which we apply. We have applied for U.S. patents with respect to
our BannerTrack advertising tracking technology. We have applied to register the
NetRatings, NetRatings Insight, NetRatings Online Observer, BannerTrack and
CommerceTrack trademarks in the United States. We have not undertaken any
actions to protect our trademarks, servicemarks or tradenames outside of the
United States, nor have we registered our copyrights. Our patent applications or
trademark registrations may not be approved or, even if approved, could be
challenged by others or invalidated through administrative process or
litigation. If our patent applications or trademark registrations are not
approved because third parties own rights to the technology we are trying to
patent or the trademarks we are trying to register, our use of such technology
or trademark would be restricted unless we enter into arrangements with the
third-party owners, which might not be possible on commercially reasonable terms
or at all.
WE MIGHT FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT MIGHT BE COSTLY TO
RESOLVE
We may from time to time be subject to claims of infringement of other
parties' proprietary rights or claims that our own trademarks, patents or other
intellectual property rights are invalid. To date, we have not been subject to
any such claims. However, any claims of this type, with or without merit, could
be time-consuming to defend, result in costly litigation, divert management
attention and resources or require us to enter into royalty or license
agreements. License agreements may not be available on reasonable terms, if at
all, and the assertion or prosecution of any infringement claims could
significantly harm our business.
WE MIGHT NEED ADDITIONAL CAPITAL IN THE FUTURE, AND SUCH ADDITIONAL CAPITAL
MIGHT NOT BE AVAILABLE UPON ACCEPTABLE TERMS
We believe that our existing balances of cash and cash equivalents, together
with the net proceeds from this offering and our available credit facilities,
will be sufficient to meet our cash needs for working capital and capital
expenditures for at least the next 18 months. Without the proceeds of this
offering, we believe that these resources will be sufficient to meet our cash
needs for working capital and capital expenditures for at least the next 12
months. We may need to raise additional funds through public or private debt or
equity financing if we were to experience greater-than-expected losses from
operations, particularly if Nielsen Media Research is unable to consummate its
purchase of additional shares of our common stock, or if we decide to:
- take advantage of opportunities, including more rapid international
expansion or acquisitions of complementary businesses or technologies;
- develop new products or services; or
- respond to competitive pressures.
Any additional financing we may need may not be available on terms favorable to
us, if at all. If we raise additional funds through the sale of equity or
convertible debt securities, your percentage ownership of our company will be
reduced, and the value of your stock may be diluted. Additionally, we may have
to issue securities that may have rights, preferences and privileges senior to
our common stock. If adequate funds are not available or are not available on
acceptable terms, we might not be able to take advantage of unanticipated
opportunities, develop new products or services, or otherwise respond to
unanticipated competitive pressures, and our business could be harmed.
ANY MISAPPROPRIATION OF PERSONAL INFORMATION ABOUT OUR PANELISTS THAT IS STORED
ON OUR COMPUTERS COULD HARM OUR REPUTATION OR EXPOSE US TO CLAIMS ARISING FROM
DAMAGES SUFFERED BY THOSE PANELISTS
Personal information regarding our panelists is included in the data that
our software captures from a panelist's Internet use. Our panel data are
released only in an aggregated format or in a form that is not identifiable on
an individual basis. However, if a person were to penetrate our network
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security or otherwise misappropriate sensitive data about our panel members, our
reputation could be harmed or we could be subject to claims or litigation
arising from damages suffered by panel members as a result of such
misappropriation.
ANY ACQUISITIONS THAT WE UNDERTAKE COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS, DILUTE STOCKHOLDER VALUE OR HARM OUR OPERATING RESULTS
We may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise. The
process of integrating any acquired business, technology, service or product
into our business and operations may result in unforeseen operating difficulties
and expenditures. Integration of an acquired company also may consume much of
our management's time and attention that would otherwise be available for
ongoing development of our business. Moreover, the anticipated benefits of any
acquisition may not be realized. We currently do not have any understandings,
commitments or agreements with respect to any acquisition, and we are not
currently pursuing any acquisition. We may be unable to identify, negotiate or
finance future acquisitions successfully, or to integrate successfully any
acquisitions with our current business. Future acquisitions could result in
potentially dilutive issuances of equity securities or the incurrence of debt,
contingent liabilities or amortization expenses related to goodwill and other
intangible assets, any of which could harm our business.
DEMAND FOR OUR PRODUCTS AND SERVICES MIGHT DECREASE IF GROWTH IN THE USE OF THE
INTERNET OR E-COMMERCE DECLINES
Our future success depends in part upon the continued growth in the use of
the Internet or e-commerce. Rapid growth in the use of the Internet and
e-commerce is a recent phenomenon and may not continue, or the Internet may not
be adopted as a medium of commerce by a broad base of consumers. If the Internet
does not continue to grow, or if e-commerce is not adopted as a medium of
commerce by a broad base of consumers, our business may not grow or may grow at
a slower rate.
GOVERNMENTAL REGULATION OF THE INTERNET MIGHT HARM OUR BUSINESS
The applicability to the Internet of existing laws governing issues such as
property ownership, libel and personal privacy is uncertain. In addition,
governmental authorities in various countries may seek to further regulate the
Internet with respect to issues such as user privacy, pornography, acceptable
content, e-commerce, taxation, and the pricing, characteristics and quality of
products and services. Finally, the global nature of the Internet could subject
us to the laws of a foreign jurisdiction in an unpredictable manner. Any new
legislation regulating the Internet could inhibit the growth of the Internet and
decrease the acceptance of the Internet as a communications and commercial
medium, which might harm our business.
TELEPHONE CARRIERS MAY PERSUADE THE GOVERNMENT TO REGULATE THE INTERNET AND
IMPOSE USAGE FEES ON INTERNET SERVICE PROVIDERS, WHICH COULD IMPEDE THE GROWTH
OF THE INTERNET
The growing use of the Internet has burdened the existing telecommunications
infrastructure and has caused interruptions in telephone service. Telephone
carriers have petitioned the government to regulate the Internet and impose
usage fees on Internet service providers. Any regulations of this type could
increase the costs of using the Internet and impede its growth, which could in
turn decrease the demand for our services or otherwise harm our business.
POTENTIAL YEAR 2000 RISKS MIGHT HARM OUR BUSINESS
Many existing computer programs and installed computer systems include
computer code that uses only two digits to identify a year. These systems could
fail to function or produce delayed or erroneous results if they interpret "00"
to mean 1900 rather than 2000. As a result of this problem, commonly
18
<PAGE>
referred to as the "year 2000" problem, older computer programs or systems may
need to be upgraded or replaced. Any failure of our internal systems or the PCs
from which our panel members access the Internet could harm our business.
We rely on third-party equipment and software that may not be year 2000
compliant. The failure of such equipment or software to properly process dates
for the year 2000 could cause us to incur unanticipated expenses. In addition,
PCs used by our panel members to access the Internet may not be year 2000
compliant. As a result, we may encounter difficulties in gathering and
accurately measuring data from our panel, or data collected from some of these
users may contain inaccuracies.
In light of our evaluation of the risks of any year 2000 problems we are
likely to encounter and the available alternatives for preparing for these
risks, we have not developed a contingency plan to address such risks, and we do
not intend to implement any such contingency plan.
MANAGEMENT WILL HAVE DISCRETION OVER THE USE OF THE PROCEEDS OF THIS OFFERING
AND COULD SPEND OR INVEST THOSE PROCEEDS IN WAYS WITH WHICH INVESTORS MIGHT NOT
AGREE
The net proceeds to us from this offering are estimated to be approximately
$47.4 million after deducting the underwriting discount and estimated offering
expenses. We currently have no specific plans for our net proceeds from this
offering. Consequently, our management will have the discretion to allocate the
net proceeds to uses that some stockholders may not deem desirable. Management's
allocation of the proceeds of this offering may not benefit our business, and we
may not be able to obtain a significant return on any use of the proceeds of
this offering.
FUTURE SALES OF SHARES BY EXISTING STOCKHOLDERS COULD AFFECT OUR STOCK PRICE
Sales of substantial amounts of our common stock in the public market after
this offering could reduce the prevailing market prices for our common stock. Of
the 29,543,570 shares of common stock to be outstanding upon the closing of this
offering, the 4,000,000 shares offered hereby will be freely tradable without
restriction or further registration, other than shares purchased by our
officers, directors or other "affiliates" within the meaning of Rule 144 under
the Securities Act of 1933, which will be restricted from sale until 180 days
after the date of this prospectus pursuant to agreements between these
affiliates and the underwriters. The remaining 25,543,570 shares of our common
stock held by existing stockholders upon the completion of this offering will
become eligible for resale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES/PERCENT
OUTSTANDING AFTER THE OFFERING DATE WHEN SHARES BECOME AVAILABLE IN THE PUBLIC MARKET
- ------------------------------ ---------------------------------------------------------
<C> <S>
3,441,677/11.6% 180 days after the date of this prospectus pursuant to
agreements between the stockholders and the underwriters
or NetRatings, provided that the underwriters can waive
this restriction at any time. 2,670,752 of these shares
will also be subject to sales volume restrictions under
Rule 144 under the Securities Act.
22,100,422/74.8% Upon expiration of applicable one-year holding periods
under Rule 144, which will expire between July 23, 2000
and the date that is one year after the purchase of
additional shares by Nielsen Media Research, subject to
sales volume restrictions under Rule 144.
</TABLE>
In addition, we intend to file a registration statement on Form S-8 under the
Securities Act approximately 90 days after the date of this offering to register
an aggregate of approximately 3,410,000 shares of common stock issued or
reserved for issuance under our various stock plans.
19
<PAGE>
WE HAVE ISSUED A LARGE NUMBER OF OPTIONS AT EXERCISE PRICES SUBSTANTIALLY BELOW
THE INITIAL PUBLIC OFFERING PRICE, AND THESE OPTIONS COULD BE HIGHLY DILUTIVE TO
INVESTORS IN THIS OFFERING IF THEY ARE EXERCISED OR IF WE BEGIN REPORTING
EARNINGS PER SHARE
During the nine months ended September 30, 1999, we issued options to
purchase an aggregate of 1,456,000 shares of common stock with a
weighted-average exercise price of $2.45 per share. As of September 30, 1999, we
had outstanding options to purchase an aggregate of 1,722,000 shares of common
stock with a weighted-average exercise price of $2.04 per share. The exercise of
these options could significantly decrease the equity ownership of other
stockholders. Additionally, because we have incurred net losses since inception,
the outstanding shares we have used in determining our net loss per share have
not included any of the shares issuable upon exercise of these options. If and
when we begin reporting earnings per share, a portion of the shares issuable
upon exercise of these options will be included in the outstanding shares shown
in our financial statements and therefore will dilute our reported earnings per
share.
COMPENSATION EXPENSES RELATED TO PAST OPTION GRANTS AND THE NIELSEN MEDIA
RESEARCH WARRANTS WILL REDUCE OUR EARNINGS OVER THE NEXT FOUR YEARS
Options granted to our employees have historically had exercise prices equal
to the fair market value of our common stock on the date of grant, as determined
by our board of directors at the time of grant. Recently, however, we have
reviewed the terms of our past option grants and determined that the fair value
of our common stock at the time of these grants was greater than the exercise
prices of these options. In addition, in connection with a preferred stock
financing in August 1999, we issued warrants to Nielsen Media Research to
purchase 6,553,054 shares of our common stock. We have recorded a deferred
charge in the quarter ended September 30, 1999 of $22.6 million representing the
value of these warrants. Accordingly, we have recorded non-cash stock-based
compensation charges of $254,000 for the year ended December 31, 1998 and
$26.5 million for the nine months ended September 30, 1999, representing the
difference between the exercise price of these options and the fair value of our
common stock plus the value of the Nielsen Media Research warrants as of the
date of grant. These amounts are amortized as the related options vest and over
the lives of the warrants, resulting in our recognition of a compensation
expense during each amortization period, which reduces our reported earnings
during these periods. We recognized stock-based compensation expenses of $25,000
in the year ended December 31, 1998 and $2.3 million in the nine months ended
September 30, 1999. In light of the compensation charges that have not yet been
amortized, we may recognize stock-based compensation charges of as much as
$1.8 million, $6.1 million, $5.2 million, $4.8 million, $4.5 million and
$3.0 million in the period from October 1 to December 31, 1999 and the years
ended December 31, 2000, 2001, 2002, 2003 and 2004, respectively. The amount of
compensation that we ultimately recognize will be lower to the extent that the
options associated with these expenses are terminated before they vest.
DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE
OR PREVENT A POTENTIAL TAKEOVER OF OUR COMPANY THAT MIGHT OTHERWISE RESULT IN
OUR STOCKHOLDERS RECEIVING A PREMIUM OVER THE MARKET PRICE OF THEIR SHARES
Provisions of Delaware law and our certificate of incorporation and bylaws
could make more difficult the acquisition of us by means of a tender offer, a
proxy contest, or otherwise, and the removal of incumbent officers and
directors.These provisions include:
- Section 203 of the Delaware General Corporation Law, which prohibits a
merger with a 15%-or-greater stockholder, such as a party that has
completed a successful tender offer, until three years after that party
became a 15%-or-greater stockholder;
20
<PAGE>
- the authorization in the certificate of incorporation of undesignated
preferred stock, which could be issued without stockholder approval in a
manner designed to prevent or discourage a takeover; and
- provisions in our bylaws eliminating stockholders' rights to call a
special meeting of stockholders and requiring advance notice of any
stockholder nominations of director candidates or any stockholder proposal
to be presented at an annual meeting, which could make it more difficult
for stockholders to wage a proxy contest for control of our board or to
vote to repeal any of the antitakeover provisions contained in our
certificate of incorporation and bylaws.
INVESTORS IN THIS OFFERING WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the pro forma
net book value per share of the outstanding common stock. As a result, investors
purchasing common stock in this offering will incur immediate substantial
dilution in the amount of $5.15 per share. In addition, we have issued options
and warrants to acquire common stock at prices significantly below the initial
public offering price. To the extent these outstanding options and warrants are
exercised, there will be further dilution to investors in this offering.
21
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds from this offering to be approximately
$47.4 million, or approximately $54.6 million if the underwriters exercise their
over-allotment option in full, based on an assumed initial public offering price
of $13.00 per share and after deducting the estimated underwriting discount and
offering expenses.
We currently have no specific plans for the net proceeds from this offering.
We intend to include the net proceeds with our general corporate funds to be
used for general corporate purposes, including working capital and capital
expenditures. We may also use a portion of the net proceeds to acquire or invest
in complementary businesses or products or to obtain the right to use
complementary technologies. However, we have no current commitments or
agreements with respect to any of these types of acquisitions or investments.
Pending these uses, we intend to invest the net proceeds from this offering in
short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid cash dividends on our capital stock. We currently intend
to retain future earnings, if any, to finance the growth and development of our
business, and we do not anticipate paying any cash dividends in the foreseeable
future. Any future determination to pay cash dividends will be at the discretion
of our board of directors and will depend upon our financial condition,
operating results, capital requirements and other factors the board deems
relevant.
22
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of
September 30, 1999. Our capitalization is also presented:
- on a pro forma basis to give effect to the automatic conversion of all
outstanding shares of redeemable convertible preferred stock, including
the shares of our Series A, Series B, Series C and Series D preferred
stock, into an aggregate of 6,626,476 shares of common stock which will
occur prior to the closing of this offering; and
- on a pro forma as adjusted basis to reflect an increase in the authorized
number of shares of common stock and preferred stock and the sale
of 4,000,000 shares of common stock in this offering, resulting in assumed
proceeds of $11.84 per share, after deducting the estimated underwriting
discount and offering expenses, and our receipt and application of the net
proceeds, the sale of 8,382,844 shares of common stock to Nielsen Media
Research in private placement closing concurrently with the completion of
this offering, resulting in proceeds to us of $108,977,000, the exercise
of warrants to purchase 177,726 shares of Series B preferred stock for
which we have received exercise notices as of the date hereof, resulting
in proceeds to us of $112,000, the automatic conversion of those shares of
preferred stock into 88,863 shares of common stock upon the closing of
this offering and the exercise of warrants to purchase 6,553,054 shares of
common stock by Nielsen Media Research following the completion of this
offering, resulting in proceeds to us of $50,782,000.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Long-term debt and capital lease obligations, less current
portion................................................... $ 320 $ 320 $ 320
-------- -------- --------
Redeemable convertible preferred stock:
Authorized shares--15,571,162
Issued and outstanding shares--14,677,952 actual, none pro
forma and none pro forma as adjusted...................... 35,743 -- --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; 1,900,000 shares
authorized, none issued or outstanding, actual; none
issued or outstanding, pro forma and pro forma as
adjusted; 5,000,000 shares authorized, pro forma as
adjusted................................................ -- -- --
Common stock, $0.001 par value; 86,851,438 shares
authorized, 3,892,333 shares issued and outstanding,
actual; 10,518,809 shares issued and outstanding, pro
forma; 200,000,000 shares authorized, 29,543,570 shares
issued and outstanding, pro forma as adjusted........... 4 11 30
Additional paid-in capital................................ 31,144 66,880 274,092
Deferred compensation..................................... (3,196) (3,196) (3,196)
Deferred service costs.................................... (22,225) (22,225) (22,225)
Note receivable from stockholder.......................... (125) (125) (125)
Accumulated deficit....................................... (16,330) (16,330) (16,330)
-------- -------- --------
Total stockholders' equity (deficit).................... (10,728) 25,015 232,246
-------- -------- --------
Total capitalization.................................. $ 25,335 $ 25,335 $232,566
======== ======== ========
</TABLE>
23
<PAGE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of September 30, 1999 and
excludes:
- 3,410,000 shares issuable under our 1998 Stock Plan consisting of:
- 1,722,000 shares issuable upon exercise of options outstanding at
September 30, 1999, with a weighted average exercise price of $2.04 per
share;
- 831,600 shares issuable upon exercise of options granted subsequent to
September 30, 1999, with a weighted average exercise price of $9.73 per
share; and
- 856,400 shares available for future grants;
- 83,468 shares issuable upon exercise of warrants outstanding as of
September 30, 1999 with a weighted average exercise price of $1.15 per
share;
- 43,293 shares issuable upon exercise of a warrant issued subsequent to
September 30, 1999, with an exercise price of $6.24 per share;
- 250,000 shares available for issuance under our 1999 Employee Stock
Purchase Plan.
See "Management--Stock Plans," "Description of Capital Stock" and Notes 3
and 4 of Notes to Financial Statements.
24
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of
September 30, 1999 was $24.6 million, or $2.34 per share. Pro forma net tangible
book value per share represents the amount of our total assets, excluding net
intangible assets, less our total liabilities, divided by the total number of
shares of common stock outstanding, after giving effect to the conversion of all
outstanding shares of preferred stock into common stock. Dilution in pro forma
net tangible book value per share represents the difference between the amount
per share paid by investors in this offering and the pro forma net tangible book
value per share of our common stock immediately after the offering. After giving
effect to the sale of 4,000,000 shares of common stock in this offering, at an
assumed initial public offering price of $13.00 per share, and after deducting
the estimated underwriting discount and offering expenses payable by us,
8,382,844 shares to be issued and sold in a private placement to Nielsen Media
Research concurrently with the completion of this offering, 6,553,054 shares
that are to be issued upon Nielsen Media Research exercising warrants
immediately following the completion of this offering, and 88,863 shares to be
issued upon the exercise of warrants for which we have received exercise notices
as of the date hereof, the pro forma net tangible book value of our common stock
would have been $231.8 million, or $7.85 per share. This represents an immediate
increase in pro forma net tangible book value of $5.51 per share to existing
stockholders and an immediate dilution of $5.15 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 13.00
--------
Pro forma net tangible book value per share as of
September 30, 1999...................................... $ 2.34
Increase attributable to private placement of shares...... $ 2.89
Increase in pro forma net tangible book value attributable
to new public investors................................. $ 2.62
--------
Pro forma net tangible book value per share after the
offering.................................................. $ 7.85
--------
Dilution per share to new public investors.................. $ 5.15
========
</TABLE>
If the underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after the offering would be $7.93 per
share. The increase in pro forma net tangible book value per share to existing
stockholders would be $5.59 per share, and the dilution in pro forma net
tangible book value to new investors would be $5.07 per share.
The following table summarizes, as of September 30, 1999 the difference
between the total consideration paid and the average price per share paid by the
existing stockholders and the new investors with respect to the number of shares
of common stock purchased from us based upon an assumed offering price of $13.00
per share:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Shares purchased in the offering........ 4,000,000 13.5% $ 52,000,000 20.9% $13.00
Shares purchased in private placement... 15,024,761 50.9% 159,871,000 64.3% 10.64
Shares owned by existing stockholders... 10,518,809 35.6% 36,665,000 14.8% 3.49
---------- ----- ------------ -----
Total............................... 29,543,570 100.0% $248,536,000 100.0% 8.41
========== ===== ============ =====
</TABLE>
The information in the above table excludes:
- 3,410,000 shares issuable under our 1998 Stock Plan consisting of:
- 1,722,000 shares issuable upon exercise of options outstanding at
September 30, 1999, with a weighted average exercise price of $2.04 per
share;
25
<PAGE>
- 831,600 shares issuable upon exercise of options granted subsequent to
September 30, 1999, with a weighted average exercise price of $9.73 per
share; and
- 856,400 shares available for future grants;
- 83,468 shares issuable upon exercise of warrants outstanding at
September 30, 1999, with a weighted average exercise price of $1.15 per
share;
- 43,293 shares issuable upon exercise of a warrant issued subsequent to
September 30, 1999, with an exercise price of $6.24 per share; and
- 250,000 shares available for issuance under our 1999 Employee Stock
Purchase Plan.
26
<PAGE>
SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the notes thereto included
elsewhere in this prospectus. The statement of operations data set forth below
for the period from July 2, 1997 (inception) to December 31, 1997, the year
ended December 31, 1998 and the nine months ended September 30, 1999 and the
balance sheet data as of December 31, 1997 and 1998 and September 30, 1999 are
derived from, and are qualified by reference to, our audited financial
statements included elsewhere in this prospectus. The statement of operations
data set forth below for the nine month periods ended September 30, 1998 are
derived from, and are qualified by reference to, our unaudited financial
statements included elsewhere in this prospectus. The unaudited financial
statements include all normal recurring adjustments that we consider necessary
for a fair presentation of our financial position and the results of our
operations. The results of operations for the nine months ended September 30,
1999 are not necessarily indicative of the results that may be expected for the
full fiscal year ending December 31, 1999, or any other future period. See the
Notes to Financial Statements for an explanation of the method used to determine
the number of shares used in computing basic and diluted loss per share.
<TABLE>
<CAPTION>
PERIOD FROM
JULY 2, 1997 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -------------------
1997 1998 1998 1999
-------------- ------------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................................ $ -- $ 237 $ 132 $ 1,486
Cost of revenue................................ -- 1,061 362 4,269
------- ------- ------- --------
Gross profit (loss)............................ -- (824) (230) (2,783)
------- ------- ------- --------
Operating expenses:
Research and development..................... 994 1,185 821 1,806
Sales and marketing.......................... 452 1,134 837 2,559
General and administrative................... 341 600 413 1,170
Stock-based compensation..................... -- 25 -- 2,327
------- ------- ------- --------
Total operating expenses................... 1,787 2,944 2,071 7,862
------- ------- ------- --------
Loss from operations........................... (1,787) (3,768) (2,301) (10,645)
Interest income (expense), net................. 6 (111) (57) (25)
------- ------- ------- --------
Net loss....................................... $(1,781) $(3,879) $(2,358) $(10,670)
======= ======= ======= ========
Basic and diluted net loss per common share.... $ (2.03) $ (2.78) $ (1.79) $ (5.19)
======= ======= ======= ========
Shares used to compute basic and diluted net
loss per common share........................ 878 1,393 1,320 2,056
======= ======= ======= ========
Pro forma basic and diluted net loss per common
share........................................ $ (1.67) $ (1.04) $ (2.31)
======= ======= ========
Shares used to compute pro forma basic and
diluted net loss per common share............ 2,319 2,270 4,626
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 551 $ 1,343 $ 28,650
Working capital (deficit)................................. 78 (2,791) 24,262
Total assets.............................................. 980 1,965 31,086
Current amounts due to Nielsen Media Research............. -- 2,539 2,164
Long-term debt and capital lease obligations, less current
portion................................................. -- 130 320
Total stockholders' equity (deficit)...................... 472 (2,448) (10,728)
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER SUBSTANTIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY
FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH OUR FINANCIAL
STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We provide Internet audience measurement information and analysis. We were
incorporated in July 1997. From our founding through the launch of our initial
NetRatings service offering in March 1998, we were primarily engaged in research
activities, developing our initial products and services, raising capital and
building our business infrastructure. Our initial service offering utilized a
Web-based panel selection methodology, a relatively small audience panel and an
early version of our data collection software. In October 1998, we established
our strategic relationship with Nielsen Media Research. Through this
relationship, we began developing an expanded Internet audience panel based on
the Nielsen Media Research audience sampling methodology and enhanced versions
of our software. In March 1999, we launched our Nielsen//NetRatings brand of
product and service offerings.
In June 1999, we commenced our international expansion efforts by
establishing a joint venture, NetRatings KK, in which we currently hold a 32%
ownership interest with several Japanese investors holding the remaining
interests. NetRatings KK is responsible for building and maintaining a Japanese
audience measurement panel and introducing our products and services to the
Japanese market. In September 1999, we entered into a joint venture with
ACNielsen to develop and maintain Internet audience measurement panels and to
market products and services under the Nielsen//NetRatings brand in other key
international markets. Through the joint venture, in which we currently hold a
19.9% ownership interest, we plan to develop Internet audience measurement
panels based in Australia, Ireland, New Zealand and the United Kingdom in the
first half of 2000 and in Austria, Denmark, Finland, France, Germany, Norway and
Sweden by the end of 2000.
We generate revenue from the sale of our Internet audience measurement
products and services. Through September 30, 1999, our information and
analytical products and services, which include our audience measurement
service, e-commerce service and Internet investment strategy service, have
accounted for substantially all of our revenue. We primarily sell these products
and services pursuant to one-year subscription agreements and bill our customers
in advance, typically on a quarterly or annual basis. We recognize revenue from
the sale of our information and analytical products and services ratably over
the term of the subscription agreement. Prepaid subscription fees are recorded
as deferred revenue until earned. We also derive revenue from the sale of custom
research services. Revenue from these services are recognized in the period in
which the service is provided. We sell our products and services to customers in
a wide range of industries. Our customer base has increased from 53 customers as
of December 31, 1998 to 163 as of September 30, 1999. To date, substantially all
of our sales have been made to customers in North America. In future periods, we
also expect to derive royalties and other revenue from our joint ventures as
they begin their operations in international markets.
Cost of revenue currently consists primarily of expenses related to the
recruitment and maintenance of our audience measurement panels. Accordingly,
cost of revenue is not directly related to revenue or subscriptions generated in
a given period and is higher in periods in which we are involved in significant
panel development activities. We believe that the continued development and
enhancement of audience panels is essential to the long-term expansion of our
business. We are currently working with Nielsen Media Research to expand the
scope and size of our existing panel of at-home Internet users. In addition, we
are developing a panel of at-work users. We expect that costs of revenue will
increase in future periods as we continue to develop and enhance our audience
measurement panels.
28
<PAGE>
Research and development expenses consist primarily of compensation and
related costs for personnel associated with our product development activities.
These costs are expensed as incurred. We believe that continued investment in
product development is essential to our future success. We also anticipate that
additional development resources will be required to support the planned
international activities of our joint ventures. Accordingly, we expect that
research and development expenses will increase in future periods as we hire
additional personnel.
Sales and marketing expenses consist primarily of salaries, benefits and
commissions to our salespeople and commissions paid to Nielsen Media Research,
as well as costs related to seminars, promotional materials and other sales and
marketing programs. We intend to expand our sales force in conjunction with our
domestic expansion and to support our international joint ventures. We also
intend to increase our marketing activities to enhance brand awareness of our
products and services. We therefore expect that sales expenses will increase in
future periods.
General and administrative expenses consist primarily of salaries and
related costs for finance, accounting, and other administrative personnel, in
addition to professional fees, provisions for doubtful accounts and other
general corporate expenses. We expect that general and administrative expenses
will increase in the future as we add personnel to support expanding operations,
incur additional costs related to the growth of our business and assume the
reporting requirements of a public company.
In connection with the grant of certain stock options to employees and
consultants, we recorded non-cash stock-based compensation charges of $254,000
for the year ended December 31, 1998 and $3.9 million for the nine months ended
September 30, 1999, representing the difference between the exercise price of
these options and the fair value of our common stock as of the date of grant.
These amounts are being amortized over the respective vesting periods of the
options using a graded vesting method. Simultaneously with the Series C
offering, we entered into additional agreements with Nielsen Media Research
governing the Company's strategic relationship with Nielsen Media Research. We
also issued warrants to Nielsen Media Research and we recorded non-cash
stock-based compensation charges of $22.6 million for the nine months ended
September 30, 1999 representing the value of these warrants based on the
Black-Scholes valuation model. The value of these warrants is being amortized
over five years and is subject to change based upon the initial public offering
price of our common stock. We recognized non-cash amortization of these deferred
stock compensation charges of $25,000 in the year ended December 31, 1998 and
$2.3 million in the nine months ended September 30, 1999. As of September 30,
1999, the remaining deferred compensation was scheduled to be amortized at the
rate of approximately $1.8 million, $6.1 million, $5.2 million, $4.8 million,
$4.5 million and $3.0 million in the period from October 1 to December 31, 1999
and the years ended December 31, 2000, 2001, 2002, 2003 and 2004, respectively.
The actual amount of stock-based compensation expense to be recognized in future
periods could decrease if options for which accrued compensation has been
recorded are terminated before they vest.
We have recorded no provision for federal or state income taxes for any
period since our inception as we have incurred losses in each period. As of
September 30, 1999, we had approximately $11.9 million of net operating loss
carryforwards for federal and state income tax purposes, available to reduce
future taxable income, expiring in 2005. Utilization of the net operating loss
and tax credit carryforwards may be subject to a substantial annual limitation
due to the ownership change limitations provided by the Internal Revenue Code of
1986, as amended, and similar state provisions. The annual limitation may result
in the expiration of the net operating loss and tax credit carryforwards before
utilization. See Note 11 of Notes to Financial Statements.
We have a limited operating history upon which investors may evaluate our
business and prospects. We incurred net losses of $1.8 million for the period
from July 2, 1997 (inception) through December 31, 1997; $3.9 million for the
year ended December 31, 1998; and $10.7 million for the nine months ended
September 30, 1999. Our accumulated deficit at September 30, 1999 was
$16.3 million. We intend to invest heavily to expand our audience panels,
strengthen our direct sales force and enhance our product and service offerings.
As a result, we expect to continue to incur net losses for the
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foreseeable future. In view of the rapidly evolving nature of our business and
our limited operating history, we believe that period-to-period comparisons of
our operating results are not necessarily meaningful and should not be relied
upon as an indication of our future performance. See "Risk Factors--We have
incurred losses since inception, and we may be unable to achieve profitability."
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUE. Revenue increased from $132,000 for the nine months ended
September 30, 1998 to $1.5 million for the nine months ended September 30, 1999.
Sales of our information and analytical products and services accounted for
substantially all of the revenue for each of the nine-month periods. The
increase in revenue was primarily due to the introduction of our
Nielsen//NetRatings service in March 1999 and the introduction of additional
product and service offerings that resulted in a substantial increase in the
number of our customers.
COST OF REVENUE. Cost of revenue increased from $362,000 for the nine
months ended September 30, 1998 to $4.3 million for the nine months ended
September 30, 1999. This increase primarily reflected costs incurred in 1999
relating to the development of the Nielsen//NetRatings audience measurement
panel, which is significantly larger than our prior panel and was more costly to
develop due to the sampling methodology employed.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 120%
from $821,000 for the nine months ended September 30, 1998 to $1.8 million for
the nine months ended September 30, 1999. This increase was primarily due to a
three-fold increase in the number of employees engaged in research and
development.
SALES AND MARKETING. Sales and marketing expenses increased 205% from
$837,000 for the nine months ended September 30, 1998 to $2.6 million for the
nine months ended September 30, 1999. This increase was primarily attributable
to a three-fold increase in the number of direct sales and marketing employees.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
185% from $413,000 for the nine months ended September 30, 1998 to $1.2 million
for the nine months ended September 30, 1999. This increase was primarily
related to an increase in the number of administrative personnel to support our
expanded operations and non-recurring legal fees.
INTEREST INCOME (EXPENSE), NET. Interest expense, net, decreased 58% from
$57,000 for the nine months ended September 30, 1998 to $25,000 for the nine
months ended September 30, 1999 due to interest paid to Nielsen Media Research
under short-term promissory notes, interest paid under promissory notes issued
in 1998 and increased borrowings under our credit facilities offset by increases
in interest income resulting from increases in cash balances.
NET LOSS. Net loss increased 352% from $2.4 million for the nine months
ended September 30, 1998 to $10.7 million for the nine months ended
September 30, 1999. This increase was primarily due to costs associated with the
development of the Nielsen//NetRatings audience measurement panel, a three-fold
increase in headcount to support our expanded operations, and an increase in
stock based compensation expenses.
PERIOD FROM JULY 2, 1997 (INCEPTION) TO DECEMBER 31, 1997 COMPARED TO YEAR
ENDED DECEMBER 31, 1998
REVENUE. We had no revenue in the period from July 2, 1997 (inception) to
December 31, 1997, or the "inception period." In the year ended December 31,
1998 we had revenue of $237,000 from sales of our initial NetRatings Internet
audience measurement products and services.
COST OF REVENUE. We had no cost of revenue in the inception period. In the
year ended December 31, 1998, our cost of revenue was $1.1 million, representing
panel development expenses related to the introduction of our initial NetRatings
Internet audience measurement products and
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services and, beginning in November 1998, initial panel development expenses
related to our Nielsen//NetRatings product and service offerings.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 19%
from $994,000 in the inception period to $1.2 million in the year ended December
31, 1998. This increase was primarily due to a full year of operations in 1998.
SALES AND MARKETING. Sales and marketing expenses increased 151% from
$452,000 in the inception period to $1.1 million in the year ended December 31,
1998. This increase was primarily attributable to increased marketing and
promotion of our initial NetRatings Internet audience measurement service as
well as an increase in the number of direct sales and marketing employees. In
addition, sales and marketing expenses during 1998 reflected a full year of
operations.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
76% from $341,000 in the inception period year to $600,000 in the year ended
December 31, 1998. This increase was due to an increase in the number of
administrative personnel to support our expanded operations. In addition,
general and administrative expenses during 1998 reflected a full year of
operations.
INTEREST INCOME (EXPENSE), NET. Interest income, net, was $6,000 in the
inception period. Interest expense, net, of $111,000 in the year ended
December 31, 1998 was primarily the result of interest paid on promissory notes
issued in 1998, which were converted to preferred stock in July 1999 and
amortization of the fair value of the warrants issued in conjunction with those
promissory notes.
NET LOSS. Net loss increased 118% from $1.8 million in the inception period
to $3.9 million for the year ended December 31, 1998. This increase was
primarily due to costs associated with panel development initiated in 1998 as
well as one full year of operations.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited statement of operations
data for the seven quarters ended September 30, 1999. This information has been
derived from our unaudited interim financial statements. In management's
opinion, this unaudited information has been prepared on the same basis as our
annual financial statements and includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
information for the quarters presented. This information should be read in
conjunction with the financial statements and notes thereto included elsewhere
in this prospectus. Historical results for any quarter are not necessarily
indicative of the results to be expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
---------- --------- --------- --------- ---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue....................... $ 3 $ 51 $ 77 $ 106 $ 166 $ 476 $ 844
Cost of revenue............... 103 97 161 700 1,031 1,125 2,113
----- ----- ----- ------- ------- ------- -------
Gross profit (loss)........... (100) (46) (84) (594) (865) (649) (1,269)
----- ----- ----- ------- ------- ------- -------
Operating expenses:
Research and development.... 323 250 247 365 428 695 683
Sales and marketing......... 283 282 273 296 490 883 1,186
General and
administrative............ 154 137 120 189 256 253 661
Stock-based compensation.... -- -- -- 25 71 1,068 1,188
----- ----- ----- ------- ------- ------- -------
Total operating
expenses................ 760 669 640 875 1,245 2,899 3,718
----- ----- ----- ------- ------- ------- -------
Loss from operations.......... (860) (715) (724) (1,469) (2,110) (3,548) (4,987)
Interest income (expense),
net......................... -- (25) (35) (51) (67) (55) 97
----- ----- ----- ------- ------- ------- -------
Net loss...................... $(860) $(740) $(759) $(1,520) $(2,177) $(3,603) $(4,890)
===== ===== ===== ======= ======= ======= =======
</TABLE>
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We introduced our first products and services in March 1998, and our revenue
increased through the balance of 1998 as we expanded our customer base and
introduced additional products and services. The substantial increases in
revenue in the quarters ended June 30, 1999 and September 30, 1999 were the
result of increased sales to new and existing customers following the
introduction of our Nielsen//NetRatings products and services in March 1999.
Cost of revenue increased substantially in the quarters ended December 31,
1998, March 31, 1999 and September 30, 1999 primarily reflecting audience panel
recruitment expenses incurred in connection with the recruitment of our
household panel beginning in November of 1998 as well as the initial recruitment
activities of our business panel in September 1999. Quarterly increases in
operating expenses over the past four quarters reflected the continued expansion
of our operations.
Our operating results have fluctuated in the past, and we expect them to
fluctuate in future quarters as a result of a variety of factors, many of which
are outside of our control. See "Risk Factors--Fluctuations in our quarterly
revenues and operating results might lead to reduced prices for our stock."
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded our operations primarily through private
sales of equity securities. In May and November 1998, we raised a total of
$935,000, net of offering costs, from the issuance of promissory notes that were
converted into redeemable preferred stock in July 1999. Between November 1998
and April 1999, we received $3.0 million from the issuance of promissory notes
to Nielsen Media Research. These notes were converted into redeemable preferred
stock in August 1999 in connection with a preferred stock financing in which we
raised $19.4 million, net of offering costs. In September 1999, we completed an
additional redeemable preferred stock financing of $15.2 million, net of
estimated offering costs.
We have a total $1.2 million equipment line of credit with Venture
Lending & Leasing and Venture Lending & Leasing II. Borrowings under the line of
credit are secured by all of our tangible assets and bear interest at an annual
rate of 8%. In addition, we have a $1 million commercial line of credit with
Heritage Bank of Commerce. Borrowings under this line are secured by our
business assets other than those securing our equipment loans and bear interest
at the bank's prime interest rate, which was 8.25% as of September 30, 1999. We
also have a $350,000 line of credit with Heritage Bank of Commerce to fund
equipment purchases. Any advances under this equipment line mature 36 months
following funding and bear interest at the bank's prime rate. Our credit
agreement with Heritage Bank contains certain financial covenants, including
minimum liquidity at or above $5 million, tangible net worth of $10 million, and
debt to tangible net worth ratio of 1-to-1. As of September 30, 1999, we were in
compliance with all of these covenants.
As of September 30, 1999 we had utilized approximately $500,000 under the
equipment line of credit with Venture Lending & Leasing and Venture Lending &
Leasing II.
As of September 30, 1999, our principal source of liquidity was
$28.7 million in cash and cash equivalents and $2.1 million available remaining
under our lines of credit.
Net cash used in operating activities was $1.3 million in 1997,
$2.9 million in 1998 and $5.5 million in the nine months ended September 30,
1999. Net cash used in operating activities in 1997 reflected a net loss of
$1.8 million offset principally by increases in accounts payable and accrued
liabilities totaling $508,000. Net cash used in operating activities in 1998
reflected a net loss of $3.9 million and an increase of $158,000 in accounts
receivable offset by depreciation and amortization of $200,000, an increase in
accrued expenses of $334,000 and an increase in deferred revenue of $280,000.
Net cash used in operating activities in the nine months ended September 30,
1999 reflected a net loss of $10.7 million and an increase of $1.2 million in
accounts receivable offset by non-cash stock-based
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compensation charges totaling $2.3 million, an increase of $1.7 million in
deferred revenue and an increase of $763,000 in accrued expenses.
Since our inception, our investing activities have consisted primarily of
purchases of fixed assets, principally computer hardware and software for our
growing number of employees. Capital expenditures totaled $391,000 in 1997,
$173,000 in 1998 and $328,000 in the nine months ended September 30, 1999.
Although we had no material capital expenditure commitments as of September 30,
1999, we expect that capital expenditures will increase with our anticipated
growth in operations, infrastructure and personnel both domestically and
internationally. We do not expect to incur significant costs to make our
software or internal information systems year 2000 compliant because we believe
this software and these information systems are designed to function properly
through and beyond year 2000.
Net cash provided by financing activities totaled $2.3 million in 1997,
$3.9 million in 1998 and $33.1 million in the nine months ended September 30,
1999. Net cash provided by financing activities primarily consisted of the
proceeds of issuances of preferred stock and promissory notes in each of these
periods and, in 1998 and the nine months ended September 30, 1998, included
proceeds from the equipment line of credit.
We believe that our existing balances of cash and cash equivalents and our
available credit facilities will be sufficient to meet our cash needs for
working capital and capital expenditures for at least the next 12 months,
although we could elect to seek additional funding prior to that time. We could
require additional capital prior to the end of this period if, for example, we
were to experience greater than expected losses from operations or if we were to
pursue one or more business acquisitions or investments. At present we do not
have any commitments or agreements for business acquisitions or investments. If
we do require additional financing, however, we cannot be certain that it will
be available when required, on favorable terms or at all. If we are not
successful in raising additional capital as required, our business could be
harmed. If additional funds are raised through the issuance of equity
securities, the percentage ownership of our then-current stockholders would be
reduced.
Although we currently have no material commitments for capital expenditures,
we expect to experience an increase in our capital expenditures and lease
commitments consistent with our anticipated growth in operations, infrastructure
and personnel. We currently anticipate that we will continue to experience
growth in our operating expenses beyond the next 12 months and that operating
expenses will be a material use of our cash resources. In the event Nielsen
Media Research is unable to consummate its planned purchase of additional shares
of our common stock, it is highly likely that we will be required to raise
additional capital in the future.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 requires all derivative instruments to be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designed as part of a hedge
transaction and, if so, the type of hedge transaction. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133," which
amends SFAS No. 133 to be effective for all fiscal quarters or all fiscal years
beginning after June 15, 2000, or January 1, 2001 for us. We do not expect that
the adoption of this statement will have a material impact on our reported
results of operations.
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MARKET RISK
The following discussion analyzes our exposure to market risk related to
changes in interest rates and foreign currency exchange rates.
FOREIGN CURRENCY EXCHANGE RATE RISK
To date, substantially all of our recognized revenue has been denominated in
U.S. dollars and generated primarily from customers in the United States, and
our exposure to foreign currency exchange rates has been immaterial. We expect,
however, that future product and service revenue may also be derived from
international markets and may be denominated in the currency of the applicable
market. As a result, our operating results may become subject to significant
fluctuations based upon changes in exchange rates of certain currencies in
relation to the U.S. dollar. Furthermore, to the extent that we engage in
international sales denominated in U.S. dollars, an increase in the value of the
U.S. dollar relative to foreign currencies could make our products and services
less competitive in international markets. Although we will continue to monitor
our exposure to currency fluctuations, and, when appropriate, may use financial
hedging techniques in the future to minimize the effect of these fluctuations,
we cannot assure you that exchange rate fluctuations will not adversely affect
our financial results in the future.
INTEREST RATE RISK
As of September 30, 1999, we had cash and cash equivalents of $28.7 million
consisting of cash and highly liquid, short-term investments. Our short-term
investments will decline by an immaterial amount if market interest rates
increase, and therefore, our exposure to interest rate changes has been
immaterial. Declines of interest rates over time will, however, reduce our
interest income from our short-term investments. Our outstanding notes payable
and capital lease obligations are all at fixed interest rates and therefore have
minimal exposure to interest rates.
YEAR 2000 COMPLIANCE
We are aware of the issues surrounding the year 2000 and problems relating
to computers and computer software incorrectly distinguishing between 21st and
20th century dates. Year 2000 issues could affect our products and services as
well as our internal management control systems.
We are currently conducting a year 2000 readiness review of our proprietary
software which is utilized to collect panel data and generate our Internet
audience measurement information products and services. This review includes:
- assessment and quality assurance testing of our proprietary software;
- implementation, including remediation, upgrading and replacement of
non-compliant product versions;
- validation testing; and
- contingency planning.
We have completed all phases of our review, except for validation testing
and contingency planning, as it relates to the current version of our software.
We have designed all of our proprietary software to be year 2000 compliant.
We define "year 2000 compliant" as the ability to:
- correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
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- 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;
- where appropriate, respond to two-digit date input in a way that resolves
the ambiguity as to a 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 have tested our data collection software and our internal programs and,
based on these tests, we believe that our software is year 2000 compliant. We
are currently testing licensed software and freeware, obtained from third
parties that is incorporated into our software, and have received written
assurances from our primary vendor, Oracle, that this licensed software is year
2000 compliant. We therefore do not expect to expend significant resources to
resolve year 2000 errors in our software. However, we can not be certain that
our test procedures will uncover all possible year 2000 errors in our software.
If our tests and design measures have failed to discover and resolve all year
2000 problems in our data collection software and we fail to provide or
inaccurately provide services under the terms of a subscription agreement, our
reputation could be harmed.
Our internal systems include both our computer and network systems and other
systems. We have initiated an assessment of our most important computer and
network systems. To the extent we are not able to assess the technology provided
by third-party vendors, we are seeking assurances from them that their systems
are year 2000 compliant. We have received written assurances from our primary
vendor, AboveNet, that its systems are year 2000 compliant. Although we are not
currently aware of any material operational issues or costs associated with
preparing these systems for the year 2000, we may experience unanticipated
problems and costs caused by undetected errors or defects in the technology used
in these systems.
We have funded our year 2000 compliance plan from available cash and have
not separately accounted for these costs. To date, these costs have not been
material. We expect to incur additional costs related to the year 2000
compliance plan for:
- administrative personnel to manage the project;
- outside contractor assistance; and
- product engineering and customer satisfaction.
We expect to complete our assessment and resolution of all year 2000
problems that we are capable of addressing before December 31, 1999. However, we
believe that it is not possible to determine with complete certainty that all
year 2000 problems affecting us have been identified and corrected. Furthermore,
some year 2000 problems are beyond our control.
We believe that our most likely worst-case scenario related to the year 2000
problem is a failure of a significant number of our panelists' computer systems
to operate correctly. Were this to occur, our ability to collect data could be
adversely affected and our sample size reduced resulting in inaccuracies in our
reports and damage to our reputation.
We have not developed a contingency plan to address situations that may
result if we are unable to achieve year 2000 readiness of our critical
operations and do not anticipate the need to do so. The cost of developing and
implementing a plan may itself be material. We are also subject to external
forces that might generally affect industry and commerce, such as year 2000
problems affecting utilities, Internet service providers or banks. A prolonged
Internet, telecommunications or electrical failure, could prevent us from
receiving data from our panel, processing the data and providing reports to our
clients and could have a material adverse effect on our business, results of
operations and financial condition.
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BUSINESS
We provide Internet audience measurement information and analysis. Our
products and services enable our customers to make informed business-critical
decisions regarding their Internet strategies. We deliver accurate and timely
Internet audience information, collected from a representative sample of
Internet users, and augment this information with detailed, flexible reporting
and in-depth analysis. Our customers include leading e-commerce companies,
advertising agencies, media companies, Internet companies and financial
institutions. We have formed strategic relationships with Nielsen Media
Research, the leading source of television audience measurement and related
services in the United States and Canada, and ACNielsen, a leading provider of
market research information and analysis to the consumer products and services
industries. We believe that these relationships allow us to offer the most
accurate Internet audience information currently available. Our proprietary
activity tracking and data collection technology gathers comprehensive and
detailed information regarding Internet user behavior, including both site and
advertising activity. We began providing Internet audience measurement products
and services under the brand name Nielsen//NetRatings in March 1999. We believe
that our Internet sampling methodologies, our real-time data collection
technology, our powerful, flexible reporting systems, and our strategic
relationships position us for leadership in the market for global Internet
audience measurement and analysis.
INDUSTRY BACKGROUND
GROWTH IN GLOBAL INTERNET USAGE, E-COMMERCE AND ONLINE ADVERTISING
The Internet has emerged as a significant global medium for communications,
information and commerce. It is growing dramatically, based on key measures,
including total number of users, total number of Web sites, e-commerce
transaction volume and online advertising dollars.
Both content and e-commerce on the Internet are growing dramatically.
According to International Data Corporation, or IDC, the number of individual
Web site addresses, commonly referred to as "URLs," on the Internet has grown
from approximately 18 million at the end of 1995 to approximately 925 million at
the end of 1998, and is expected to grow to approximately 13 billion in 2003.
Also, according to IDC, the number of users buying goods and services on the
Internet has grown from approximately 3 million in 1995 to approximately
31 million in 1998, and is expected to grow to approximately 183 million in
2003. IDC estimates that the total annual value of goods and services purchased
over the Internet has grown from approximately $296 million in 1995 to
approximately $50 billion in 1998, and is expected to grow to over $1.3 trillion
by 2003.
As the Internet attracts larger numbers of users, spending for Internet
advertising is expected to increase. According to Forrester Research, global
annual online advertising expenditures are projected to increase from
approximately $1.5 billion in 1998 to approximately $24 billion in 2003.
In addition to the increasing number of Internet users, there has also been
a significant increase in the number of devices that can access the Internet.
While such devices originally consisted only of personal computers, there has
been a recent emergence of a number of alternative devices to access the
Internet, including television set-top boxes, handheld computing devices,
Web-enabled phones and Internet gaming devices. According to IDC, the number of
devices worldwide that are capable of accessing the Internet has grown from
approximately 14 million at the end of 1995 to approximately 150 million at the
end of 1998 and is expected to grow to approximately 722 million by the end of
2003.
UNIQUE CHARACTERISTICS OF ONLINE COMMERCE AND ADVERTISING
The Internet also presents advertisers and online businesses with a unique
opportunity to target prospective consumers and to measure the return on their
advertising or marketing investment. Using
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traditional media, such as television, an advertiser must broadcast its
advertisements to an entire audience for a given program in a given market, even
though the advertiser may have desired to target only a portion of the overall
audience. With the Internet, on the other hand, users visiting the same Web
page at the same moment can be presented with different advertisements based on
their Internet usage behavior. In addition, while an advertiser using
traditional media cannot directly measure how an individual audience member
reacts to an advertisement, the Internet makes it possible for an advertiser or
e-commerce company to track how its audience interacts with an advertisement or
an e-commerce site.
THE EXPECTED CONVERGENCE OF TELEVISION AND THE INTERNET
We believe that the convergence of television programming with Internet
content and interactivity represents a significant emerging trend. Today,
considerable advertising is being conducted in traditional media, such as
television, in order to drive traffic and commercial activity to Internet sites.
For example, a Victoria's Secret advertisement aired during the 1999 Super Bowl
was designed to draw people to an online fashion show conducted on the
Victoria's Secret Web site. We believe that this trend toward the convergence of
television and the Internet will continue. For example, we believe that, in the
future, television content and advertising will include Internet links on which
viewers can click to make a direct response, such as making an online purchase.
As this convergence takes place, the ability to track television audiences as
they use the Internet will become an increasingly critical requirement for all
major advertisers and their agencies as they seek to capitalize on these
cross-media opportunities.
THE NEED FOR INTERNET AUDIENCE MEASUREMENT AND ANALYSIS
As the Internet continues to evolve and online advertising and electronic
commerce continue their dramatic growth, companies conducting business online
are continually challenged to define and reach their target audiences as well as
develop sophisticated online business strategies. The unique dynamics of the
Internet require that online market participants understand their markets and
quickly recognize and adapt to changing conditions in their particular
industries. In order to remain competitive, these online companies demand
detailed audience measurement information and analysis that will enable them to
make informed business decisions in a timely manner. These companies are seeking
a trusted third party source for information that can provide them with the
following:
- ACCURATE AND TIMELY INFORMATION. To be useful, information derived from
audience samples must accurately reflect the size and behavior of the
overall Internet audience. Accordingly, such information must be gathered
from a large, representative sample using statistical methods that
eliminate as much bias as possible. The information must also be timely;
the faster the information can be analyzed and reported, the more
efficiently an online business can adapt to its target audience's changing
characteristics and preferences.
- DETAILED, FLEXIBLE REPORTING AND ANALYSIS. The usefulness of Internet
audience information can be significantly enhanced by detailed analysis
presented in a flexible format that allows customers to manipulate the
information to meet their unique requirements. Presenting information and
analysis in this way could enable a customer to:
- track the demographic profiles and behavior of users that visit a
particular site or click on a particular banner advertisement, in order
to target advertising at users matching particular demographic
profiles;
- correlate user behavior on a site with the user's behavior on the
Internet before entering and after leaving the site, tracking other
sites visited and how the user behaved on those sites;
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- track users' interactions with Web sites, such as the duration and
frequency of visits to a site and the proportion of visitors to a site
that make purchases during their visits, referred to as the
"look-to-book" ratio;
- track users' interactions with advertisements, such as the proportion
of clicks on a banner advertisement compared to the number of times the
advertisement appears, referred to as the "click-through rate," and the
proportion of users that make a purchase after clicking on a particular
advertisement, referred to as the "click-to-conversion" ratio;
- evaluate banner advertisements to compare the effectiveness of
different advertisements or to track a competitor's advertisement
placements; and
- identify significant trends relating to online companies and Internet
usage.
- CROSS-MEDIA AND CROSS-PLATFORM MEASUREMENT CAPABILITIES. To obtain a
comprehensive measurement of Internet audience usage, companies conducting
business online will require an Internet audience measurement solution
that is capable of capturing data from both television and Internet users
and across a wide range of Internet access devices. This requires
specialized technologies and expertise to adapt audience measurement
techniques to disparate emerging platforms. The data collection method
must not only be capable of operating on different types of devices, but
must also be capable of collecting and transmitting comparable streams of
data regardless of the device.
- A UNIFORM STANDARD OF MEASUREMENT. Internet audience measurement
statistics are of limited use, unless Internet site and advertisement
activity can be measured according to a common "yardstick." As has been
the case with Nielsen Media Research in the market for television audience
measurement and with Arbitron in the market for radio audience
measurement, we believe that the company that provides the highest quality
audience measurement information and analysis will eventually emerge as
the industry standard.
We believe that no standard has yet emerged because most companies offering
Internet measurement services have been unable to provide a comprehensive
solution that includes accurate and timely information, as well as detailed and
flexible reporting and analysis. Accordingly, a significant market opportunity
exists for a company that can provide customers with products and services that
meet these needs.
THE NETRATINGS SOLUTION
We deliver meaningful and timely information that enables our customers to
make informed business-critical decisions regarding their Internet strategies.
Our products, services and technology provide accurate Internet audience
information combined with detailed and flexible reporting and in-depth analysis.
We believe that our solution will enable us to become the standard for measuring
the size, profile and behavior of Internet audiences. Our solution, marketed
under the Nielsen//NetRatings brand, includes the following key components:
ESTABLISHED SAMPLING METHODOLOGIES. Our solution is designed to provide
reliable, independent information that customers need to make critical business
decisions. We believe that our strategic relationship with Nielsen Media
Research allows us to offer the most accurate Internet audience sampling
methodology currently available. Nielsen Media Research has set the standard for
television audience measurement over the past 50 years, utilizing an established
sampling methodology that is widely used throughout the major segments of the
audience measurement and media research industry. Nielsen Media Research
develops our panel using the same sampling methodology that it uses in
developing television audience panels. In addition, through our joint venture
with ACNielsen, we intend to offer solutions in international markets utilizing
ACNielsen's established audience sampling methodologies based upon its 76 years
of experience in consumer market research.
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PROPRIETARY MEASUREMENT TECHNOLOGY. Our proprietary activity tracking and
data collection technology gathers comprehensive and detailed information
regarding Internet user behavior, including sites and pages visited, time spent
on each site, advertising exposure and effectiveness, e-commerce transactions
executed, and streaming media usage. The software also collects key information
regarding activity on America Online's proprietary service. All of our data is
collected from the entire panel and transmitted to our central database in
real-time. The information is linked to demographic profiles of Internet users
to provide comprehensive products and services for measuring Internet usage
behavior. Once installed, our software requires virtually no panelist
intervention and software updates are automatic.
POWERFUL, FLEXIBLE REPORTING SYSTEMS. Our solution provides customers with
a variety of daily, weekly and monthly reports that can be modified by our
customers, enabling them to easily manipulate data to meet their specific
information requirements. Our easy-to-use interface provides immediate access to
various levels of detailed information and enables custom queries on selected
information. Our service provides customers with two levels of information
access, which are available in weekly and monthly reports based on data that has
been uploaded to our database from our panel members' computers in real time.
Our Quick Looks feature provides customers with comprehensive pre-defined
Internet user behavior and demographic information. We also provide Select
Views, which are powerful, easy-to-use, menu-driven queries that respond to
specific information requests.
TIMELY, INSIGHTFUL ANALYSIS. Our solution delivers insightful analysis
based upon detailed Internet audience information. We augment our high-quality
audience behavior information with meaningful analysis delivered on a timely
basis, enabling our customers to take decisive action. The analytical services
we provide are structured to deliver information and commentary on a weekly,
monthly and quarterly timeframe. Additionally, we provide timely event-based
reports, such as Internet activity during the Super Bowl. Customers purchasing
our analytical services are entitled to a fixed number of consulting hours,
during which they can have private access to our analysts for strategic
consultation or custom analysis.
COMPATIBLE, PORTABLE ARCHITECTURE. All of our information is collected
using proprietary software that is compatible with devices that operate on a
Java-enabled platform. Therefore, we believe that our architecture will
seamlessly integrate with most new types of Internet access devices, enabling us
to obtain useful data from most Internet users regardless of the access device
they use.
STRATEGY
Our objective is to become the standard for Internet audience measurement
and the worldwide leader in Internet market research. We intend to establish
this leadership position through the following key strategies:
LEVERAGE OUR STRATEGIC RELATIONSHIPS. We intend to continue to leverage our
key strategic relationships with Nielsen Media Research and ACNielsen by using
their brands and industry relationships to facilitate the rapid deployment of
our service with leading companies. Since March 1999, we have marketed our
services under the Nielsen//NetRatings brand, and, combining our sales and
marketing efforts with those of Nielsen Media Research, we have deployed our
products and services with over 170 customers. We believe that the continued
adoption of our products and services by leading companies will help facilitate
the broad market acceptance of the Nielsen//NetRatings service as the industry
standard for Internet audience measurement. Similarly, we intend to leverage our
strategic relationship with ACNielsen to deploy our products and services into
multiple international markets.
INCREASE THE SIZE, SCOPE AND NUMBER OF OUR AUDIENCE MEASUREMENT PANELS. We
intend to expand the size, scope and number of our audience measurement panels
in order to increase the depth of
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information that we can provide our customers. We believe that expanding our
panels will enable us to provide more detailed information regarding e-commerce
trends, as well as more accurate information regarding smaller Internet sites
and more focused advertising campaigns. A significant percentage of Internet
usage takes place at the workplace, and our customers are increasingly requiring
audience measurement information from this user segment. Accordingly, we are
currently working to build an at-work panel through a number of initiatives
including recruiting companies directly and leveraging our current strategic
relationships.
CAPITALIZE ON OUR ACCESS TO INFORMATION TO DEVELOP NEW PRODUCTS AND ENTER
NEW MARKETS. We plan to continually innovate and introduce new products that
will capitalize on our access to the extensive Internet activity data that we
collect for our audience measurement products and services. We believe that our
current technological and analytical capabilities allow us to offer the most
accurate, complete and timely information on Internet usage available. As the
volume and complexity of Internet usage increases, we believe that users will
demand increasingly flexible and robust audience measurement products and
services. We intend to continue to devote significant resources to developing
additional technologies that will allow us to create solutions that meet these
requirements. Additionally, we believe that analysis of data is becoming
increasingly important to customers who use Internet audience information, and
we intend to continue to develop new ways to analyze and present the information
we collect. During the past year, we have created advanced reports and analyses
specifically targeted to the investment community and e-commerce providers, and
we intend to introduce similar products for the media segment and online
business-to-business customers. We also intend to leverage our analytical
capabilities to expand and enhance our specialized consulting services.
EXPAND INTERNATIONALLY. We intend to capitalize on the global demand for
Internet usage information by establishing panels in major international markets
and expanding our customer base to include international companies. In June
1999, we formed NetRatings KK, a Japanese joint venture, to allow us to provide
our products and services to the Japanese market. In September 1999, we entered
into a joint venture with ACNielsen to develop and maintain Internet audience
measurement panels and to market Nielsen//NetRatings products and services in
other key international markets. Through this joint venture, we plan to develop
audience measurement panels in Australia, Ireland, New Zealand and the United
Kingdom in the first half of 2000 and in Austria, Denmark, Finland, France,
Germany, Norway and Sweden by the end of 2000. We believe that our Internet
measurement solution will provide global companies with the highest-quality
information on worldwide Internet usage and flexible tools to use this
information to make critical business decisions.
POSITION OURSELVES TO CAPITALIZE ON THE CONVERGENCE OF TELEVISION AND THE
INTERNET. We intend to position ourselves to become the audience measurement
standard for the converging market for television programming and the Internet.
We believe that the continued convergence of television and the Internet will
require sophisticated products and services that provide meaningful information
about usage behavior. We believe that we will be uniquely positioned for this
convergence through our relationship with Nielsen Media Research, with its
experience and expertise in television audience measurement, combined with our
own Internet measurement technology. We intend to devote substantial resources
and to work with Nielsen Media Research to develop the technologies and research
methodologies that will allow us to be the audience measurement standard for
this convergence.
STRATEGIC RELATIONSHIPS
STRATEGIC RELATIONSHIP WITH NIELSEN MEDIA RESEARCH
For nearly 50 years Nielsen Media Research's core business has been to
provide high-quality, comprehensive audience viewing information on the
television industry. The Nielsen ratings are vital to
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television program production, distribution and scheduling decision making, and
are the currency for transactions between buyers and sellers of television
advertising time.
In October 1998, we began a strategic relationship with Nielsen Media
Research to develop and market Internet audience measurement products and
services in the United States and Canada using our technology combined with
Nielsen Media Research's proprietary panel methodology. Through this
relationship, we began developing an expanded Internet audience panel based on
the Nielsen Media Research audience sampling methodology and enhanced versions
of our software, to be marketed under the Nielsen//NetRatings brand. Under our
agreement with Nielsen Media Research, we have the right to use the Nielsen name
in connection with audience measurement and e-commerce consulting services
derived from the panels developed and maintained by Nielsen Media Research. In
March 1999, we launched our Nielsen//NetRatings product and service offerings.
In August 1999, Nielsen Media Research made an equity investment in NetRatings.
Under the operating agreement governing the relationship, which was entered
into in August 1999, Nielsen Media Research is responsible for the development
and maintenance of the at-home panel that generates the data for the
Nielsen//NetRatings audience measurement service. We are responsible for the
management, support and ongoing development of the data collection and reporting
system. Under the operating agreement, we have formed an operating committee
consisting of two representatives of Nielsen Media Research and two
representatives of NetRatings. The operating committee's responsibilities
include:
- review of proposed levels of expenses by us and Nielsen Media Research
related to sales and marketing, research and development and panel
maintenance;
- determination of the pricing of the Internet audience measurement
services;
- oversight of product quality control; and
- approval of panel size and other panel-related changes.
Under the operating agreement, Nielsen Media Research is responsible for
marketing the service to traditional media customers, such as broadcast
television networks, nationally-circulated magazines, news agencies, advertising
agencies and other customers in the United States and Canada that are agreed to
from time to time by Nielsen Media Research and us. We are responsible for
selling to publishers, Internet-based businesses, Fortune 2000 corporations and
financial institutions. We receive 100% of customer billings derived from sales
of all of our products and services and pay Nielsen Media Research a commission
of 35% of our billings for products and services sold by them. For the nine
months ended September 30, 1999, we derived 18% of our total revenue from
Nielsen Media Research generated billings. In the future, we expect this
percentage to decrease, as we increase the size of our sales force and further
expand into international markets.
We will pay Nielsen Media Research ongoing fees for the costs of maintaining
the at-home panel and the costs associated with any expansion of the panel.
These fees will be charged at the same rates that Nielsen Media Research charges
its own internal divisions, which are based on Nielsen Media Research's actual
cost plus an allocated portion of its overhead costs.
We have agreed not to sell advertising measurement data in the U.S. or
Canada in conjunction with any product or service provided by any third party
other than Nielsen Media Research. This restriction will terminate if Nielsen
Media Research fails to meet certain annual sales goals that are to be mutually
determined within one year after the date of the operating agreement and
annually thereafter.
The relationship may be terminated in the event of any of the following:
- mutual agreement of the parties;
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- either party committing a material breach of the agreement, which is not
defined in the agreement; or
- Nielsen Media Research's equity ownership of NetRatings falling below 5%
of NetRatings' outstanding Common Stock, assuming full exercise or
conversion of all outstanding options, warrants and convertible
securities.
Upon a termination of our strategic relationship other than by mutual
consent of the parties or as a result of our breach of the agreement, Nielsen
Media Research will be obligated to provide panel maintenance services for up to
one year thereafter. In addition, in such event, we will continue to have access
to Nielsen Media Research's panel methodology for purposes of maintaining our
at-home panel and the right to use Nielsen Media Research's trademarks for
purposes of marketing our Internet audience measurement products and services
for up to one year following the termination.
JOINT VENTURE WITH ACNIELSEN
Since its founding 76 years ago, ACNielsen has become a leading provider of
media research services outside North America. It is also a global leader in
providing business information, analysis and insights to consumer packaged goods
companies, their brokers and retail organizations. ACNielsen offers services to
customers in over 100 countries. Although ACNielsen and Nielsen Media Research
were originally part of the same corporate organization, the two companies are
no longer related.
In September 1999, we entered into a joint venture with ACNielsen to develop
and maintain audience measurement panels and to market Nielsen//NetRatings
products and services in international markets. The joint venture is operated
through a corporation to which we initially contributed $1,990 in capital in
exchange for a 19.9% ownership interest and ACNielsen contributed $8,010 in
exchange for an 80.1% interest. Through the joint venture, we plan to develop
audience measurement panels based in Australia, Ireland, New Zealand and the
United Kingdom in the first half of 2000 and in Austria, Denmark, Finland,
France, Germany, Norway and Sweden by the end of 2000. ACNielsen has agreed to
permit the joint venture to use the Nielsen name free of charge for so long as
the joint venture agreement remains in effect.
The joint venture's products and services will be based on data collected
from Internet measurement panels that are established and maintained using
ACNielsen's proprietary sampling methodology. Panel members will collect and
deliver their Internet usage data using our proprietary collection software. The
joint venture or ACNielsen will be responsible for establishing and maintaining
the joint venture's audience measurement panels, and we will not be obligated to
pay any additional fees related to these activities.
The joint venture has exclusive rights to market its Internet audience
measurement services in countries outside the United States, Canada and Japan.
We have exclusive rights to market these services in the United States, Canada
and Japan. Under this operating agreement, we have agreed not to offer any
Internet audience measurement service in countries outside the United States,
Canada and Japan. In addition, the joint venture and ACNielsen have agreed not
to offer any competing Internet audience measurement service anywhere in the
world. Notwithstanding the foregoing, the joint venture will have the right to
offer such a service in Japan should it not gain access to the Japanese Internet
usage data to which we have access, on the same terms to which we are subject.
The joint venture pays us a fee of 10% of its gross revenues from the sale
of products and services relating to Internet audience measurement information
and analysis, subject to a minimum of $7.5 million and a maximum of $15 million
in fees during the five years following the formation of the joint venture.
Revenue from the joint venture's Internet audience measurement services will be
allocated
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between us and the joint venture depending on the location of the customer and
the location of the panel whose data is used in the service:
- The joint venture retains 100% of any revenue from services that the joint
venture sells to customers outside the United States and Canada based on
data from panels outside those countries.
- We and the joint venture each retain 50% of any revenue from services that
we sell to customers in the United States and Canada based on data from
panels outside those countries or services that the joint venture sells to
customers outside the United States and Canada based on panel data from
those countries.
- The joint venture retains 35% of any revenue from services that the joint
venture sells to customers inside the United States and Canada based on
data from panels inside those countries, and we retain 65% of any revenue
from such services.
- If either we or the joint venture sells services based on data from a
combination of panels located both inside and outside the United States
and Canada, the allocation of revenue is determined by an operating
committee consisting of two representatives of each company, with any
decisions requiring a unanimous vote of those present, which must include
at least one representative of each company.
To complete the initial capitalization of the joint venture, ACNielsen has
agreed to contribute cash to fund the initial start-up costs and we have granted
an exclusive license with respect to our data collection technology for the
covered territory, subject to specified performance criteria. We have entered
into a stockholders agreement with ACNielsen setting forth procedures for
funding the ongoing operations of the joint venture. ACNielsen will fund the
initial start-up costs, including the costs incurred to establish Internet
audience measurement panels in each of the countries, as they are incurred by
the joint venture. The schedule for establishing these panels in each country is
subject to determination from time to time by an operating commitee consisting
of two representatives of NetRatings and two representatives of the joint
venture corporation. ACNielsen has publicly announced that it expects to spend
approximately $50 million over the next two years to fund these initial start-up
costs. ACNielsen's contributions toward the initial startup costs will not
result in any changes to either party's proportionate interest in the joint
venture. Thereafter, the ongoing capital requirements of the joint venture will
be the responsibility of both companies in proportion to their relative equity
ownership of the joint venture.
After the funding of the initial roll-out costs, the board of directors of
the joint venture may make capital calls on the outstanding shares, acting in
its sole discretion. If, after a capital call, either company defaults on its
capital contribution, then the joint venture will issue to the other company
shares of a senior class of preferred stock having a value equal to that
company's capital contribution. In the event of such a capital call, we may not
have sufficient resources to satisfy our contribution obligations, particularly
if Nielsen Media Research is unable to complete its planned purchase of
additional shares of our common stock. We expect the initial start-up phase of
the joint venture to continue for at least two years and therefore believe that
such a capital call is unlikely during such period. After the third anniversary
of the date of the agreement, NetRatings has the right to require a capital call
if it can demonstrate that such capital is necessary in order for the joint
venture to exploit commercial opportunities that would be in the best interests
of the joint venture partners. Such a capital call is subject to the default
provisions described above, except that if these provisions would result in
ACNielsen having insufficient equity ownership to include the joint venture in
its consolidated tax returns during 2003 or 2004, then ACNielsen can require
that NetRatings receive convertible debt securities in lieu of the senior class
of preferred stock.
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Under the stockholders agreement, ACNielsen has a right of first refusal to
purchase any shares of the joint venture that we wish to sell to a third party.
If the joint venture does not effect an initial public offering within five
years, we have the right to require ACNielsen to purchase our equity interest at
its fair market value at that time.
PRODUCTS AND SERVICES
Our products and services provide our customers with the ability to
accurately track and analyze Internet audience behavior, in addition to in-depth
research reports across a variety of Internet-related subjects. Our products and
services, which are marketed under the Nielsen//NetRatings brand, include:
- INFORMATION SERVICES. These services provide information such as
comprehensive traffic measures for Web sites, audience exposure and
response to advertising banners and audience demographics linked directly
to site and advertising data;
- ANALYTICAL SERVICES. These services are comprised of market research
reports and analysis for specific markets such as the e-commerce and
investment communities, and related analyst consultation; and
- CUSTOM RESEARCH. This research is performed on an as-requested basis in
support of customers' special projects.
INFORMATION SERVICES
We provide a range of syndicated weekly and monthly Internet audience
measurement reports that can be accessed online. We currently offer two
categories of reports. Our Quick Looks reports provide customers with
comprehensive, pre-defined Internet user behavior and demographic information.
Our Select Views reports provide customers with specific audience information
generated by a powerful, menu-driven interface.
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QUICK LOOKS REPORTS
- WEB SITE REPORTS. These reports provide key measures of Internet users'
site activity. Each report contains information on the size and
demographic composition of the unique audience, the percent of the total
Internet audience that can be reached at each site, the sites ranked by
audience size or other criteria, total page views, and pages viewed and
time spent per person.
<TABLE>
<CAPTION>
REPORT DESCRIPTION
<S> <C>
- ------------------------------------------------------------------------------------
Top Web Sites by Property Reports key information for all Web sites
owned by the same entity. For example, a
report for Time Warner would include all
activity information for all of the Time
Warner-owned properties including Warner
Brothers and CNN Web Sites.
- ------------------------------------------------------------------------------------
Top Web Sites by Domain Reports key information for activity on
individual domains. For example,
www.yahoo.com is considered one domain, and
may consist of numerous individual Web Sites.
- ------------------------------------------------------------------------------------
Top Web Sites by Unique Site Reports key information by individual site
and top pages within a site. For example,
www.quote.yahoo.com is a unique site within
the www.yahoo.com domain.
- ------------------------------------------------------------------------------------
Top Web Sites by Category Categorizes sites and domains by content
groupings such as sports, finance, news and
information, allowing comparison of similar
sites.
- ------------------------------------------------------------------------------------
Custom Property Provides alternative customized site
consolidations based on client requests.
- ------------------------------------------------------------------------------------
</TABLE>
- BANNERTRACK REPORTS. These reports provide detailed audience information
about Internet banner advertising for use in competitive research,
advertising and creative analysis, as well as an overall view of current
advertisers and where they are advertising. These reports allow
advertising planners to evaluate the creative content of advertising and
how effectively advertising reaches various audiences. Key measures
include the number of actual advertising images, banner rank, unique
audience size and demographic composition, percent of the Internet
audience that can be reached by each advertisement and click rate.
<TABLE>
<CAPTION>
REPORT DESCRIPTION
<S> <C>
- ------------------------------------------------------------------------------------
Top Banner Advertisements by Ranks the top viewed banner advertisements
Impression and sponsorship buttons.
- ------------------------------------------------------------------------------------
Advertising by Domain Ranks the top advertising sites with
information showing the advertisers and their
respective advertising that appeared on
individual sites.
- ------------------------------------------------------------------------------------
Advertising by Company Ranks the top advertisers with detailed
information showing the sites on which they
advertised and identifying their top
advertisements.
- ------------------------------------------------------------------------------------
</TABLE>
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- AUDIENCE SUMMARY REPORTS. These reports provide a comprehensive profile
of the entire Internet audience including size and demographic composition
of the unique audience, total page views, number of usage sessions and
time spent per person.
<TABLE>
<CAPTION>
REPORT DESCRIPTION
<S> <C>
- ------------------------------------------------------------------------------------
Audience Profile Displays overview information for the total
U.S. Internet population.
- ------------------------------------------------------------------------------------
Daily/Hourly Traffic Details Audience Profile report information
by specific day and hour.
- ------------------------------------------------------------------------------------
Average Usage Displays summary statistics on overall
Internet usage.
- ------------------------------------------------------------------------------------
AOL Audience Displays audience size, audience demographic
composition and average time spent within the
America Online proprietary service.
- ------------------------------------------------------------------------------------
</TABLE>
SELECT VIEWS REPORTS
Our Select Views reports provide customers with the ability to pinpoint
specific audience information via easy-to-use, menu-driven queries into the
Nielsen//NetRatings database.
<TABLE>
<CAPTION>
REPORT DESCRIPTION
<S> <C>
- ------------------------------------------------------------------------------------
Site Reports
- ------------------------------------------------------------------------------------
Demographic Targeting Allows customers to identify the best sites
to reach a specific demographic population on
the Web. Information includes the size of the
audience and the percent of the audience at a
given site meeting the demographic targeting
criteria.
- ------------------------------------------------------------------------------------
Audience Profile Provides a detailed side-by-side demographic
comparison of audiences at different sites.
- ------------------------------------------------------------------------------------
Unduplicated Audience Provides an analysis of the audience overlap
across multiple sites. Details the size and
demographic composition of the site's shared
and exclusive audience.
- ------------------------------------------------------------------------------------
Trend Allows graphical comparison of audience
statistics for multiple sites across
user-selected time periods.
- ------------------------------------------------------------------------------------
BannerTrack Advertising Reports
- ------------------------------------------------------------------------------------
Demographic Targeting Allows customers to identify which
advertising has been the most effective in
reaching particular demographic groups.
- ------------------------------------------------------------------------------------
Audience Profile Allows customers to compare the audience size
and demographic composition for selected
advertisements in the same campaign, or
across different advertisers.
- ------------------------------------------------------------------------------------
</TABLE>
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ANALYTICAL SERVICES
We leverage the information gathered in our core database by offering
analysis that places the data into context, geared toward the specific research
needs of the e-commerce and investment communities. Subscribers to our
analytical services also receive direct access to a NetRatings analyst for a
specific number of hours of private consultation. Our analytical services
include:
E-COMMERCE STRATEGIES SERVICE
This series of reports focuses on strategic opportunities with an emphasis
on success factors in particular segments of the e-commerce market.
<TABLE>
<CAPTION>
REPORT DESCRIPTION
<S> <C>
- ------------------------------------------------------------------------------------
Commerce Data Published periodically, analyzes e-commerce
activity, including audience traffic patterns
and "look-to-book" data.
- ------------------------------------------------------------------------------------
Spotlights Published weekly, offers both qualitative and
quantitative perspectives to identify major
changes by industry sectors and individual
companies. Compares and contrasts relative
Internet usage of related companies.
- ------------------------------------------------------------------------------------
Hot & Not Published monthly, looks at significant
trends in Internet usage affecting specific
industry sectors and individual companies.
- ------------------------------------------------------------------------------------
Trends Published quarterly, contains in-depth
analysis of key industry sectors and their
participants.
- ------------------------------------------------------------------------------------
</TABLE>
INTERNET INVESTMENT STRATEGIES SERVICE
This series of reports provides research information for the investment
community, geared to meet the specific needs of market analysts, institutional
investors, brokers and venture capitalists.
<TABLE>
<CAPTION>
REPORT DESCRIPTION
<S> <C>
- ------------------------------------------------------------------------------------
SnapShots On-demand reports provide a timely view of a
profiled company's Internet usage with
qualitative commentary and brief historical
overview.
- ------------------------------------------------------------------------------------
Spotlights Published weekly, offers both qualitative and
quantitative perspectives to identify major
changes by industry sectors and individual
companies. Compares and contrasts relative
Internet usage of related companies.
- ------------------------------------------------------------------------------------
Hot & Not Published monthly, looks at significant
trends in Internet usage affecting specific
industry sectors and individual companies.
- ------------------------------------------------------------------------------------
Trends Published quarterly, contains in-depth
analysis of key industry sectors and their
participants.
- ------------------------------------------------------------------------------------
</TABLE>
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CUSTOM RESEARCH
We make research services available to our customers on an as-requested
basis. Because we utilize real-time data collection, we can provide overnight
analysis on a custom basis. In one custom research project, for example, we
analyzed the usage activities of visitors to a selected group of portal sites in
order to learn the percentage of a particular portal's audience that also
visited the other portals. Another custom project studied differences in online
behavior between a site's registered users and unregistered users.
AUDIENCE MEASUREMENT METHODOLOGY
Our Internet measurement products and services extend to the Internet the
Nielsen Media Research sampling methodology for television audiences by
collecting, aggregating and correlating Internet usage data with demographic
profiles of panel members. The resulting information is organized in a manner
consistent with traditional media research data so that the advertiser or
marketer can integrate Nielsen//NetRatings information into the development of
comprehensive media, marketing and product plans. Our panel of at-home Internet
users is currently more than 37,000 persons, and we are in the process of
increasing the size of this panel.
We are also developing a panel of at-work Internet users to enable us to
collect data regarding the significant proportion of Internet usage that takes
place at the workplace. We began developing this panel in September 1999. We
recently began collecting data from this panel and expect to recruit more than
3,000 panel members by the end of 1999.
We believe that the quality of information derived from a sample is directly
related to the quality of the sample. To assure quality, our panel sampling
methodology includes the following critical components:
ENUMERATION. Enumeration studies are conducted to determine the total size
and demographic makeup of the Internet user population and are used as the basis
for ensuring that sample behaviors are representative of the total audience
population. Our principal competitor in the market for Internet audience
measurement services conducts enumeration studies on a quarterly basis. In order
to more accurately gauge the size and shape of the rapidly changing Internet
user universe, we conduct our enumeration studies on a monthly basis.
SAMPLE DESIGN. For a sample to be representative of the total Internet user
population, the selection process must be random. In addition, the higher the
cooperation rate among selected individuals, the more representative the sample
and the more reliable the sample data. Our at-home panel is constructed using a
process called random digit dialing, which involves recruiting panel members by
calling randomly selected telephone numbers. Telephone numbers are randomly and
systematically selected with equal probability, with adjustments made to account
for households with more than one phone number. To maximize the cooperation
rate, households are called up to 15 times in an attempt to make contact.
Eligible households, namely, those with a PC and Internet access, are recruited
to participate in the panel. Those that agree to participate are mailed a
membership packet that includes tracking software and installation instructions
and are given a small savings bond for their participation. Eligible households
that decline to participate in the panel, households without Internet access,
non-residential telephone numbers and non-working or non-contacted telephone
numbers are called again at six-month intervals.
SAMPLE MANAGEMENT. Given the continuing rapid growth of the Internet, the
online population changes in size and composition faster than audiences of other
major media. Our sample management process strives for ongoing cooperation from
existing panel members. We also recontact previous non-Internet households to
ensure that new telephone numbers are included in the random sampling process.
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TECHNOLOGY
Through the use of our proprietary tracking software, we developed the
following audience measurement capabilities:
- daily and weekly activity reports made possible by collection of user
activity data in real time;
- advertising banner tracking and reporting by banner, advertiser and
domain; and
- tracking e-commerce purchase activity and related audience behavior.
NetRatings audience tracking software has the following characteristics:
- collects real-time, comprehensive Web activity and AOL proprietary online
service activity;
- collects the same data in the same way, regardless of whether the user is
accessing the Internet via a PC, Macintosh, UNIX or other platform, and
provides portability to non-PC Internet access devices such as television
set-top boxes and Internet gaming devices;
- automatically measures banner advertisement viewing and clicking,
e-commerce activity, cached page views and page loading times;
- requires virtually no panelist intervention once installed and can be
automatically upgraded, allowing functional enhancement without panelist
interaction; and
- automatically encrypts all panelist activity data prior to transmission.
We have also designed the NetRatings reporting system for flexibility of
information delivery and ease of use. We publish weekly as well as monthly data.
Our reporting schedule is 72 hours after the end of the period for weekly data
and 10 days after the end of the period for monthly data. Information is
organized in consistently formatted, easy-to-use tables with extensive
drill-down capabilities and search utilities. Additional "self-service" custom
queries are supported via the menu-driven interface. Online help accompanies all
tables. The Web-based design ensures continual access to information regardless
of the user's location.
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CUSTOMERS
More than 170 customers currently use our services for a wide range of
purposes including planning, buying and selling Internet-based advertising;
planning and developing e-commerce strategies; gaining competitive intelligence;
understanding Internet user behavior; and analyzing and tracking Internet
investment opportunities. The following table is a list of our top four
customers based on contract value in each of our principal customer sectors.
<TABLE>
<CAPTION>
CUSTOMER SECTOR REPRESENTATIVE CUSTOMERS
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
Advertising Agencies Avenue A Grey
Carat TBWA/Chiat/Day
- ---------------------------------------------------------------------------------------------
Advertisers and E-Commerce Bell South Gateway
Companies Drugstore.com REI
- ---------------------------------------------------------------------------------------------
Media Companies Discovery Communications Universal
Time Warner Univision
- ---------------------------------------------------------------------------------------------
Internet Companies America Online Microsoft
Lycos Net2Phone
- ---------------------------------------------------------------------------------------------
Financial Services C.E. Unterberg, Towbin CIBC World Markets
Companies Chase Manhattan KPMG
- ---------------------------------------------------------------------------------------------
</TABLE>
SALES AND MARKETING
Nielsen//NetRatings products and services are sold by NetRatings and Nielsen
Media Research in their respective markets. Under the operating agreement
governing our strategic relationship with Nielsen Media Research, NetRatings has
responsibility for selling to publishers, Internet-based business, Fortune 2000
corporations and financial institutions. As of September 30, 1999, we had 15
sales representatives located in Milpitas, California and Chatham, New Jersey.
The Nielsen Media Research sales effort is focused on its traditional customers:
advertising agencies, television and cable networks, and local station
affiliates. Nielsen Media Research is also responsible for selling to companies
with whom it has strategic relationships, including such companies as Procter &
Gamble, America Online, Microsoft and Viacom. NetRatings sales representatives
receive a base salary and are eligible for commissions based on revenue and
sales goals. Nielsen Media Research is paid a commission for its sales of the
Nielsen//NetRatings services.
Our primary marketing objective is to leverage and build upon the
brand-awareness of the Nielsen//NetRatings name throughout our target audiences.
We use public relations activities to gain extensive mention of our products and
services as well as use of, and/or reference to, our data by both traditional
and Internet press, and financial and industry analysts. Further company and
product visibility is gained through speaking engagements and participation at
industry events by our executive officers. In addition, we provide daily updates
on unique audience size at top Internet sites to the Bloomberg service that
distributes online financial information to 140,000 terminals worldwide. Each
week, Advertising Age magazine features an entire page of audience and
advertising data from our service. We generate additional brand-awareness by
providing our data for the acknowledgement of ownership through partnerships
with other publishers, media services and Internet companies such as AdAuction,
AdKnowledge, NetGravity and Reuters.
50
<PAGE>
INTERNATIONAL OPERATIONS
In June 1999, we commenced our international expansion by establishing a
joint venture, NetRatings KK, in which we currently hold a minority interest
with several Japanese investors holding the remaining interests. NetRatings KK
is responsible for building and maintaining a Japanese audience measurement
panel and introducing our products and services to the Japanese market. We have
licensed our data collection and reporting technology to NetRatings KK for use
in Japan. NetRatings KK is currently modifying this technology for use in Japan
and is in the process of recruiting a Japan-market panel. The initial audience
measurement service is scheduled to be available in the first quarter of 2000.
In September 1999, we entered into a joint venture with ACNielsen to develop
and maintain Internet audience measurement panels and to market products and
services under the Nielsen//NetRatings brand in other key international markets.
See "--Strategic Relationships--Joint Venture with ACNielsen."
RESEARCH AND DEVELOPMENT
We believe that our future success and our ability to become the standard
for Internet audience measurement information and analysis will depend in large
part on our ability to continually develop new and enhanced products and
services. Accordingly, we are committed to the investment of significant
resources in research and product development activities. Our research and
development activities are organized into three functional areas: measurement
and data collection technology development, reporting systems development and
operations, and panel operations and support.
During 1997, 1998 and the nine months ended September 30, 1999, our research
and development expenses were $994,000, $1.2 million and $1.8 million,
respectively. As of September 30, 1999, we had 18 employees engaged in research
and development activities.
INTELLECTUAL PROPERTY
Our success and ability to compete is dependent in part on the protection of
our proprietary technology and information. We rely on a combination of patent,
copyright, trademark and trade secret laws, as well as confidentiality
agreements and licensing arrangements, to establish and protect our proprietary
rights. Although we have filed for a patent on certain aspects of our
technology, we cannot assure you that a patent will issue as a result of this
pending application or that any patent that may be issued will be upheld.
Despite our efforts to protect our proprietary rights, existing patent,
copyright, trademark and trade secret laws afford only limited protection, and
there can be no assurance that our intellectual property rights, if challenged,
will be upheld as valid or will be adequate to protect our proprietary
technology and information. In addition, the laws of some foreign countries may
not protect our proprietary rights to the same extent as do the laws of the
United States. Attempts may be made to copy or reverse engineer aspects of our
technology or to obtain and use information that we regard as proprietary.
Litigation may be necessary in the future to enforce our intellectual property
rights or to determine the validity and scope of the proprietary rights of
others. This litigation could result in substantial costs and diversion of
resources and could significantly harm our business.
To date, we have not been notified that our technology infringes the
proprietary rights of third parties. However, in the future third parties may
assert patent, copyright, trademark and other intellectual property rights to
technologies that are important to our business. Any claims asserting that our
products infringe or may infringe proprietary rights of third parties, if
determined adversely to us, could significantly harm our business. Any claims,
with or without merit, could be time-consuming, result in costly litigation,
divert the efforts of our technical and management personnel or require us to
enter into royalty or licensing agreements, any of which could significantly
harm our business. Royalty or licensing agreements, if required, may not be
available on terms acceptable to us, if at all. In the
51
<PAGE>
event a claim against us was successful and we could not obtain a license to the
relevant technology on acceptable terms or license a substitute technology to
avoid infringement, our business would be significantly harmed.
COMPETITION
The market for Internet audience measurement and analysis is new and rapidly
evolving and becoming increasingly competitive. In the market for Internet
audience measurement services, our principal competitor is Media Metrix, which
we believe to be the leading provider of such services, based on annual
revenues. We are not aware of any other significant competitors in this market,
although we expect competition in this market to intensify in the future. With
respect to provision of analytical services, we compete with companies such as
Forrester Research, Gartner Group and Jupiter Communications that provide
Internet market research and industry analysis based on data derived from
surveys.
We believe that the market for Internet audience measurement services will
eventually gravitate toward a uniform standard, based on data collected by a
single service provider, that will allow companies to make meaningful decisions
regarding online advertising. We therefore believe that one leading provider is
likely to emerge in the market for Internet audience measurement services. Media
Metrix has provided Internet audience measurement services since 1995 and, as
the "first mover" in this market, has a head start in becoming the industry
standard for such services.
We believe that the principal competitive factors in our market are:
- the development of independent, reliable measurement panels that are
representative of the entire target audience;
- the timeliness of reported results;
- the breadth and depth of measurement services offered and their
flexibility and ease of use;
- the ability to provide quality analytical services derived from Internet
audience measurement information;
- the ability to offer products and services in international markets; and
- pricing.
Most of our competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial and
marketing resources than we have. In addition, some of our competitors may be
able to:
- devote greater resources to marketing and promotional campaigns;
- adopt more aggressive pricing policies; or
- devote more resources to technology and systems development.
In light of these factors, we may be unable to compete successfully in our
market.
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<PAGE>
EMPLOYEES
As of September 30, 1999, we had 50 full-time employees, with:
- 18 in research and development;
- 27 in sales and marketing; and
- 5 in general and administration.
Our employees are not covered by a collective bargaining agreement. We have
never experienced an employment-related work stoppage and consider our employee
relations to be good.
FACILITIES
Our corporate headquarters are located in Milpitas, California. We lease
approximately 9,700 square feet for our headquarters which includes research and
development, sales and marketing and general and administrative operations,
under leases expiring between January 2000 and September 2000. We also lease a
sales office in Chatham, New Jersey. We recently entered into a lease for
approximately 20,000 square feet for our new headquarters in Milpitas, which
commences in February 2000 and expires in February 2005.
PENDING LITIGATION
On November 4, 1999, PaineWebber Incorporated filed a lawsuit against us in
the Supreme Court of the State of New York for the County of New York. The suit
involves an agreement entered into in May 1999 in which we engaged PaineWebber
to act as our financial advisor with respect to a potential strategic
transaction. The specific transaction for which PaineWebber was engaged was not
consummated. However, the lawsuit alleges that we have breached our obligations
under the agreement by failing to pay PaineWebber a fee based upon our
subsequent sale of equity securities to Nielsen Media Research and by failing to
retain PaineWebber as a managing underwriter for this offering. The complaint
seeks damages in the aggregate amount of not less than $1.9 million and
reimbursement for PaineWebber's attorneys' fees relating to the dispute. We
believe, based on consultation with our counsel, that we have substantial
defenses to PaineWebber's claims, and we intend to defend the lawsuit
vigorously. We expect to incur substantial legal fees and expenses in connection
with the litigation, and it may also result in the diversion of our internal
resources. As a result, our defense of this litigation, regardless of its
eventual outcome, will likely be costly and time consuming. The litigation is in
the preliminary stage, and we are unable to predict its final outcome. However,
an adverse outcome could materially affect our results of operations and
financial position.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The following table sets forth our directors, executive officers, other key
employees and the additional persons nominated by Nielsen Media Research to
serve on our board of directors after Nielsen Media Research becomes a majority
stockholder, their ages and the positions currently held by them:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David J. Toth (1)...................... 43 President, Chief Executive Officer and Director
Jack R. Lazar (1)...................... 34 Vice President, Chief Financial Officer and Secretary
Frank Sammann (1)...................... 57 Executive Vice President of Worldwide Sales
Charles L. ("Tim") Meadows (1)......... 45 Senior Vice President of Marketing
Simon Chen (1)......................... 50 Vice President of Engineering
Stephen J. Gross....................... 44 Vice President of Finance and Controller
Robert L. Hooven....................... 46 Vice President and General Manager of International
Operations
Barbara D. Jarzab...................... 42 Vice President of Research
William C. Schaub...................... 53 Vice President of Business Panel Development
Allen P. Weiner........................ 46 Vice President of Analytical Services
David A. Norman (2)(3)................. 63 Chairman of the Board
Jack T. Serfass (3).................... 36 Director
James J. Geddes, Jr. (2)............... 49 Director
David H. Harkness (2).................. 55 Director
Michael P. Connors (3)................. 44 Director
John A. Dimling........................ 61 Director Nominee
Thomas A. Mastrelli.................... 52 Director Nominee
Gerald S. Hobbs........................ 58 Director Nominee
Daniel O'Shea.......................... 46 Director Nominee
Charles E. Leonard..................... 63 Director Nominee
</TABLE>
- ------------------------
(1) Executive Officer
(2) Member of Audit Committee
(3) Member of Compensation Committee
DAVID J. TOTH co-founded NetRatings in July 1997 and has served as our
President and Chief Executive Officer and a member of our board of directors
since our inception. From November 1992 to June 1997, Mr. Toth was employed by
the Network Products Group of Hitachi Computer Products, Inc., as a Director
from November 1992 to October 1993 and as Vice President from October 1993 to
June 1997. Mr. Toth holds a B.S. in Electrical Engineering from the University
of Pittsburgh.
JACK R. LAZAR has served as our Vice President, Chief Financial Officer and
Secretary since August 1999. From January 1996 to August 1999, Mr. Lazar was
Vice President, Chief Financial Officer and Secretary of Apptitude, Inc., a
developer and manufacturer of network management solutions. From June 1992 to
December 1995, Mr. Lazar was employed by Electronics For Imaging, Inc., a
developer of color servers and color management software, first as Financial
Planning Manager and later as Controller and Principal Financial and Accounting
Officer. From September 1987 to June 1992, Mr. Lazar worked in various audit
positions at Price Waterhouse (now PricewaterhouseCoopers LLP). Mr. Lazar holds
a B.S.C. from Santa Clara University and is a certified public accountant.
FRANK SAMMANN has served as our Executive Vice President of Worldwide Sales
since October 1999. From February 1999 to October 1999, Mr. Sammann was
President and Chief Executive Officer of Decisive Technology, a customer
satisfaction survey provider. From July 1998 through January 1999, Mr. Sammann
was employed as a recruiter for Montgomery West, an executive search firm.
Mr. Sammann served as Vice President of Corporate Accounts for JTS Corporation,
a disk drive manufacturer, from February 1996 to June 1998. From August 1992 to
February 1996, Mr. Sammann
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<PAGE>
was Vice President of Far East Sales and Marketing for Conner Peripherals, a
manufacturer of disk drives. Mr. Sammann was also Senior Vice President of Sales
for Dataquest, a market research company, for over 10 years. Mr. Sammann holds a
B.S. in Journalism and Marketing from the University of Oregon.
CHARLES L. ("TIM") MEADOWS co-founded NetRatings in July 1997 and has served
as our Senior Vice President of Marketing since September 1999. He also served
as our Vice President of Marketing from our inception to September 1999 and as a
member of our board of directors from our inception to August 1999. From
May 1996 to July 1997, Mr. Meadows was self-employed as a marketing consultant.
From July 1991 to May 1996, Mr. Meadows was employed by Cornerstone
Imaging, Inc., a document imaging company, initially as Director of Marketing
and later as Vice President, Marketing. From September 1988 to July 1991,
Mr. Meadows was Director of Strategic Planning at Hitachi Computer
Products, Inc. Mr. Meadows holds a B.S. in Business Administration and an M.B.A.
from the University of California at Berkeley.
SIMON CHEN co-founded NetRatings in July 1997 and has served as our Vice
President of Engineering since our inception. From September 1989 through
June 1997, Mr. Chen was employed as a Senior Software Development Manager for
Hitachi Computer Products, Inc. Mr. Chen holds an M.S. in Electronic Engineering
from the South Dakota School of Mines and Technology and an M.B.A. from the
University of San Diego.
STEPHEN J. GROSS has served as our Vice President of Finance and Controller
since February 1999. From June 1998 to January 1999, Mr. Gross was employed as
Vice President of Finance and Controller of Globalcast Communications, Inc., a
software company. From October 1997 to May 1998, Mr. Gross was engaged as a
consultant to Informix Software, Inc., Inhale Therapeutic Systems and
Softbankforums. From September 1987 to October 1997, Mr. Gross was a Senior Vice
President of Operations and Corporate Controller for Koll-Dove Global
Disposition Services, LLC, an auction services company. From July 1982 to
September 1987, Mr. Gross was a partner in the firm of Gross & Gralitzer,
Certified Public Accountants. Mr. Gross holds a B.S. degree from California
State University at Northridge.
ROBERT L. HOOVEN has served as our Vice President and General Manager of
International Operations since October 1999. He served as our Vice President of
Sales and Business Development from August 1997 to October 1999. From July 1993
to August 1997, Mr. Hooven was employed by Cornerstone Imaging, Inc. and its
affiliated companies in a variety of sales and management positions, most
recently Vice President of Worldwide Sales. Mr. Hooven holds a B.S. in Business
Administration from Norwich University.
BARBARA D. JARZAB has served as our Vice President of Research since
December 1997. From December 1994 to December 1997, Ms. Jarzab was employed as a
Senior Vice President of the Analytic Consulting and Testing Division of
Information Resources, Inc. From December 1991 to December 1994, Ms. Jarzab was
a Vice President, InfoScan Household Panel Product Management Group for
Information Resources, Inc. Ms. Jarzab holds a B.S. in Sociology and Economics
from DePaul University and an M.A. in Sociology from the University of Chicago.
WILLIAM C. SCHAUB has served as our Vice President of Business Panel
Development since May, 1999. From January 1998 to April 1999, Mr. Schaub was
Vice President of Computer Research at the Gartner Group. From December 1995 to
December 1997, Mr. Schaub was the Director of Computer Research at
Dataquest, Inc., a market research company. From May, 1993 to December, 1995,
Mr. Schaub was a Sales Executive at Dataquest. Mr. Schaub holds a B.S. in
Business from California State University, Sacramento and an M.B.A. from St.
Mary's College.
ALLEN P. WEINER has served as our Vice President of Services since
March 1999. From December 1994 to March 1999, Mr. Weiner was employed as Vice
President/Chief Analyst for Dataquest, Inc.
55
<PAGE>
From June 1993 to November 1994, Mr. Weiner was a Manager in the Electronic
Information Services Department of the Chronicle Publishing Company/San
Francisco Newspaper Agency. From June 1993 to September 1993, Mr. Weiner was an
Operations Manager for Chronicle CityLine. From June 1990 to June 1993,
Mr. Weiner was Editor of Interactive World for Virgo Publishing, Inc.
Mr. Weiner holds a B.A. in American Studies from Muhlenberg College and an M.A.
in Communications and Theater from Temple University.
DAVID A. NORMAN has served as a member of our board of directors since
December 1997 and as our Chairman since November 1998. Since February 1998,
Mr. Norman has been a private investor in high technology companies. From
March 1994 to February 1998, Mr. Norman was Chairman and CEO of Technically
Elite, Inc., a computer networking company. Mr. Norman was the founder,
President and Chief Executive Officer of Businessland, Inc. Mr. Norman also
founded Dataquest, a market research company. Mr. Norman is also a director of
FVC.com, Inc. and a number of private companies. Mr. Norman holds a B.S. in
Mechanical Engineering from the University of Minnesota and an M.S. in
Industrial Engineering from Stanford University.
JACK T. SERFASS has served as a member of our Board of Directors since
August 1997. Mr. Serfass is a co-founder and co-chairman of Bowstreet
Software, Inc., a web services automation company. From April 1990 to
June 1997, Mr. Serfass was CEO and President of Preferred Systems, Inc., a
network management company of which he was a co-founder. Mr. Serfass holds a
B.S. degree in Management Information Systems from the University of Rhode
Island.
JAMES J. GEDDES, JR. has served as a member of our Board of Directors since
August 1999. Since September 1995, Mr. Geddes has been a Managing Director of
Trans Cosmos U.S.A. Inc., a venture capital investing company. From
November 1992 to September 1995, Mr. Geddes was President and Chief Executive
Officer of InVision Systems Corporation, a video conferencing software company.
Mr. Geddes also serves as a director of several private companies. Mr. Geddes
holds a B.S. in Electrical Engineering from the University of Maryland.
DAVID H. HARKNESS has served as a member of our Board of Directors since
September, 1999. Mr. Harkness has been employed by Nielsen Media Research, Inc.
since 1975, most recently as Senior Vice President of Planning and Development.
Mr. Harkness holds a B.A. in Chemistry from Bates College and an M.B.A. in
Marketing and Finance from the University of Connecticut.
MICHAEL P. CONNORS has served as a member of our Board of Directors since
September 1999. Since May 1996, Mr. Connors has been the Vice Chairman and a
Director of ACNielsen. From April 1995 to November 1996, he was a Senior Vice
President and Chief Human Resources Officer of The Dun & Bradstreet Corporation,
a business information company. From 1989 to May 1995, Mr. Connors was Senior
Vice President for American Express Travel Related Services. Mr. Connors holds a
B.S. in Business Administration and Finance from the University of Kansas and an
M.A. in Human Resource Management from Central Michigan University.
JOHN A. DIMLING has been nominated by Nielsen Media Research to serve on our
board of directors after Nielsen Media Research becomes a majority stockholder.
He has served as President and Chief Executive Officer of Nielsen Media
Research, Inc. since July 1998. He was previously President and Chief Operating
Officer from July 1993 to June 1998. Mr. Dimling holds an A.B. in Mathematics
from Dartmouth College, an M.S. in Industrial Administration from Carnegie
Mellon University and a J.D. from George Washington University.
THOMAS A. MASTRELLI has been nominated by Nielsen Media Research to serve on
our board of directors after Nielsen Media Research becomes a majority
stockholder. He has been Chief Operating Officer of VNU USA, Inc. since
January 1999. From April 1998 to December 1998, Mr. Mastrelli served as
Executive Vice President and General Manager of VNU USA, Inc. From 1981 to
April 1998,
56
<PAGE>
he was a partner at the public accounting and consulting firm of Leslie Sufrin
and Company. He holds a B.B.A. from Pace University and an M.B.A. from Fordham
University.
GERALD S. HOBBS has been nominated by Nielsen Media Research to serve on our
board of directors after Nielsen Media Research becomes a majority stockholder.
He has served as Chairman and Chief Executive Officer of VNU USA, Inc. since
1994 and has served as a member of the Executive Board of Directors of VNU N.V.
since 1998. Prior to joining VNU N.V., Mr. Hobbs was the Chief Executive Officer
of BPI Communications, a wholly-owned subsidiary of VNU USA, Inc., from 1994 to
1998. He has also served as both the Chairman of the Board and a Director of the
American Business Press, and is currently a Director of the Advertising Council,
Inc., BPA International, Luxuryfinder.com and the Construction Market Data
Group.
DANIEL O'SHEA has been nominated by Nielsen Media Research to serve on our
board of directors after Nielsen Media Research becomes a majority stockholder.
He has served as the Chief Operating Officer of VNU Marketing Information Inc.,
a provider of precision-marketing solutions, since November 1997. From August
1991 to October 1997, Mr. O'Shea was Chief Operating Officer of Bill
Communications, a publisher of busines-to-business magazines and an
organizer/producer of trade shows. Mr. O'Shea holds a B.S. in Economics from
Lehman College and an M.B.A. from Pace University.
CHARLES E. LEONARD has been nominated by Nielsen Media Research to serve on
our board of directors after Nielsen Media Research becomes a majority
stockholder. He has served as President of VNU Marketing Information, Inc., a
provider of precision-marketing solutions, since May 1991. Mr. Leonard holds a
B.S. in Management Technology from Massachusetts Institute of Technology and an
M.B.A. from the Wharton School.
BOARD COMPOSITION
Our board of directors is currently fixed at six directors. Each of our
executive officers is elected by the board of directors and serves at its
discretion. Each of our officers and directors, other than nonemployee
directors, devotes his full time to the affairs of NetRatings. Our nonemployee
directors devote such time to our affairs as is necessary to discharge their
duties. There are no family relationships among any of our directors, officers
or key employees.
Pursuant to a stockholders agreement among NetRatings, Nielsen Media
Research and the other holders of our preferred stock, we have agreed to use our
best efforts to cause a representative of Nielsen Media Research to be elected
to our board of directors at each annual meeting of stockholders, or to cause
two such representatives to be elected in the event Nielsen Media Research
exercises both of its warrants in full. Pursuant to a further agreement between
NetRatings and Nielsen Media Research, after Nielsen Media Research completes
its purchase of additional shares of common stock in connection with this
offering and exercises both of its warrants in full, we will be obligated to use
our best efforts to cause a sufficient number of such representatives to be
elected at each annual meeting such that those representatives will constitute a
majority of our board of directors. See "Related Party Transactions--Strategic
Relationships--Strategic Alliance with Nielsen Media Research."
BOARD COMMITTEES
The audit committee of our board of directors recommends the appointment of
our independent auditors, reviews our internal accounting procedures and
financial statements and consults with and reviews the services provided by our
independent auditors, including the results and scope of their audit. The audit
committee currently consists of Messrs. Geddes, Harkness and Norman.
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<PAGE>
The compensation committee of our board of directors reviews and recommends
to the board the compensation and benefits of all executive officers of
NetRatings, and establishes and reviews general policies relating to
compensation and benefits of NetRatings employees. The compensation committee
currently consists of Messrs. Norman, Geddes and Serfass.
COMPENSATION OF DIRECTORS
Directors of NetRatings do not receive cash compensation for their services
as directors or members of committees of the board of directors. We reimburse
directors for their reasonable expenses incurred in attending meetings of the
board of directors.
In June 1998, we issued to Messrs. Norman and Serfass options to purchase
210,000 shares of common stock and 42,500 shares of common stock, respectively,
at an exercise price of $0.10. In June 1999, we issued to Mr. Norman an option
to purchase 210,000 shares of common stock at an exercise price of $0.50. In
August 1999, we issued to Mr. Geddes an option to purchase 25,000 shares of
common stock at an exercise price of $6.22 per share. Each of these options
vests at the rate of 1/4 of the shares after one year and 1/48 of the shares
monthly thereafter. Each option is fully-exercisable, subject to our right to
repurchase any unvested shares at the original purchase price in the event that
the optionee no longer is a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Messrs. Norman, Connors and
Serfass. In May 1998, Mr. Norman made a loan to us of $100,000, bearing interest
at 9% per year. In July 1999, Mr. Norman cancelled this indebtedness in exchange
for 165,206 shares of our Series B preferred stock. In connection with these
transactions, we also issued to Mr. Norman a warrant to purchase 78,989 shares
of Series B preferred stock at an exercise price of $0.63 per share. In
August 1999, we issued to Mr. Norman two full-recourse promissory notes having
an aggregate principal amount of $125,160 in connection with the exercise of
stock options. The notes bear interest at 5% per annum and are due in August
2002. See "Related Party Transactions--Financing Transactions" and "--Loans to
Director."
In September 1999, we entered into a joint venture with ACNielsen to develop
and maintain audience measurement panels and to market Nielsen//NetRatings
products and services in international markets. The joint venture is operated
through a corporation to which we initially contributed $1,990 in capital in
exchange for a 19.9% ownership interest and ACNielsen contributed $8,010 in
exchange for an 80.1% interest. Mr. Connors is an executive officer of
ACNielsen, which is the beneficial owner of 19.0% of our outstanding common
stock. See "Related Party Transactions--Strategic Relationships."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table sets forth information regarding compensation received
during the year ended December 31, 1998 by our Chief Executive Officer and the
two other executive officers whose total salary and bonus earned during the
fiscal year ended December 31, 1998 exceeded $100,000:
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL NUMBER OF
COMPENSATION SECURITIES
------------ UNDERLYING
NAME AND PRINCIPAL POSITION SALARY OPTIONS
- --------------------------- ------------ ------------
<S> <C> <C>
David J. Toth......................................... $151,731 --
President and Chief Executive Officer
Charles L. ("Tim") Meadows............................ $141,615 173,000
Vice President of Marketing
Simon Chen............................................ $107,914 129,750
Vice President of Engineering
</TABLE>
OPTION GRANTS
The following table sets forth information regarding grants of stock options
to each of the executive officers named in the Summary Compensation Table during
the year ended December 31, 1998. All of these options were granted under our
1998 Stock Plan. The percentage of total options set forth below is based on an
aggregate of 567,750 options granted to employees during the year ended
December 31, 1998. All options were granted at the fair market value of our
common stock, as determined by the Board of Directors, on the date of grant.
Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts representing hypothetical gains are those that
could be achieved for the options if exercised at the end of the option term.
The assumed 5% and 10% rates of stock price appreciation are provided in
accordance with rules of the SEC, based on a common stock value of $0.10 at the
beginning of the option term, and do not represent NetRatings' estimate or
projection of the future stock price.
OPTIONS GRANTED IN YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ---------- ------------ --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
David J. Toth..................... -- -- -- -- -- --
Charles L. ("Tim") Meadows........ 173,000 30.5% $0.10 6/5/08 $1,087,988 $2,757,174
Simon Chen........................ 129,750 22.9 $0.10 6/5/08 $ 815,991 $2,067,881
</TABLE>
OPTION EXERCISES AND FISCAL YEAR-END HOLDINGS
The table below sets forth the number of shares of common stock acquired and
the value and the number of shares of common stock subject to exercisable and
unexercisable options held as of December 31, 1998 by each of the executive
officers named in the Summary Compensation Table. No executive officers
exercised any options during that year.
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AGGREGATE OPTION EXERCISES IN FISCAL 1998 AND VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
12/31/98 12/31/98(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
David J. Toth.................. -- -- -- --
Charles L. ("Tim") Meadows..... 97,312 75,688 -- --
Simon Chen..................... 72,984 56,766 -- --
</TABLE>
----------------------------------------
(1) None of these options was in-the-money at this date.
STOCK PLANS
1998 STOCK PLAN
NetRatings' 1998 Stock Plan was adopted by the board of directors and
approved by the stockholders on January 30, 1998. NetRatings is authorized to
issue up to 2,965,000 shares of common stock under this plan. The 1998 Stock
Plan is currently being administered by the board of directors. The plan allows
grants of incentive stock options, within the meaning of Section 422 of the
Internal Revenue Code, to employees, including officers and employee directors.
In addition, it allows grants of nonstatutory options and stock purchase rights
to employees, non-employee directors and consultants. The plan expires in
January 2008, but may be terminated sooner by the board of directors.
The exercise price of incentive stock options granted under the 1998 Stock
Plan must not be less than the fair market value of a share of the common stock
on the date of grant. In the case of nonstatutory stock options, the exercise
price must not be less than 85% of the fair market value of a share of the
common stock on the date of grant. With respect to any optionee who owns stock
representing more than 10% of the voting power of all classes of NetRatings'
outstanding capital stock, the exercise price of any incentive stock option must
be equal to at least 110% of the fair market value of a share of the common
stock on the date of grant, and the term of the option may not exceed five
years. The terms of all other options may not exceed ten years. The aggregate
fair market value (determined as of the date of option grant) of the common
stock for which an incentive stock option may become exercisable for the first
time may not exceed $100,000 in any calendar year. Rights to acquire restricted
stock may also be granted under the 1998 Stock Plan. Stock purchase rights
generally are granted subject to a repurchase option in favor of NetRatings that
expires pursuant to a vesting schedule. The purchase price of these awards must
be less than 85% of the fair market value of a share of common stock on the
grant date. The Board of Directors or any committee administering the 1998 Stock
Plan has discretion to determine vesting schedules and exercise requirements, if
any, of all awards granted under the plan. However, the plan provides that in
connection with a change in control, if the acquiring corporation fails to
assume the plan's outstanding awards or replace them with substantially
equivalent new awards, all awards will become immediately exercisable in full.
As of September 30, 1999, 555,000 shares of common stock had been issued
pursuant to the 1998 Stock Plan, options to purchase 1,722,000 shares of common
stock, with a weighted average exercise price of $2.04, were outstanding, and
688,000 shares remained available for future grants.
1999 EMPLOYEE STOCK PURCHASE PLAN
NetRatings' 1999 employee stock purchase plan was adopted by the Board of
Directors in October 1999. A total of 250,000 shares of common stock are
reserved for issuance under the plan. This plan, which is intended to qualify
under Section 423 of the Internal Revenue Code, will be administered by the
Board of Directors. Employees, including officers and employee directors, are
eligible to participate in the plan if they are employed by NetRatings for more
than 20 hours per week,
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do not beneficially own more than 5% or more of the Company's stock (treating
shares subject to outstanding options as beneficially owned) and work 6 months
or more per calendar year. The plan will be implemented during sequential
six-month offering periods, the first of which will commence on the effective
date of this offering and will terminate on July 31, 2000. After the effective
date of this offering, offering periods under the plan will generally begin on
February 1 and August 1 of each year.
The employee stock purchase plan permits eligible employees to purchase
NetRatings common stock through payroll deductions, which may not exceed 15% of
the employee's base salary. Stock may be purchased under the plan at a price
equal to 85% of the fair market value of NetRatings common stock on either the
first or the last day of the offering period, whichever is lower. Employees may
end their participation in the offering at any time during the offering period,
and participation ends automatically on termination of a participant's
employment with NetRatings. Participants may not purchase shares of common stock
having a value, measured at the beginning of the offering period, greater than
$25,000 in any calendar year or more than 2,500 shares in any offering period.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit indemnification under some
circumstances for liabilities, including reimbursement for expenses incurred,
arising under the Securities Act of 1933.
As permitted by the Delaware General Corporation Law, NetRatings has adopted
provisions in its certificate of incorporation which provide that its directors
shall not be personally liable for monetary damages to NetRatings or its
stockholders for a breach of fiduciary duty as a director, except liability for:
- a breach of the director's duty of loyalty to NetRatings or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- an act related to our unlawful stock repurchase or payment of a dividend
under Section 174 of the Delaware General Corporation Law; or
- transactions from which the director derived an improper personal benefit.
These limitations of liability do not affect the availability of equitable
remedies such as injunctive relief or rescission. NetRatings' certificate of
incorporation also authorizes NetRatings to indemnify its officers, directors
and other agents to the full extent permitted under Delaware law.
As permitted by the Delaware General Corporation Law, NetRatings' bylaws
provide that:
- NetRatings is required to indemnify its directors and officers to the
fullest extent permitted by the Delaware General Corporation Law, subject
to limited exceptions;
- NetRatings is required to advance expenses, as incurred, to its directors
and officers in connection with a legal proceeding to the fullest extent
permitted by the Delaware General Corporation Law, subject to limited
exceptions; and
- the rights provided in the bylaws are not exclusive.
NetRatings intends to enter into separate indemnification agreements with
each of its directors and officers which may be broader than the specific
indemnification provisions contained in the Delaware General Corporation Law.
These indemnification agreements require NetRatings, among other things, to
indemnify its officers and directors against liabilities that may arise by
reason of their status or service as directors or officers, other than
liabilities arising from willful misconduct. These
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indemnification agreements also require NetRatings to advance any expenses
incurred by the directors or officers as a result of any proceeding against them
as to which they could be indemnified and to obtain directors' and officers'
insurance if available on reasonable terms.
At present, there is no pending litigation or proceeding involving any of
NetRatings' directors, officers, employees or agents where indemnification by
NetRatings is sought. In addition, NetRatings is not aware of any threatened
litigation or proceeding which may result in a claim for indemnification.
NetRatings maintains directors' and officers' liability insurance and
intends to continue to maintain this insurance in the future.
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RELATED PARTY TRANSACTIONS
FINANCING TRANSACTIONS
Since our inception, we have issued common stock and preferred stock to our
directors, executive officers and our 5%-or-greater stockholders in a series of
financing transactions. Shares of our Series B, Series C and Series D
convertible preferred stock are convertible into common stock at the rate of one
share of common stock for every two shares of preferred stock. All outstanding
shares of our preferred stock will be automatically converted into common stock
immediately prior to the closing of this offering.
SERIES B PREFERRED STOCK FINANCING
In May and November 1998, we borrowed a total of $895,000 from a group of
lenders to whom we issued promissory notes bearing interest at the annual rate
of 9%. These notes provided that all outstanding principal and accrued interest
would be automatically converted into Series B convertible preferred stock in
the next equity financing. In July 1999, we sold a total of 1,477,151 shares of
Series B convertible preferred stock to a group of investors at a purchase price
of approximately $0.63 per share, or $935,037 in the aggregate. At this time,
the May 1998 promissory notes were converted into shares of Series B convertible
preferred stock and each lender received a warrant to purchase additional shares
of Series B convertible preferred stock, at an exercise price of approximately
$0.63 per share, in an amount having an aggregate exercise price equal to 50% of
the amount lent by the lender. Persons who participated in these transactions
included the following:
<TABLE>
<CAPTION>
AMOUNT CURRENT AMOUNT CURRENT
INVESTOR LOAN AMOUNT SERIES B SHARES PAID VALUE(1) WARRANTS PAID VALUE(2)
- -------- ------------- --------------- -------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
David A. Norman.............. $100,000 165,206 $100,000 $1,073,839 78,989 $50,000 $463,429
David J. Toth................ $ 50,000 82,603 50,000 536,920 39,495 25,000 231,718
Charles L. Meadows........... $ 25,000 41,302 25,000 268,463 19,748 12,500 115,862
Simon Chen................... $ 25,000 41,302 25,000 268,463 19,748 12,500 115,862
</TABLE>
- ------------------------------
(1) Calculated on an as-converted basis assuming an initial public offering
price of $13.00 per share.
(2) Calculated on an as-converted basis assuming an initial public offering
price of $13.00 per share, less the exercise price of $0.63 per share.
Mr. Norman is chairman of our board of directors and the beneficial owner of
5.1% of our outstanding common stock. Mr. Toth is our President and Chief
Executive Officer, a member of our board of directors and the beneficial owner
of 17.6% of our outstanding common stock. Messrs. Meadows and Chen are executive
officers of our company and the beneficial owners of 6.3% and 4.2%,
respectively, of our outstanding common stock.
SERIES C PREFERRED STOCK FINANCING
In August 1999, we sold an aggregate of 6,413,751 shares of Series C
convertible preferred stock at a purchase price of approximately $3.11 per
share, or $20,000,000 in the aggregate, to the following investors:
<TABLE>
<CAPTION>
SERIES C AMOUNT CURRENT
INVESTOR SHARES PAID VALUE(1)
- -------- --------- ----------- -----------
<S> <C> <C> <C>
Trans Cosmos............................................ 3,527,563 $11,000,000 $22,929,160
Nielsen Media Research.................................. 2,886,188 9,000,000 18,760,222
</TABLE>
- ------------------------
(1) Calculated on an as-converted basis assuming an initial public offering
price of $13.00 per share.
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<PAGE>
Trans Cosmos and Nielsen Media Research are the beneficial owners of 19.3% and
48.0%, respectively, of our outstanding common stock, and two of our directors,
James J. Geddes, Jr. and David H. Harkness, are affiliates of Trans Cosmos and
Nielsen Media Research, respectively.
In connection with this financing transaction, we entered into additional
agreements with Nielsen Media Research superseding the term sheet that had
previously governed our strategic relationship and issued warrants entitling
Nielsen Media Research to purchase shares of common stock after the completion
of this offering. Also in connection with this financing transaction, Trans
Cosmos made a cash investment in our Japanese joint venture. See "--Strategic
Relationships--Strategic Relationship with Nielsen Media Research," "--Strategic
Relationships--Japanese Joint Venture" and "Business--Strategic
Relationships--Strategic Relationship with Nielsen Media Research."
SERIES D PREFERRED STOCK FINANCING
In September 1999, we sold an aggregate of 4,887,050 shares of Series D
convertible preferred stock at a purchase price of approximately $3.14 per
share, or $15,342,893 in the aggregate, to the following investors:
<TABLE>
<CAPTION>
AMOUNT CURRENT
INVESTOR SERIES D SHARES PAID VALUE(1)
- -------- --------------- ----------- -----------
<S> <C> <C> <C>
ACNielsen......................................... 3,992,454 $12,536,306 $25,950,951
Trans Cosmos...................................... 492,029 1,544,971 3,198,188
Nielsen Media Research............................ 402,567 1,264,060 2,616,686
</TABLE>
- ------------------------
(1) Calculated on an as-converted basis assuming an initial public offering
price of $13.00 per share.
ACNielsen, Trans Cosmos and Nielsen Media Research are the beneficial owners of
19.0%, 19.3% and 48.0%, respectively, of our outstanding common stock, and three
of our directors, Michael P. Connors, James J. Geddes, Jr. and David H.
Harkness, are affiliates of ACNielsen, Trans Cosmos and Nielsen Media Research,
respectively.
LOANS TO DIRECTOR
In August 1999, we issued to Mr. Norman two full-recourse promissory notes
having an aggregate principal amount totaling $125,160 in connection with the
exercise of stock options. The notes bear interest at 5% per annum and are due
in August 2002.
STRATEGIC RELATIONSHIPS
STRATEGIC RELATIONSHIP WITH NIELSEN MEDIA RESEARCH
In August 1999, simultaneously with our sale of Series C preferred stock to
Nielsen Media Research, the beneficial owner of 58.4% of our outstanding common
stock, we entered into additional agreements with Nielsen Media Research
superseding the term sheet that had previously governed our strategic
relationship. In connection with this transaction, we granted Nielsen Media
Research two warrants to purchase our common stock. The first warrant is
exercisable for 553,054 shares of common stock at an exercise price of $7.20 per
share, and the second is exercisable for 6,000,000 shares of common stock at an
exercise price of $12.00 per share or 60% of the price at which our common stock
is sold in this offering, whichever is lower. These warrants become exercisable
upon the effectiveness of the registration statement related to this offering
and expire on December 31, 2001, in the case of the first warrant, and
December 31, 2004, in the case of the second warrant.
We also granted Nielsen Media Research the right to purchase additional
shares of our common stock in connection with this offering, at the public
offering price. Nielsen Media Research has the
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right to purchase a sufficient number of shares of our common stock to enable it
to own 54% of our outstanding common stock on a fully-diluted basis, that is,
assuming the exercise of all outstanding options and warrants (including the
warrants it holds) immediately following this offering. If Nielsen Media
Research elects to exercise this right and purchase all or a portion of the
stock it is entitled to purchase, our other stockholders will be entitled to
sell to Nielsen Media Research, at the public offering price, a portion of the
shares it has elected to purchase, subject to our right to limit the aggregate
number of shares to be sold by other stockholders, in consultation with the
underwriters in the offering. Each stockholder may sell a pro rata portion of
the total number of shares that our stockholders may sell to Nielsen Media
Research, based on the number of shares held by that stockholder divided by the
number of shares held by all of our stockholders that have the right to sell
stock to Nielsen Media Research. If the shares tendered by our other
stockholders are not sufficient to satisfy Nielsen Media Research's election to
purchase additional shares, then Nielsen Media Research will have the right to
purchase the excess directly from us.
Nielsen Media Research has elected to exercise the foregoing purchase right
as to a number of shares that would give it 52% of our outstanding common stock
on a fully-diluted basis, subject to the expiration or early termination of the
required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and associated regulations. Our other stockholders have agreed to sell
an aggregate of 626,793 of their shares of common stock to Nielsen Media
Research in connection with its exercise of this right. Accordingly, we expect
that Nielsen Media Research will purchase 8,382,844 shares directly from us upon
the exercise of this right. The stockholders who have agreed to sell shares to
Nielsen Media Research include the following directors and executive officers:
<TABLE>
<CAPTION>
SHARES AGGREGATE PROCEEDS(1)
------- ----------------------
<S> <C> <C>
David A. Norman............................. 50,000 $ 650,000
David J. Toth............................... 296,814 $3,858,582
Charles L. ("Tim") Meadows.................. 89,271 $1,160,523
Simon Chen.................................. 75,000 $ 975,000
</TABLE>
- ------------------------
(1) Based on an assumed initial public offering price of $13.00 per
share.
In addition, we entered into a stockholders agreement with Nielsen Media
Research and the other holders of our preferred stock which, among other things,
grants Nielsen Media Research the right to nominate one director for election to
our board of directors, or two such directors in the event that Nielsen Media
Research exercises both of its warrants in full. These rights will terminate
when Nielsen Media Research ceases to own at least 5% of our outstanding stock,
assuming the exercise of all outstanding options and warrants.
In November 1999, we entered into an additional agreement with Nielsen Media
Research. Pursuant to this agreement, Nielsen Media Research agreed to purchase
a number of shares of our common stock such that it will own 52% of our
outstanding shares on a fully-diluted basis, measured as of the closing date of
this offering, subject to the expiration or early termination of the
Hart-Scott-Rodino waiting period. If, upon the consummation of this purchase,
Nielsen Media Research would not own a majority of our common stock on a
fully-diluted basis, then it will have the right to purchase enough additional
shares to obtain such a majority, provided that in no case may it purchase more
than the number of shares that would have given it 54% of our fully-diluted
outstanding shares if that percentage were measured as of the closing date of
this offering. The agreement further provides that, if Nielsen Media Research
completes its purchase of additional shares of common stock in connection with
this offering and exercises both of its warrants in full, we will elect a
sufficient number of Nielsen Media Research representatives to our board of
directors such that its representatives will constitute a majority of our board.
Nielsen Media Research is currently the beneficial owner of 48.0% of our
outstanding common stock, and one of our directors, David H.
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Harkness, is an affiliate of Nielsen Media Research. See "Risk Factors--Our
officers, directors and principal stockholders may exert substantial control
over us" and "Business--Strategic Relationships--Strategic Alliance With Nielsen
Media Research."
JOINT VENTURE WITH ACNIELSEN
In September 1999, we established a joint venture with ACNielsen to develop
and maintain audience measurement panels and to market our products and services
in key international markets. In connection with the formation of this joint
venture, we licensed our data collection and reporting technology to the joint
venture and ACNielsen licensed its panel development methodology to the joint
venture and agreed to contribute cash to fund the joint venture's start-up
costs. ACNielsen is the beneficial owner of 19.0% of our outstanding common
stock, and one of our directors, Michael P. Connors, is an affiliate of
ACNielsen. See "Business--Strategic Relationships--Joint Venture with
ACNielsen."
JAPANESE JOINT VENTURE
In June 1999, we and several Japanese investors established a joint venture,
NetRatings KK, to which we licensed our data collection and reporting technology
and the other investors contributed cash. In August 1999, Trans Cosmos, a
beneficial owner of 19.3% of our common stock, invested approximately
$2.3 million in NetRatings KK. See "Business--International Operations."
ASSET PURCHASE FROM HITACHI
We purchased our original data collection technology from Hitachi in January
1998 in exchange for cash in the amount of $100,000. At the time of this
transaction, Hitachi owned more than 5% of our outstanding stock.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth information known to us regarding the beneficial
ownership of our common stock as of October 31, 1999, and as adjusted to reflect
the sale of the common stock offered hereby, the purchase by Nielsen Media
Research of 8,382,844 shares of common stock from us and 626,793 shares of
common stock from other stockholders, including some of the stockholders listed
below, and the exercise by Nielsen Media Research of warrants to purchase
6,553,054 shares of common stock, and the exercise of warrants to purchase
88,863 shares of common stock prior to the completion of this offering, by:
- each stockholder who is known by us to beneficially own more than 5% of
our outstanding common stock;
- each of our executive officers listed on the Summary Compensation Table
under "Management;"
- each of our directors and director nominees; and
- all of our executive officers and directors as a group.
The address for Messrs. Toth, Meadows and Norman is c/o NetRatings, Inc.,
830 Hillview Court, Suite 225, Milpitas, CA 95035.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING(1) OFFERING(1)
--------------------- ---------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ---------------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS:
Nielsen Media Research, Inc.(2)....................... 8,197,431 48.0% 17,207,069 58.4%
299 Park Avenue
New York, NY 10171
Trans Cosmos U.S.A. Inc............................... 2,009,795 19.1 2,009,795 6.8
777 108th Avenue N.E.
Bellevue, WA 98004
ACNielsen Corporation................................. 1,996,227 19.0 1,996,227 6.3
177 Broad Street
Stamford, CT 06901
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING(1) OFFERING(1)
--------------------- ---------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ---------------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
David J. Toth(3)...................................... 1,858,543 17.6% 1,561,729 5.8%
Charles L. ("Tim") Meadows(4)......................... 671,087 6.3 581,816 1.9
David A. Norman(5).................................... 542,097 5.1 492,097 1.6
Simon Chen(6)......................................... 448,446 4.2 373,446 1.3
Jack T. Serfass(7).................................... 105,000 * 75,000 *
Jack R. Lazar......................................... -- -- -- --
Frank Sammann......................................... -- -- -- --
David H. Harkness(8).................................. 8,197,431 48.0 17,207,069 58.4
John A. Dimling(8).................................... 8,197,431 48.0 17,207,069 58.4
Thomas A. Mastrelli(8)................................ 8,197,431 48.0 17,207,069 58.4
Gerald S. Hobbs(8).................................... 8,197,431 48.0 17,207,069 58.4
Daniel O'Shea(8)...................................... 8,197,431 48.0 17,207,069 58.4
Charles E. Leonard(8)................................. 8,197,431 48.0 17,207,069 58.4
James J. Geddes, Jr.(9)............................... 2,034,795 19.3 2,034,795 6.5
Michael P. Connors(10)................................ 1,996,227 19.0 1,996,227 6.3
All executive officers and directors as a group
(10 persons)(11).................................... 15,853,626 91.0% 24,322,172 81.5%
</TABLE>
- ------------------------
* Less than 1%.
(1) The number of shares beneficially owned and the percentage of shares
outstanding are based on (a) 10,518,809 shares outstanding as of
October 31, 1999 and (b) 29,543,570 shares outstanding after completion of
this offering, assuming no exercise of the underwriters' over-allotment
option, and assuming that Nielsen Media Research purchases 8,382,844 shares
from us concurrently with the completion of this offering and exercises
warrants for 6,553,054 shares upon completion of this offering, and that
warrants for an additional 88,863 shares (including all of the warrants held
by the persons shown on this table) and exercised immediately prior to the
completion of this offering. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or
investment power with respect to securities. All shares of common stock
subject to options and warrants exercisable within 60 days following
October 31, 1999 are deemed to be outstanding and beneficially owned by the
person holding those options for the purpose of computing the number of
shares beneficially owned and the percentage of ownership of that person.
They are not, however, deemed to be outstanding and beneficially owned for
the purpose of computing the percentage ownership of any other person.
Except as indicated in the other footnotes to the table and subject to
applicable community property laws, based on information provided by the
persons named in the table, these persons have sole voting and investment
power with respect to all shares of the common stock shown as beneficially
owned by them.
(2) Includes 6,553,054 shares issuable upon exercise of warrants that will
become exercisable upon the completion of this offering.
(3) Includes 19,742 shares issuable upon exercise of warrants that are currently
exercisable. Mr. Toth has agreed to sell 296,814 shares to Nielsen Media
Research in connection with this offering.
(4) Includes 120,562 shares issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days after October 31, 1999
and 9,874 shares issuable upon exercise
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<PAGE>
of warrants that are currently exercisable. Mr. Meadows has agreed to sell
89,271 shares to Nielsen Media Research in connection with this offering.
(5) Includes 39,494 shares issuable upon exercise of warrants that are currently
exercisable. Mr. Norman has agreed to sell 50,000 shares to Nielsen Media
Research in connection with this offering.
(6) Includes 90,421 shares issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days after October 31, 1999
and 9,874 shares issuable upon exercise of warrants that are currently
exercisable. Mr. Chen has agreed to sell 75,000 shares to Nielsen Media
Research in connection with this offering.
(7) Includes 42,500 shares issuable upon exercise of options that are currently
exercisable.
(8) Consists of 1,644,377 shares held of record by Nielsen Media Research and
6,553,054 shares issuable upon exercise of warrants held by Nielsen Media
Research that will become exercisable upon the completion of this offering.
Mr. Harkness is a member of our board and Messrs. Dimling, Mastrelli, Hobbs,
O'Shea and Leonard have been nominated to join our board after Nielsen Media
Research acquires a majority of our outstanding common stock.
Messrs. Harkness and Dimling are executive officers of Nielsen Media
Research, and Messrs. Mastrelli, Hobbs, O'Shea and Leonard are executive
officers of Nielsen Media Research's parent corporation, VNU N.V., or of
other subsidiaries of VNU N.V. Accordingly, these individuals may be deemed
to share voting or investment control with respect to these shares. Each of
these individuals disclaims beneficial ownership of these shares. The
address for Messrs. Harkness, Mastrelli, Hobbs, O'Shea and Leonard is c/o
Nielsen Media Research Inc., 299 Park Avenue, New York, NY 10171.
(9) Consists of 2,009,796 shares held of record by Trans Cosmos and 25,000
shares issuable upon exercise of options held by Mr. Geddes that are
currently exercisable. Mr. Geddes is a Managing Director of Trans Cosmos and
may be deemed to share voting or investment control with respect to these
shares. Mr. Geddes disclaims beneficial ownership of these shares. The
address for Mr. Geddes is c/o Trans Cosmos U.S.A. Inc., 777 108th Avenue
N.E., Bellevue, WA 98004.
(10) Consists of shares held of record by ACNielsen. Mr. Connors is an executive
officer of ACNielsen and may be deemed to share voting or investment control
with respect to these shares. Mr. Connors disclaims beneficial ownership of
these shares. The address for Mr. Connors is c/o ACNielsen Corporation, 177
Broad Street, Stamford, CT 06901.
(11) Includes shares held of record by Nielsen Media Research, Trans Cosmos and
ACNielsen. See footnotes 2, 3 and 4. Also includes 278,483 shares issuable
upon exercise of options that are currently exercisable or will become
exercisable within 60 days after October 31, 1999 and 6,632,038 shares
issuable upon exercise of warrants that are currently exercisable or will
become exercisable upon completion of this offering.
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DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, NetRatings' authorized capital stock will
consist of 200,000,000 shares of common stock, $0.001 par value per share, and
5,000,000 shares of preferred stock, $0.001 par value per share.
The following is a summary of the material terms of NetRatings' common stock
and preferred stock. Please see NetRatings' certificate of incorporation, filed
as an exhibit to the registration statement of which this prospectus is a part,
for more detailed information.
COMMON STOCK
As of September 30, 1999, there were 3,892,332 shares of NetRatings common
stock outstanding, after giving effect to the proposed one-for-two reverse split
of the common stock, held of record by 24 stockholders. The holders of
NetRatings common stock are entitled to one vote for each share held of record
on all matters submitted to a vote of stockholders. Upon the closing of this
offering, holders of a majority of the shares of common stock entitled to vote
in any election of directors may elect all of the directors standing for
election. Subject to preferences applicable to any outstanding preferred stock,
holders of common stock are entitled to receive ratably any dividends declared
by the board out of funds legally available therefor. See "Dividend Policy." In
the event of a liquidation, dissolution or winding up of NetRatings, holders of
common stock are entitled to share ratably in the assets remaining after payment
of liabilities and the liquidation preferences of any outstanding preferred
stock. Holders of NetRatings common stock have no preemptive, conversion or
redemption rights. Each outstanding share of common stock is, and all shares of
common stock to be outstanding upon the closing of this offering will be, fully
paid and non-assessable.
CONVERTIBLE PREFERRED STOCK
Upon the closing of this offering, all NetRatings convertible preferred
stock outstanding will be converted into an aggregate of 6,626,476 shares of
common stock. Thereafter, up to 5,000,000 shares of undesignated preferred stock
will be authorized for issuance. NetRatings' Board of Directors has the
authority, without further action by its stockholders, to issue preferred stock
in one or more series. In addition, the Board may fix the rights, preferences
and privileges of any preferred stock it determines to issue. Any or all of
these rights may be superior to the rights of the common stock. Preferred stock
could thus be issued quickly with terms calculated to delay or prevent a change
in control of NetRatings or to make removal of management more difficult.
Additionally, the issuance of preferred stock may decrease the market price of
NetRatings' common stock. At present, NetRatings has no plans to issue any
shares of preferred stock.
WARRANTS
As of September 30, 1999, after giving effect to the one-for-two reverse
split of the common stock and the conversion of all outstanding shares of
preferred stock into common stock, there were outstanding warrants to purchase
common stock as follows:
- warrants to purchase an aggregate of 353,471 shares at an exercise price
of $1.27 per share, which expire upon the closing of this offering;
- a warrant to purchase 553,054 shares at an exercise price of $7.20 per
share, expiring in December 2001;
- a warrant to purchase 6,000,000 shares at an exercise price of the lower
of $12.00 per share or 60% of the initial public offering price of the
shares sold in this offering, expiring in December 2004;
- warrants to purchase 47,618 shares at an exercise price of $0.42, expiring
in December 2006;
- warrants to purchase 9,434 shares at an exercise price of $2.12, expiring
in December 2006;
70
<PAGE>
- a warrant to purchase 26,415 shares at an exercise price of $2.12,
expiring in April 2008; and
- a warrant to purchase 43,293 shares at an exercise price of $6.24 per
share, expiring in September 2004.
REGISTRATION RIGHTS
Under the Second Restated Rights Agreement dated as of September 23, 1999,
by and among NetRatings and various NetRatings stockholders, holders of an
aggregate of 13,659,763 shares of NetRatings common stock that are outstanding
or issuable upon exercise of warrants have registration rights with respect to
their shares of common stock.
Beginning six months after the date of this prospectus, these holders have
the right to require NetRatings, on not more than two occasions, to file a
registration statement under the Securities Act to register their shares at
NetRatings' expense. Demand for this registration must be made by holders of at
least 50% of the shares that are entitled to this registration. NetRatings may,
under some circumstances, defer this registration for up to 180 days, and the
underwriters of the offering under that registration have the right, subject to
some limitations, to limit the number of shares included. These holders also
have the right to demand not more than two registrations during any twelve-month
period on Form S-3, provided that the reasonably anticipated aggregate offering
price would exceed $500,000.
If NetRatings proposes to register any of its securities under the
Securities Act for NetRatings' own account or for the account of other security
holders, these holders are entitled to notice of that registration and have the
right to include some or all of their shares of common stock in that
registration, at NetRatings' expense, subject to marketing and other
limitations.
ANTITAKEOVER PROVISIONS
DELAWARE LAW
NetRatings will be subject to Section 203 of the Delaware General
Corporation Law regulating corporate takeovers, which prohibits a Delaware
corporation from engaging in any business combination with an "interested
stockholder," for a period of three years following the time that such
stockholder became an interested stockholder unless:
- prior to the date of the transaction, the board of directors of the
corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;
- upon consummation of the transaction which 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 (a) shares owned by persons who are directors
and also officers, and (b) shares owned 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
- on or subsequent to the date of the transaction, the business combination
is approved by the board 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 which is not owned by the
interested stockholder.
Except as otherwise specified in Section 203, an "interested stockholder" is
defined to include (a) any person that is the owner of 15% or more of the
outstanding voting securities of the corporation, or is an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within three years immediately prior
to the date of determination and (b) the affiliates and associates of any such
person.
71
<PAGE>
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Provisions of NetRatings' certificate of incorporation and bylaws, which
will become effective upon the closing of this offering, may have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of NetRatings. These provisions
could cause the price of NetRatings common stock to decrease. Some of these
provisions allow NetRatings to issue preferred stock without any vote or further
action by the stockholders, eliminate the right of stockholders to act by
written consent without a meeting and eliminate cumulative voting in the
election of directors. These provisions may make it more difficult for
stockholders to take specific corporate actions and could have the effect of
delaying or preventing a change in control of NetRatings.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, NY 10004, (212) 509-4000.
LISTING
We have applied to have our common stock approved for listing on the Nasdaq
National Market under the trading symbol "NTRT."
72
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market
following the offering could cause the market price of our common stock to fall
and could affect our ability to raise capital on terms favorable to us.
Of the 29,543,570 shares to be outstanding after the offering, assuming that
the underwriters do not exercise their over-allotment option, only the 4,000,000
shares of common stock sold in this offering will be freely tradable without
restriction in the public market, unless the shares are held by "affiliates," as
that term is defined in Rule 144(a) under the Securities Act of 1933. For
purposes of Rule 144, an "affiliate" of an issuer is a person that, directly or
indirectly through one or more intermediaries, controls, or is controlled by or
is under common control with, the issuer. The remaining 25,543,570 shares of
common stock that will be outstanding after the offering are "restricted
securities" under the Securities Act and may be sold in the public market upon
the expiration of the holding periods under Rule 144, described below, subject
to the volume, manner of sale and other limitations of Rule 144.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least one year, including an "affiliate," is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
- 1% of the then outstanding shares of our common stock (approximately
255,436 shares immediately following the offering); or
- the average weekly trading volume during the four calendar weeks preceding
filing of notice of the sale of shares of common stock.
Sales under Rule 144 are also subject to certain manner-of-sale provisions,
notice requirements and the availability of current public information about us.
A stockholder who is deemed not to have been an "affiliate" of ours at any time
during the three months preceding a sale, and who has beneficially owned
restricted shares for at least two years, would be entitled to sell shares under
Rule 144(k) without regard to the volume limitations, manner of sale provisions
or public information requirements.
Based on the foregoing, the shares of restricted stock that will be
outstanding after the offering will become eligible for resale in the public
market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES/PERCENT
OUTSTANDING AFTER THE OFFERING DATE WHEN SHARES BECOME AVAILABLE IN THE PUBLIC MARKET
- ------------------------------ ---------------------------------------------------------
<C> <S>
3,441,677/11.6% 180 days after the date of this prospectus pursuant to
agreements between the stockholders and the underwriters
or NetRatings, provided that the underwriters can waive
this restriction at any time. 2,670,752 of these shares
will also be subject to sales volume restrictions under
Rule 144 under the Securities Act.
22,100,422/74.8% Upon expiration of applicable one-year holding periods
under Rule 144, which will expire between July 23, 2000
and the date that is one year after the purchase of
additional shares by Nielsen Media Research, subject to
sales volume restrictions under Rule 144.
</TABLE>
In addition, as of September 30, 1999, there were outstanding warrants to
purchase 126,761 shares of common stock (not including warrants for which we
have received exercise notices to date, whose underlying shares are included in
the outstanding shares referred to above) and options to purchase 1,722,000
shares of common stock, of which options for 430,000 shares were fully vested.
An additional 1,688,000 shares are reserved for issuance under our 1998 Stock
Plan. We intend to register the shares
73
<PAGE>
of common stock issuable or reserved for issuance under this plan as soon as
practicable following the date of this prospectus.
Holders of 13,659,763 shares of common stock that are outstanding or
issuable upon exercise of warrants are entitled to registration rights with
respect to these shares for resale under the Securities Act. If these holders,
by exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, these sales could harm the market
price for our common stock. These registration rights may not be exercised prior
to the expiration of 180 days from the date of this prospectus. See "Description
of Capital Stock--Registration Rights."
LOCK-UP ARRANGEMENTS
Along with our officers and directors, all holders of our preferred stock,
common stock, warrants and options have agreed not to sell or otherwise dispose
of any shares of common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Lehman Brothers.
74
<PAGE>
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, Lehman Brothers Inc., Banc
of America Securities LLC, CIBC World Markets Corp., C. E. Unterberg Towbin and
Fidelity Capital Markets, a division of National Financial Services Corporation,
are acting as representatives of each of the underwriters named below. Under the
underwriting agreement, each of the underwriters has agreed to purchase from us
the respective number of shares of common stock shown opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ -----------
<S> <C>
Lehman Brothers Inc.........................................
Banc of America Securities LLC..............................
CIBC World Markets Corp.....................................
C. E. Unterberg, Towbin.....................................
Fidelity Capital Markets, a division of National Financial
Services Corporation......................................
-----------
Total...................................................
===========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement and that, if any of the shares of common
stock are purchased by the underwriters under the underwriting agreement, all of
the shares of common stock that the underwriters have agreed to purchase under
the underwriting agreement, must be purchased. The conditions contained in the
underwriting agreement include the requirement that the representations and
warranties made by us to the underwriters are true, that there is no material
change in the financial markets and that we deliver to the underwriters
customary closing documents.
The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock. This underwriting fee is the
difference between the public offering price and the amount the underwriters pay
to us to purchase the shares from us. On a per share basis, the underwriting fee
is 7% of the initial public offering price.
<TABLE>
<CAPTION>
NO FULL
EXERCISE EXERCISE
---------- ----------
<S> <C> <C>
Per share............................................ $ 0.91 $ 0.91
Total................................................ $3,640,000 $4,186,000
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to dealers, who may include
the underwriters, at this public offering price less a selling concession not in
excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to brokers and dealers.
After the offering, the underwriters may change the offering price and other
selling terms.
We have granted to the underwriters an option to purchase up to an aggregate
of additional shares of common stock, exercisable solely to cover
over-allotments, if any, at the public offering price less the underwriting
discounts shown on the cover page of this prospectus. The underwriters may
exercise this option at any time until 30 days after the date of the
underwriting agreement. If this option is exercised, each underwriter will be
committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the
75
<PAGE>
underwriter's initial commitment as indicated in the table above and we will be
obligated, under the over-allotment option, to sell the shares of common stock
to the underwriters.
We have agreed that, without the prior consent of Lehman Brothers, we will
not, directly or indirectly, offer, sell or otherwise dispose of any shares of
common stock or any securities that may be converted into or exchanged for any
shares of common stock for a period of 180 days from the date of this
prospectus. All of our executive officers and directors and stockholders holding
all of the shares of our capital stock, including all of the holders of the
preferred stock and the warrants, have agreed under lock-up agreements that,
without prior written consent, they will not, directly or indirectly, offer,
sell or otherwise dispose of any shares of common stock or any securities that
may be converted into or exchanged for any shares of common stock for the period
ending 180 days after the date of this prospectus. See "Shares Eligible for
Future Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price has been negotiated between the
representatives and us. The material factors considered in determining the
initial public offering price of the common stock, in addition to prevailing
market conditions, were:
- our historical performance and capital structure;
- estimates of our business potential and earning prospects;
- an overall assessment of our management; and
- the above factors in relation to market valuations of companies in related
businesses.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering, and will be
facilitating electronic distribution of information through the Internet,
Intranet and other proprietary electronic technology.
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the trading symbol "NTRT."
We have agreed to indemnify the underwriters against liabilities under the
Securities Act and liabilities arising from breaches of the representations and
warranties contained in the underwriting agreement, and to contribute to
payments that the underwriters may be required to make for these liabilities.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create a
short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that, if the representatives purchase shares
of common stock in the open market to reduce the underwriters' short position or
to stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members that sold
those shares as part of the offering.
76
<PAGE>
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of these purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
the sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
page of this prospectus.
The representatives have informed us that they do not intend to confirm the
sales of shares of common stock offered by this prospectus to any accounts over
which they exercise discretionary authority.
At our request, the underwriters have reserved up to 400,000 shares or 10%
of the common stock offered by this prospectus for sale to our officers,
directors, employees, members of employees' families, customers, vendors,
suppliers and certain friends of our officers, directors and employees and other
persons with whom NetRatings has strategic relationships through a directed
share program at the initial public offering price set forth on the cover page
of this prospectus. These persons must commit to purchase no later than the
close of business on the day following the date of this prospectus. The number
of shares available for sale to the general public will be reduced to the extent
these persons purchase the reserved shares.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. Certain legal
matters relating to the offering will be passed upon for the underwriters by
O'Melveny & Myers LLP, Los Angeles, California. As of the date of this
prospectus, Gray Cary Ware & Freidenrich LLP and its partners beneficially own
an aggregate of 15,000 shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1997 and 1998 and September 30, 1999 and for the
period from July 2, 1997 (inception) through December 31, 1997, the year ended
December 31, 1998 and the nine months ended September 30, 1999, as set forth in
their report. We have included our financial statements in this prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
reports, given on their authority as experts in accounting and auditing.
77
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1, including
the exhibits and schedules thereto, under the Securities Act with respect to the
shares to be sold in this offering. This prospectus does not contain all the
information set forth in the registration statement. For further information
about NetRatings and the shares to be sold in this offering, please refer to the
registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to, are not
necessarily complete, and in each instance please refer to the copy of the
contract, agreement or other document filed as an exhibit to the registration
statement, each statement being qualified in all respects by this reference.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information NetRatings files with the SEC at
the SEC's public reference room at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.C., Washington, D.C. 20549 and at the regional offices of the SEC
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You can request copies of these documents upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms.
NetRatings' SEC filings, including the registration statement, will also be
available to you on the SEC's Web site. The address of this site is
http://www.sec.gov.
78
<PAGE>
NETRATINGS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity (Deficit)................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
NetRatings, Inc.
We have audited the accompanying balance sheets of NetRatings, Inc. as of
December 31, 1997 and 1998 and September 30, 1999, and the related statements of
operations, stockholders' equity (deficit), and cash flows for the period from
July 2, 1997 (inception) to December 31, 1997, for the year ended December 31,
1998 and for the nine months ended September 30, 1999. These financial
statements are the responsibility of NetRatings, Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NetRatings, Inc. at
December 31, 1997 and 1998 and September 30, 1999, and the results of its
operations and its cash flows for the period from July 2, 1997 (inception) to
December 31, 1997, for the year ended December 31, 1998 and for the nine months
ended September 30, 1999, in conformity with generally accepted accounting
principles.
Palo Alto, California
October 12, 1999, except for paragraph 6 of Note 9, as to which the date is
November 4, 1999
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the
effectiveness of the stock split as described in Note 5 to the financial
statements.
/s/ ERNST & YOUNG LLP
Palo Alto, California
November 11, 1999
F-2
<PAGE>
NETRATINGS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
----------- ----------- ----------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 551,000 $ 1,343,000 $ 28,650,000
Accounts receivable, net............................ -- 133,000 1,069,000
Other current assets................................ 35,000 16,000 294,000
----------- ----------- ------------
Total current assets.............................. 586,000 1,492,000 30,013,000
Property and equipment net............................ 367,000 394,000 593,000
Deferred financing costs.............................. -- -- 369,000
Other assets.......................................... 27,000 79,000 111,000
----------- ----------- ------------
$ 980,000 $ 1,965,000 $ 31,086,000
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.................................... $ 93,000 $ 353,000 $ 328,000
Accrued liabilities................................. 415,000 210,000 973,000
Deferred revenue.................................... -- 280,000 2,010,000
Capital lease obligations, current portion.......... -- 77,000 162,000
Notes payable....................................... -- -- 114,000
Amounts due to Nielsen Media Research............... -- 2,539,000 2,164,000
Convertible notes payable........................... -- 824,000 --
----------- ----------- ------------
Total current liabilities......................... 508,000 4,283,000 5,751,000
Capital lease obligations, long-term portion.......... -- 130,000 204,000
Notes payable, long-term portion...................... -- -- 116,000
Commitments and contingencies.........................
Redeemable convertible preferred stock:
Authorized shares--15,571,000 shares
Issued and outstanding shares--None in 1997 and
1998 and 14,678,000 in 1999, and none pro forma
(liquidation preference of $36,628,000 at
September 30, 1999 and none at December 31, 1997
and 1998)....................................... -- -- 35,743,000 --
STOCKHOLDERS' EQUITY (DEFICIT):
Convertible preferred stock, $0.001 par value,
Series A: Authorized shares: 1,900,000
Issued and outstanding shares: 1,900,000 at
December 31, 1998 and none at September 30, 1999
and none pro forma (aggregate liquidation
preference of $350,000 at December 31, 1998).... -- 2,000 -- --
Common stock, par value $0.001:
Authorized shares: 86,851,000
Issued and outstanding shares: 3,875,000 at
December 31, 1997, 3,112,000 at December 31,
1998, 3,892,000 at September 30, 1999 and
10,519,000 pro forma............................ 4,000 3,000 4,000 $ 11,000
Additional paid-in capital.......................... 2,249,000 3,436,000 31,144,000 66,880,000
Deferred compensation............................... -- (229,000) (3,196,000) (3,196,000)
Deferred service costs.............................. -- -- (22,225,000) (22,225,000)
Notes receivable from stockholder................... -- -- (125,000) (125,000)
Accumulated deficit................................. (1,781,000) (5,660,000) (16,330,000) (16,330,000)
----------- ----------- ------------ ------------
Total stockholders' equity (deficit).............. 472,000 (2,448,000) (10,728,000) $ 25,015,000
----------- ----------- ------------ ============
$ 980,000 $ 1,965,000 $ 31,086,000
=========== =========== ============
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE>
NETRATINGS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 2, 1997 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, --------------------------
1997 1998 1998 1999
-------------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue.......................................... $ -- $ 237,000 $ 132,000 $ 1,486,000
Cost of revenue.................................. -- 1,061,000 362,000 4,269,000
----------- ----------- ----------- ------------
Gross profit (loss).............................. -- (824,000) (230,000) (2,783,000)
----------- ----------- ----------- ------------
Operating expenses:
Research and development....................... 994,000 1,185,000 821,000 1,806,000
Sales and marketing............................ 452,000 1,134,000 837,000 2,559,000
General and administrative..................... 341,000 600,000 413,000 1,170,000
Stock-based compensation....................... -- 25,000 -- 2,327,000
----------- ----------- ----------- ------------
Total operating expenses..................... 1,787,000 2,944,000 2,071,000 7,862,000
----------- ----------- ----------- ------------
Loss from operations............................. (1,787,000) (3,768,000) (2,301,000) (10,645,000)
Interest income (expense), net................... 6,000 (111,000) (57,000) (25,000)
----------- ----------- ----------- ------------
Net loss......................................... $(1,781,000) $(3,879,000) $(2,358,000) $(10,670,000)
=========== =========== =========== ============
Basic and diluted net loss per common share...... $ (2.03) $ (2.78) $ (1.79) $ (5.19)
=========== =========== =========== ============
Shares used to compute basic and diluted net loss
per common share............................... 878,000 1,393,000 1,320,000 2,056,000
=========== =========== =========== ============
Pro forma basic and diluted net loss per common
share (unaudited).............................. $ (1.67) $ (1.04) $ (2.31)
=========== =========== ============
Shares used to compute pro forma basic and
diluted net loss per common share
(unaudited).................................... 2,319,000 2,270,000 4,626,000
=========== =========== ============
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE>
NETRATINGS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE NOTE
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
-------------------------- --------------------------- PAID-IN FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDER
------------ ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders at $0.002 per share
in July 1997 for
cash........................ -- $ -- 3,200,000 $ 3,000 $ 3,000 --
Issuance of common stock at
$0.002 per share to
employees and consultants
for cash in 1997............ -- -- 675,000 1,000 1,000 --
Contribution to capital....... -- -- -- -- 2,245,000 --
Net loss from July 2, 1997
(inception)................. -- -- -- -- -- --
------------ ----------- ------------ ------------ ------------ ------------
Balances at December 31,
1997........................ -- -- 3,875,000 4,000 2,249,000 --
Repurchase of common stock
from founders and employees
at $0.002 per share......... -- -- (763,000) (1,000) (1,000) --
Issuance of Series A
convertible preferred stock
at $0.18 per share in
January 1998 for cash, net
of issuance costs of
$21,000..................... 1,900,000 2,000 -- -- 327,000 --
Issuance of warrant in
conjunction with issuance of
convertible notes payable... -- -- -- -- 106,000 --
Contribution to capital....... -- -- -- -- 501,000 --
Deferred compensation related
to grant of stock options... -- -- -- -- 254,000 --
Amortization of deferred
compensation................ -- -- -- -- -- --
Net loss...................... -- -- -- -- -- --
------------ ----------- ------------ ------------ ------------ ------------
Balances at December 31,
1998........................ 1,900,000 2,000 3,112,000 3,000 3,436,000 --
Exercise of common stock
options and warrant......... -- -- 780,000 1,000 155,000 (125,000)
Compensation related to stock
options granted to
consultants................. -- -- -- -- 970,000 --
Issuance of warrant in
conjunction with financing
agreement................... -- -- -- -- 177,000 --
Issuance of warrant in
connection with Series C
redeemable convertible
preferred stock............. -- -- -- -- 184,000 --
Deferred compensation related
to grant of stock options... -- -- -- -- 3,949,000 --
Amortization of deferred
compensation................ -- -- -- --
Deferred service costs........ -- -- -- -- 22,600,000 --
Amortization of deferred
service costs............... -- -- -- -- -- --
Reclassification of Series A
convertible preferred stock
to redeemable convertible
preferred stock due to
addition of mandatory
redemption features
(Note 4).................... (1,900,000) (2,000) -- -- (327,000) --
Net loss...................... -- -- -- -- --
------------ ----------- ------------ ------------ ------------ ------------
Balances at September 30,
1999........................ -- $ -- 3,892,000 $ 4,000 $ 31,144,000 $ (125,000)
============ =========== ============ ============ ============ ============
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFERRED DEFERRED ACCUMULATED EQUITY
COMPENSATION SERVICE COSTS DEFICIT (DEFICIT)
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Issuance of common stock to
founders at $0.002 per share
in July 1997 for
cash........................ $ -- -- $ -- $ 6,000
Issuance of common stock at
$0.002 per share to
employees and consultants
for cash in 1997............ -- -- -- 2,000
Contribution to capital....... -- -- -- 2,245,000
Net loss from July 2, 1997
(inception)................. -- -- (1,781,000) (1,781,000)
------------ ------------- ------------ ------------
Balances at December 31,
1997........................ -- -- (1,781,000) 472,000
Repurchase of common stock
from founders and employees
at $0.002 per share......... -- -- -- (2,000)
Issuance of Series A
convertible preferred stock
at $0.18 per share in
January 1998 for cash, net
of issuance costs of
$21,000..................... -- -- -- 329,000
Issuance of warrant in
conjunction with issuance of
convertible notes payable... -- -- -- 106,000
Contribution to capital....... -- -- -- 501,000
Deferred compensation related
to grant of stock options... (254,000) -- -- --
Amortization of deferred
compensation................ 25,000 -- -- 25,000
Net loss...................... -- -- (3,879,000) (3,879,000)
------------ ------------- ------------ ------------
Balances at December 31,
1998........................ (229,000) -- (5,660,000) (2,448,000)
Exercise of common stock
options and warrant......... -- -- -- 31,000
Compensation related to stock
options granted to
consultants................. -- -- -- 970,000
Issuance of warrant in
conjunction with financing
agreement................... -- -- -- 177,000
Issuance of warrant in
connection with Series C
redeemable convertible
preferred stock............. -- -- -- 184,000
Deferred compensation related
to grant of stock options... (3,949,000) -- -- --
Amortization of deferred
compensation................ 982,000 -- -- 982,000
Deferred service costs........ -- (22,600,000) -- --
Amortization of deferred
service costs............... -- 375,000 -- 375,000
Reclassification of Series A
convertible preferred stock
to redeemable convertible
preferred stock due to
addition of mandatory
redemption features
(Note 4).................... -- -- -- (329,000)
Net loss...................... -- -- (10,670,000) $(10,670,000)
------------ ------------- ------------ ------------
Balances at September 30,
1999........................ $ (3,196,000) $ (22,225,000) (16,330,000) $(10,728,000)
============ ============= ============ ============
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
NETRATINGS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 2, 1997 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, --------------------------
1997 1998 1998 1999
-------------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(1,781,000) $(3,879,000) $(2,358,000) $(10,670,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 24,000 200,000 158,000 277,000
Provision for doubtful accounts......................... -- 25,000 10,000 220,000
Stock-based compensation................................ -- 25,000 -- 2,327,000
Amortization of discount associated with warrants issued
on convertible notes payable.......................... -- 35,000 22,000 26,000
Amortization of deferred financing costs................ -- -- -- 39,000
Changes in operating assets and liabilities:
Accounts receivable................................... -- (158,000) (72,000) (1,156,000)
Other current assets.................................. (35,000) 19,000 16,000 (278,000)
Other assets.......................................... (27,000) (85,000) (78,000) (57,000)
Accounts payable...................................... 93,000 260,000 111,000 (301,000)
Accrued liabilities................................... 415,000 (205,000) (281,000) 763,000
Amounts due to Nielsen Media Research................. -- 539,000 -- 1,625,000
Deferred revenue...................................... -- 280,000 211,000 1,730,000
----------- ----------- ----------- ------------
Net cash used in operating activities....................... (1,311,000) (2,944,000) (2,261,000) (5,455,000)
----------- ----------- ----------- ------------
INVESTING ACTIVITIES
Acquisition of property and equipment..................... (391,000) (173,000) (28,000) (328,000)
FINANCING ACTIVITIES
Proceeds from issuance of (repurchase of) common stock.... 8,000 (2,000) (2,000) 31,000
Proceeds from issuance of convertible notes payable....... -- 895,000 875,000 --
Proceeds from issuance of convertible notes payable to
Nielsen Media Research.................................. -- 2,000,000 -- 1,000,000
Proceeds from equipment financing and notes payable....... -- 221,000 242,000 410,000
Principal payments on capital lease obligations........... -- (35,000) (25,000) (99,000)
Proceeds from issuance of preferred stock................. -- 329,000 329,000 31,748,000
Contribution to capital................................... 2,245,000 501,000 501,000 --
----------- ----------- ----------- ------------
Net cash provided by financing activities................... 2,253,000 3,909,000 1,920,000 33,090,000
----------- ----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents...... 551,000 792,000 (369,000) 27,307,000
Cash and cash equivalents at beginning of period............ -- 551,000 551,000 1,343,000
----------- ----------- ----------- ------------
Cash and cash equivalents at end of period.................. $ 551,000 $ 1,343,000 $ 182,000 $ 28,650,000
=========== =========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ -- $ 85,000 $ 58,000 $ 131,000
=========== =========== =========== ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Property and equipment acquired
under capital lease obligations......................... $ -- $ 21,000 $ 21,000 $ 123,000
=========== =========== =========== ============
Conversion of notes payable
into redeemable convertible
preferred stock......................................... $ -- $ -- $ -- $ 3,895,000
=========== =========== =========== ============
Issuance of common stock
for note receivable..................................... $ -- $ -- $ -- $ 125,000
=========== =========== =========== ============
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NETRATINGS
NetRatings, Inc. ("NetRatings") was incorporated in Delaware on July 2, 1997
and is engaged in the development and sale of Internet audience measurement
information and analysis services. Proprietary technology and data gathering
techniques enable NetRatings to offer its customers comprehensive, timely and
reliable information through an easy-to-use software interface. NetRatings
markets and sells its products and services under the Nielsen//NetRatings brand.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents, which consist of cash and highly liquid
short-term investments with insignificant interest-rate risk and original
maturities of three months or less at date of purchase, are carried at cost,
which approximates fair value. Interest income was $6,000, $18,000, $10,000 and
$132,000 for the period July 2, 1997 (inception) to December 31, 1997, the year
ended December 31, 1998, and the nine months ended September 30, 1998 and 1999.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets, generally three to five
years.
PURCHASED TECHNOLOGY
Purchased technology consists of the costs of purchased product technology
which are amortized using the straight-line method over periods not exceeding
three years. Purchased technology is included in other assets in the
accompanying balance sheets. Management evaluates the future realization of
purchased technology quarterly and writes down any amounts that management deems
unlikely to be recovered through future product sales. No write downs have been
recorded through September 30, 1999.
STOCK-BASED COMPENSATION
NetRatings accounts for stock-based awards to employees under the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and has adopted the
disclosure-only alternative of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("FAS 123").
REVENUE RECOGNITION
Revenue for recurring services are recognized ratably over the term of the
related contract as services are provided. Revenue for nonrecurring services is
recognized in the period in which the product is delivered. Billings rendered in
advance of services being performed are recorded as deferred revenue in the
accompanying balance sheet.
Barter transactions are recorded at the lower of estimated fair value of
services provided or the estimated fair value of goods and services received.
Revenue from barter transactions is recognized
F-7
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ratably over the period for which services are performed. Barter expenses are
expensed as incurred. Barter revenue and expenses were $0 for the period from
July 2, 1997 (inception) to December 31, 1997 and $38,000 and $55,000 for the
year ended December 31, 1998. Barter revenue and expenses were $22,000 and
$55,000 and $61,000 and $90,000 for the nine month periods ended September 30,
1998 and 1999.
PANEL COSTS
Costs of establishing and maintaining a panel (a statistically selected
group of Internet users) are expensed as incurred and are included in cost of
revenue.
ADVERTISING EXPENSE
All advertising costs are expensed as incurred. Advertising costs, which are
included in sales and marketing expense, were $0 for the period from July 2,
1997 (inception) to December 31, 1997 and $36,000 for the year ended
December 31, 1998 and $24,000 and $424,000 for the nine months ended
September 30, 1998 and 1999.
INCOME TAXES
NetRatings accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("FAS 109"), which requires the use of the liability method in accounting for
income taxes. Under FAS 109, deferred tax assets and liabilities are measured
based on differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
IMPAIRMENT OF LONG-LIVED ASSETS
NetRatings evaluates its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The carrying value of NetRatings' financial instruments, including cash and
cash equivalents, accounts receivable and notes payable approximates fair value.
Cash and cash equivalents and accounts receivable approximate fair market value
due to their short term nature. Notes payable approximate fair value as interest
rates on these notes approximate market rates.
Financial instruments which subject NetRatings to concentrations of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. NetRatings maintains its cash in a domestic financial institution
with a high credit standing and performs periodic evaluations of the relative
credit
F-8
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
standing of this institution. NetRatings conducts business with companies in
various industries throughout the United States and performs ongoing credit
evaluations of its customers. Reserves are maintained for potential credit
losses. At December 31, 1998 and September 30, 1999, the allowance for doubtful
accounts totalled $25,000 and $245,000, respectively.
COMPREHENSIVE INCOME
Effective January 1, 1998, NetRatings adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130").
FAS 130 establishes new rules for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
There is no difference in NetRatings historic net losses as reported and the
comprehensive net losses under the provision of FAS 130 for any periods
presented.
COMPUTATION OF NET LOSS PER COMMON SHARE
NetRatings computes net loss per share based on Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share" ("FAS 128"). In
accordance with FAS 128, basic net loss per share is calculated as net loss
divided by the weighted-average number of common shares outstanding less shares
subject to repurchase. Diluted net loss per share is computed using the
weighted-average number of common shares outstanding and dilutive common stock
equivalents outstanding during the period. Common equivalent shares from stock
options and warrants (using the treasury stock method) and convertible preferred
stock and notes payable have been excluded from the calculation of net loss per
share as their effect is antidilutive.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred shares not included above that will automatically
convert to common shares upon completion of the NetRatings' initial public
offering, using the if-converted method (Note 6).
INTERIM FINANCIAL INFORMATION
The interim financial information at September 30, 1998 and for the nine
month period ended September 30, 1998 is unaudited but, in the opinion of
management, includes all adjustments, consisting only of normal recurring
adjustments, which NetRatings considers necessary for a fair presentation of the
financial position and results of operations for the interim periods. The
results of operations for the nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the full fiscal year.
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 amounts reported in the financial statements. Actual
results could differ from these estimates.
F-9
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT PRONOUNCEMENTS
As of January 1998, the Company adopted FASB Statement No. 131, DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("FAS 131"). FAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. FAS 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The adoption of FAS 131 did not affect results of operations, financial position
or disclosure of segment information. NetRatings conducts business in one
operating segment. NetRatings is engaged in the development and sale of Internet
audience measurement information and analytical services. NetRatings' management
has determined the operating segment based upon how the business is managed and
operated.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction, and, if so, the type of hedge transaction. In June 1999, the
FASB issued FAS 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133"
("FAS 137"), which amends FAS 133 to be effective for all fiscal quarters or all
fiscal years beginning after June 15, 2000 or January 1, 2001 for NetRatings.
Management does not currently expect that adoption of FAS 137 will have a
material impact on NetRatings' financial position or results of operations.
NOTE 2: BALANCE SHEET DETAILS
Details of balance sheet items are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1997 1998 1999
-------- ---------- --------------
<S> <C> <C> <C>
Computer equipment and software........... $360,000 $ 547,000 $ 957,000
Office equipment, furniture, and
fixtures................................ 17,000 19,000 40,000
Leasehold improvements.................... 14,000 19,000 39,000
-------- ---------- ----------
391,000 585,000 1,036,000
Less accumulated depreciation and
amortization............................ (24,000) (191,000) (443,000)
-------- ---------- ----------
Property and equipment, net............... $367,000 $ 394,000 $ 593,000
======== ========== ==========
</TABLE>
F-10
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 2: BALANCE SHEET DETAILS (CONTINUED)
As of December 31, 1998 and September 30, 1999, property and equipment
includes amounts held under capital leases of $242,000 and $356,000
respectively, and related accumulated amortization of $74,000 and $163,000,
respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1997 1998 1999
-------- ---------- --------------
<S> <C> <C> <C>
Purchased technology, net.................. $ -- $ 66,000 $ 42,000
Other non-current assets................... 27,000 13,000 69,000
------- ---------- ----------
Other assets........................... $27,000 $ 79,000 $ 111,000
======= ========== ==========
</TABLE>
Amortization of purchased technology for the year ended December 31, 1998
was $33,000 and for the nine months ended September 30, 1999 was $25,000.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1997 1998 1999
-------- ---------- --------------
<S> <C> <C> <C>
Accrued compensation...................... $ 31,000 $ 88,000 $ 141,000
Accrued legal fees........................ 2,000 10,000 340,000
Other accrued liabilities................. 382,000 112,000 492,000
-------- ---------- ----------
Accrued liabilities................... $415,000 $ 210,000 $ 973,000
======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1997 1998 1999
-------- ---------- --------------
<S> <C> <C> <C>
Accrued amounts payable to Nielsen Media
Research................................ $ -- $ 539,000 $2,164,000
Convertible notes payable--Nielsen Media
Research................................ -- 2,000,000 --
-------- ---------- ----------
Amounts due to Nielson Media Research..... $ -- $2,539,000 $2,164,000
======== ========== ==========
</TABLE>
NOTE 3: NOTES PAYABLE
In January 1998, NetRatings entered into a $500,000 equipment loan under a
master equipment financing agreement of which $242,000 and $500,000 had been
utilized as of December 31, 1998 and September 30, 1999 respectively. The
equipment financing bears interest at an annual rate of 8% and is secured by the
assets purchased with the borrowings. Borrowings and interest are due in
installments over 42 months. The drawdowns under this equipment financing
agreement have been classified as capital leases.
In connection with the equipment financing, NetRatings issued warrants to
purchase 48,000 shares of common stock at an exercise price $0.42 per share. The
warrant has a contractual term of nine years. The value of these warrants at the
date of issuance was not material and no value was attributed to them in the
accompanying financial statements. None of these warrants had been exercised as
of September 30, 1999.
F-11
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 3: NOTES PAYABLE (CONTINUED)
In March 1999, NetRatings borrowed an additional $258,000 to fully utilize
the above facility. As of September 30, 1999, there was $366,000 due under the
agreement. In conjunction with these additional borrowings, NetRatings issued
warrants to purchase 9,000 shares of common stock at an exercise price of $2.12
per share. The warrants have a contractual term of seven years. At the date of
grant, the fair value ascribed to the warrants was approximately $45,000, based
on a Black-Scholes valuation model, was recorded as a discount to the capital
leases and is being amortized as additional interest expense over the term of
capital leases.
In March 1999, NetRatings entered into a $244,000 payment plan agreement
with a vendor. Approximately $156,000 of the total amount under this agreement
bears interest at an annual effective rate of 8.62%. The payment plan amounts
including the interest-free portion and the interest are repayable in twelve
quarterly installments of $22,000 each. Future maturities under this payment
plan for years ending December 31 are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 26,000
2000........................................................ 88,000
2001........................................................ 88,000
2002........................................................ 28,000
--------
$230,000
========
</TABLE>
NOTE 4: REDEEMABLE CONVERTIBLE PREFERRED STOCK
<TABLE>
<CAPTION>
LIQUIDATION
DESIGNATED SHARES ISSUED AND OUTSTANDING SHARES PREFERENCE
----------------- ----------------------------- -----------
<S> <C> <C> <C>
Series A redeemable
convertible preferred stock
("Series A")............................ 1,900,000 1,900,000 $0.18
Series B redeemable
convertible preferred stock
("Series B")............................ 2,184,000 1,477,000 $0.63
Series C redeemable
convertible preferred stock
("Series C")............................ 6,600,000 6,414,000 $3.11
Series D redeemable
convertible preferred stock
("Series D")............................ 4,887,000 4,887,000 $3.14
---------- ----------
Total..................................... 15,571,000 14,678,000
========== ==========
</TABLE>
SERIES A
In January 1998, NetRatings issued 1,900,000 shares of Series A at a price
of $0.18 per share for cash for a total purchase price of $350,000. Series A
shares were originally not redeemable and were convertible into shares of common
stock using conversion ratio of one share of common stock for two
F-12
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 4: REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
shares of Series A preferred stock, subject to certain adjustments for dilution,
if any, resulting from future stock issuances and accordingly were included in
stockholders' equity as of December 31, 1998. Upon issuance of Series C shares
the Series A conversion ratio was changed to one share of common stock for eight
shares of Series A preferred stock and in addition holders of Series A were
granted the redemption features described below.
SERIES B
In July 1999, the holders of $895,000 in convertible notes payable converted
their promissory notes to 1,477,000 shares of Series B at approximately $0.63
per share. The 1,477,000 shares of Series B represented the $895,000 in
principal from the convertible notes payable, plus approximately $40,000 in
interest accrued through November 1998. The remaining $55,000 in accrued
interest due to the holders of the convertible notes payable at the time of
conversion was paid by NetRatings. Each share of Series B is convertible into
shares of common stock at the option of the holder using the conversion ratio of
one share of common stock for two shares of Series B preferred stock and has the
redemption features described below.
SERIES C
In August 1999, NetRatings issued 6,414,000 shares of Series C at a price of
$3.11 per share for a total purchase price of $20,000,000. Nielsen Media
Research converted $3.0 million in notes payable into Series C shares and
NetRatings received cash proceeds from the sale of Series C shares of
$17 million. Issuance costs related to Series C are $620,000 including the value
of warrants granted to a financial advisor to purchase 43,000 shares at $6.24
per share. The value of the fully vested warrants issued to the financial
advisor using the Black-Scholes valuation model is $184,000. These warrants are
fully vested and expire in 2005. Each share of Series C is convertible into
shares of common stock at the option of the holder using the conversion ratio of
one share of common stock for two shares of preferred stock and has the
redemption features described below.
In August 1999, simultaneously with the Series C offering, the Company
entered into additional agreements with Nielsen Media Research superceding the
term sheet that had previously governed the Company's strategic relationship
with Nielsen Media Research. In connection with this transaction, NetRatings
also issued two warrants to Nielsen Media Research, one of the Series C
investors, to purchase shares of common stock. The other Series C investor did
not receive warrants. The first warrant entitles Nielsen Media Research to
purchase 553,000 shares of common stock at the per share exercise price of
$7.20. The second warrant entitles Nielsen Media Research to purchase 6,000,000
shares of common stock at the exercise price of $12.00 per share or 60% of
NetRatings' per share price at its initial public offering, whichever is lower.
The first warrant which expires on December 31, 2001 becomes exercisable at the
earlier of January 1, 2000 or the effective date of NetRatings' initial public
offering. The second warrant which expires on December 31, 2004 becomes
exercisable at the earlier of January 1, 2002 or the effective date of
NetRatings' initial public offering. NetRatings recorded a deferred charge in
August 1999 totaling $22,600,000 representing the value of these warrants based
on a Black-Scholes valuation model. The value of these warrants is subject to
change based upon the Company's initial public offering price. The deferred
charge is being amortized to operating expense, through December 31, 2004, the
final expiration date of the second warrant. Amortization expense is
F-13
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 4: REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
$375,000 for the nine months ended September 30, 1999 and is included in
stock-based compensation in the accompanying statement of operations.
In connection with the Series C financing transaction, NetRatings also
granted Nielsen Media Research the right to purchase additional shares of
NetRatings' common stock in connection with NetRatings' initial public offering,
at the initial public offering price. Nielsen will have the right to purchase a
sufficient number of shares of NetRatings common stock to enable Nielsen to own
54% of NetRatings' outstanding fully diluted shares immediately following
NetRatings initial public offering. If Nielsen Media Research elects to purchase
all or a portion of the stock it is entitled to purchase, each existing
preferred and common stockholder will be entitled to offer its shares to Nielsen
at the initial public offering price subject to certain limitations that are to
be agreed to by NetRatings and the underwriters.
NetRatings also entered into a stockholders agreement with Nielsen that
grants Nielsen the right to nominate a single director to NetRatings' board,
which increases to two directors in the event that Nielsen exercises both of the
warrants described above. The stockholders agreement also provides that, for a
period of five years after the date of the agreement, NetRatings will not sell
or solicit proposals for the sale of NetRatings to a third party. After this
five-year period, NetRatings may sell their business subject to Nielsen's right
of first refusal. This right of first refusal terminates on the effective date
of a NetRatings' initial public offering.
SERIES D
In September 1999, NetRatings issued 4,887,000 shares of Series D to
ACNielsen and Series C stockholders at a price of $3.14 per share for cash for a
purchase price of $15,238,000 (net of issuance costs of $105,000). Each share of
Series D is convertible into shares of common stock at the option of the holder
and using the conversion ratio of one share of common stock for two shares of
preferred stock and has the redemption features described below.
CONVERSION
Each share of Series A, B, C and D redeemable convertible preferred stock
is, at the option of the holder, convertible into shares of common stock using
the applicable conversion ratio. The outstanding shares of redeemable
convertible preferred stock automatically convert into common stock immediately
prior to the closing of an underwritten public offering of common stock under
the Securities Act of 1933 in which NetRatings receives at least $15,000,000 in
gross proceeds and the price per share is at least $4.00 per share in case of
Series A and Series B and at least $8.00 per share for Series C and Series D.
DIVIDENDS
Holders of Series A, B, C and D redeemable convertible preferred stock are
entitled to receive noncumulative dividends of $0.06, $0.06, $0.21 and $0.19 per
share respectively. Dividends are to be paid when declared by the board of
directors out of legally available funds. No dividends have been declared or
paid.
F-14
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 4: REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
VOTING RIGHTS
Series A, B, C and D stockholders are entitled to the number of votes equal
to the number of shares of common stock into which such shares of the respective
series could be converted and have the voting rights and powers of the common
stock, voting together as a single class. In addition, the Series D stockholders
also have special rights under which so long as at least 1,000,000 shares of
Series D remain outstanding, NetRatings could not authorize, issue or obligate
itself to issue any other equity security on parity with the Series D as to the
dividend, redemption right, liquidation preference, conversion rights and voting
rights senior to or on a parity with the Series D. Also NetRatings is not able
to affect a merger or consolidation with any other entity where the stockholders
of NetRatings would hold less than 50% of the surviving entity and the per share
consideration to be received by the Series D stockholders would be less than
$5.16.
REDEMPTION
At any time after the respective fifth anniversary of the original issuance
of the Series D, upon the affirmative vote or written consent of the holders of
at least two-thirds of the outstanding shares of Series A, B, C or D, NetRatings
shall redeem all issued, outstanding, and unconverted shares at the respective
redemption price. The redemption price for each share of Series A, B, C and D
shall be $0.18, $0.63, $3.11 and $3.14 respectively and any declared but unpaid
dividends.
LIQUIDATION PREFERENCE
Series A, B, C and D stockholders are entitled to receive, upon liquidation,
an amount equal to the sum of their respective liquidation preference and all
declared but unpaid dividends. Thereafter the remaining assets and funds, if any
shall be distributed pro rata among the preferred and common shareholders until
the Series A, B, C and D stockholders have received $0.36, $1.26, $9.35 and
$9.42, respectively. Thereafter, any remaining funds shall be distributed pro
rata among the common shareholders. In the event that the assets and funds to be
distributed among the holders of Series A, B, C and D are insufficient to permit
payment of the full preferential amount, then the entire assets and funds shall
be distributed ratably among such holders in proportion to the preferential
amount each such holder is otherwise entitled to receive.
NOTE 5: STOCKHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE NOTES PAYABLE
In May and November 1998, NetRatings issued convertible notes payable for
total cash proceeds of $895,000. The notes were convertible in shares of
Series B stock at approximately $0.63 per share. The notes had an original
maturity date of May 2000 and bear interest at 9% per annum. The notes and a
portion of accrued but unpaid interest were converted into shares of Series B
redeemable convertible preferred stock in July 1999 (Note 4). In conjunction
with this debt issuance, NetRatings issued to the holders of the notes warrants
to purchase 707,000 shares of NetRatings' Series B convertible preferred stock
at an exercise price of $0.63 per share. The warrants have a contractual term of
five years. At the date of grant, the value ascribed to the warrants was
approximately $106,000, based on a Black-Scholes valuation model. This amount
was recorded as discount to the convertible notes payable and up until the time
of conversion was being amortized as additional interest expense
F-15
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 5: STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
over the term of the convertible notes payable. Accordingly, NetRatings recorded
additional interest expense of $35,000 in the year ended December 31, 1998 and
$26,000 in the nine months ended September 30, 1999. The effective interest rate
on the convertible notes, as adjusted for the ascribed value of the convertible
note warrants, was approximately 14.9% per annum. None of the above warrants had
been exercised as of September 30, 1999.
NetRatings entered into a strategic alliance with Nielsen Media Research in
October 1998 to develop and market Internet audience measurement products and
services in the United States and Canada using NetRatings technology and Nielsen
Media Research's proprietary panel selection methodology. Also, in
October 1998, NetRatings issued a convertible note payable to Nielsen Media
Research for cash proceeds of $2,000,000. The note had an original maturity date
of December 31, 1999 and bears interest at 6%, to be paid semiannually in
arrears.
In April 1999, NetRatings issued another convertible note payable to Nielsen
Media Research for cash proceeds of $1,000,000. This note was interest free and
was also payable on December 31, 1999. Both the notes were convertible into
shares of NetRatings' next issuance of preferred stock at the per share price of
that financing. Nielsen Media Research converted both the notes into shares of
Series C convertible redeemable preferred stock at a price of $3.11 per share.
(Note 4).
COMMON STOCK WARRANTS
In connection with the sale of Series A preferred stock, NetRatings issued
warrants for the purchase of 225,000 shares of common stock at an exercise price
of $0.02 per share. The warrants became exercisable upon the issuance of the
Series B preferred stock in July 1999. The value of these warrants at the date
of issuance was not material and no value was attributed to them in the
accompanying financial statements. These warrants were exercised in September
1999.
COMMON STOCK
In September 1997, under a stock purchase agreement, NetRatings issued
3,200,000 shares of common stock to founders at a price of $0.002 per share. In
May 1998, the terms of this agreement were amended and NetRatings repurchased
590,000 common shares at cost. Following the amendment, all of the remaining
outstanding shares are subject to repurchase rights which expire ratably over
the 48 months following September 1, 1996. At September 30, 1999, 653,000 shares
were subject to repurchase.
NetRatings has issued 675,000 shares of common stock to employees and
consultants under stock purchase agreements. These shares are subject to
repurchase rights which expire ratably over 48 months. Upon termination of
service, any unvested shares may be repurchased by NetRatings at the issuance
price. Shares subject to repurchase totaled 596,000 at December 31, 1997,
269,000 at December 31, 1998 and 229,000 at September 30, 1999. In July 1998,
NetRatings repurchased at cost 173,000 shares of common stock from employees
upon their termination.
F-16
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 5: STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
NOTE RECEIVABLE FROM STOCKHOLDER
In August, 1999, NetRatings issued $125,000 in promissory notes to a member
of the Board of Directors of NetRatings in connection with the exercise of stock
options. The notes bear interest at 5% per annum, are due in three years and
NetRatings has full recourse against the holder.
CONTRIBUTION TO CAPITAL
Contributions to capital represent funds received in connection with the
formation and development of NetRatings. These funds were utilized to perform
market research, write the business plan, and commence product development.
PROPOSED PUBLIC OFFERING OF COMMON STOCK
On September 21, 1999, the Board of Directors authorized NetRatings to
proceed with an initial public offering of its common stock. If the offering is
consummated as presently anticipated, all of the outstanding redeemable
convertible preferred stock will automatically convert to common stock. The
unaudited pro forma stockholders' equity at September 30, 1999 gives effect to
the conversion of all outstanding shares of redeemable convertible preferred
stock at that date into 6,626,000 shares of common stock upon the completion of
the offering.
STOCK SPLIT
On September 21, 1999, the Board of Directors approved, subject to
stockholder approval, a one-for-two reverse stock split of issued and
outstanding common stock to be effective prior to the completion of the initial
public offering of its common stock. The accompanying financial statements have
been retroactively restated to give effect to the reverse stock split.
1998 STOCK PLAN
In April 1998, NetRatings adopted the 1998 Stock Plan (the "Plan"). Under
the Plan, up to 1,215,000 shares of NetRatings' common stock was reserved for
issuance under the terms of the Plan. Through September 30, 1999, an additional
1,750,000 shares were reserved for issuance under the Plan. Options may be
granted at no less than 85% of the fair value on the date of the grant (110% of
fair value in certain instances), as determined by the board of directors.
Options generally vest over a four-year period and have a maximum term of ten
years.
F-17
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 5: STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Information with respect to stock option activity is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
OPTIONS ------------------------ WEIGHTED-
AVAILABLE FOR NUMBER OF PRICE PER AVERAGE
GRANT SHARES SHARE EXERCISE PRICE
------------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Authorized........................ 1,215,000 -- -- --
Granted........................... (868,000) 868,000 $0.10 $0.10
---------- ---------- -----------
Balance at December 31, 1998.... 347,000 868,000 $0.10 $0.10
Authorized........................ 1,750,000 -- -- --
Granted........................... (1,456,000) 1,456,000 $.10-$8.40 $2.45
Exercised......................... -- (555,000) $0.10-$.50 $0.27
Canceled.......................... 47,000 (47,000) $0.10 $0.10
---------- ---------- -----------
Balance at September 30, 1999... 688,000 1,722,000 $0.10-$8.40 $2.04
========== ========== ===========
</TABLE>
The weighted-average remaining contractual life of all outstanding options
is 8.96 years. The weighted-average fair value of options granted was $0.02 and
$5.84 during the year ended December 31, 1998 and the nine months ended
September 30, 1999, respectively.
The following table summarizes information concerning options outstanding
and exercisable at September 30, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED-AVERAGE
NUMBER OF WEIGHTED-AVERAGE REMAINING NUMBER OF WEIGHTED-AVERAGE
EXERCISE PRICE SHARES EXERCISE PRICE CONTRACTUAL LIFE SHARES EXERCISE PRICE
- -------------- --------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$0.10...................... 580,000 $0.10 8.42 295,000 $0.10
$0.50...................... 629,000 $0.50 9.51 104,000 $0.50
$5.30...................... 271,000 $5.30 9.27 31,000 $5.30
$6.22...................... 33,000 $6.22 9.81 -- --
$6.28...................... 36,000 $6.28 10.00 -- --
$7.20...................... 150,000 $7.20 10.00 -- --
$8.40...................... 23,000 $8.40 10.00 -- --
--------- -------
1,722,000 430,000
========= =======
</TABLE>
F-18
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 5: STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
SHARES RESERVED FOR FUTURE ISSUANCE
NetRatings has reserved shares of common stock for future issuance as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- --------------
<S> <C> <C>
Redeemable convertible preferred stock, including
effect of preferred stock warrants................ 1,303,000 6,980,000
Stock options outstanding........................... 868,000 1,722,000
Stock options, available for grant.................. 347,000 688,000
Warrants to purchase common stock................... 273,000 6,680,000
</TABLE>
DEFERRED COMPENSATION
NetRatings has recorded deferred stock compensation charges of $0, $254,000,
$69,000, and $3,949,000 during the period from July 2, 1997 (inception) to
December 31, 1997, for the year ended December 31, 1998 and for the nine months
ended September 30, 1998 and 1999, respectively, representing the difference
between the exercise price of the option and the fair value of common stock as
of the date of grant. These amounts are being amortized by charges to
operations, using the graded method, over the vesting periods of the individual
stock options, which are four years.
OPTIONS ISSUED TO CONSULTANTS
On June 1, 1999 and August 19, 1999, NetRatings granted options to purchase
135,000 and 100,000 shares of common stock to consultants at an exercise price
of $0.50 and $5.30 per share respectively. These options were granted in
exchange for consulting services performed and were fully vested upon grant.
NetRatings valued these options at their fair value and recorded a charge to
operations of $970,000 for the nine months ended September 30, 1999.
PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK-BASED COMPENSATION
NetRatings has elected to follow APB 25 and related interpretations in
accounting for its employee stock options. The alternative fair value accounting
provided for under Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, when the exercise price of NetRatings' employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income (loss) is required by FAS 123,
which also requires that the information be determined as if NetRatings has
accounted for its employee stock options under the fair value method of
FAS 123. The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing valuation model with the following
weighted-average assumptions: volatility of 0.80; risk-free interest rates of
4.57% to 5.92% for the year ended December 31, 1998 and the nine months ended
September 30, 1999; a dividend yield of 0%; and a weighted-average expected life
of the option of four years.
F-19
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 5: STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The option valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because
NetRatings' employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Had compensation cost for NetRatings' stock-based compensation plans been
determined using the fair value at the grant dates for awards under those plans
calculated using the minimum value method of FAS 123, NetRatings' historical net
loss applicable to common stockholders and basic and diluted net loss per share
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 2, 1997 NINE MONTHS
(INCEPTION) TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
-------------- ------------ -------------
<S> <C> <C> <C>
Pro forma net loss applicable
to common stockholders...... $(1,781,000) $(3,885,000) $(11,752,000)
=========== =========== ============
Pro forma net loss per common
share....................... $ (2.03) $ (2.79) $ (5.72)
=========== =========== ============
</TABLE>
The pro forma impact of options on the net loss for the year ended
December 31, 1998 and the nine months ended September 30, 1999 is not
representative of the effects on net income (loss) for future years, as future
years will include the effects of additional years of stock option grants.
F-20
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 6: NET LOSS PER SHARE OF COMMON STOCK
The calculation of historical and pro forma basic and diluted net loss per
share is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 2, 1997 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ---------------------------
1997 1998 1998 1999
-------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
HISTORICAL:
Net loss............................. $ (1,781,000) $ (3,879,000) $ (2,358,000) $(10,670,000)
============ ============ ============ ============
Weighted-average shares of common
stock outstanding.................. 3,777,000 3,395,000 3,490,000 3,256,000
Less: weighted-average shares subject
to repurchase...................... 2,899,000 2,002,000 2,170,000 1,200,000
------------ ------------ ------------ ------------
Weighted-average shares of common
stock outstanding used in computing
basic and diluted net loss per
share.............................. 878,000 1,393,000 1,320,000 2,056,000
============ ============ ============ ============
Basic and diluted net loss per common
share.............................. $ (2.03) $ (2.78) $ (1.79) $ (5.19)
============ ============ ============ ============
PRO FORMA:
Net loss............................. $ (3,879,000) $ (2,358,000) $(10,670,000)
============ ============ ============
Weighted-average shares used in
computing basic and diluted net
loss per common share.............. 1,393,000 1,320,000 2,056,000
Adjustment to reflect the effect of
the assumed conversion of preferred
stock from the date of issuance.... 926,000 950,000 2,570,000
------------ ------------ ------------
Weighted-average shares used in
computing pro forma basic and
diluted net loss per common share
(unaudited)........................ 2,319,000 2,270,000 4,626,000
============ ============ ============
Pro forma basic and diluted net loss
per common share (unaudited)....... $ (1.67) $ (1.04) $ (2.31)
============ ============ ============
</TABLE>
If NetRatings had reported net income, the calculation of historical and pro
forma diluted earnings per share would have included approximately an additional
736,000, 848,000 and 2,771,000 common equivalent shares related to outstanding
stock options and warrants not included above (determined using the treasury
stock method) for the years ended December 31, 1998, and the nine months ended
September 30, 1998 and 1999 respectively. In addition, if NetRatings had
reported net income the calculation of historical diluted earnings per share
would have included approximately an additional 1,800,000, 1,500,000, and
4,252,000 common equivalent shares related to the conversion of preferred shares
and convertible notes payable using the if-converted method for the year ended
December 31, 1998 and the nine months ended September 30, 1998 and 1999.
F-21
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 7: JOINT VENTURE WITH ACNIELSEN
In September 1999, NetRatings entered into a joint venture with ACNielsen to
develop and maintain audience measurement panels and to market NetRatings
products and services in key international markets. Through the joint venture,
in which NetRatings holds a 19.9% minority interest, NetRatings plans to launch
audience measurement services in over 30 countries.
The joint venture pays NetRatings a fee based on a percentage of the joint
venture's sales, subject to a minimum of $7.5 million and maximum of
$15 million over five years. Revenue from the joint venture's Internet audience
measurement services will be allocated between NetRatings and the joint venture
depending on the location of the customer and the location of the panel whose
data is used in the service:
- The joint venture retains 100% of any revenue from services that the joint
venture sells to customers outside North America based on data from panels
outside North America.
- NetRatings and the joint venture each retain 50% of any revenues from
services that NetRatings sells to customers in North America based on data
from panels outside North America or services that the joint venture sells
to customers outside North America based on North American panel data.
- The joint venture retains 35% of any revenue from services that the joint
venture sells to customers inside the United States and Canada based on
data from panels inside those countries, and NetRatings retains 65% of any
revenue from such services.
- If either NetRatings or the joint venture sells services based on data
from a combination of panels located both inside and outside North
America, the allocation of revenues is determined by an operating
committee consisting of two representatives of each company, with any
decisions requiring a unanimous vote of those present, which must include
at least one representative of each company.
NetRatings did not receive any revenue from the joint venture for the nine
months ended September 30, 1999.
To initially capitalize the joint venture, ACNielsen contributed cash and
NetRatings granted an exclusive license with respect to its data collection
technology for the covered territory subject to specified performance criteria.
NetRatings entered into a stockholders agreement with ACNielsen setting forth
procedures for funding the ongoing operations of the joint venture. Panel
development costs related to the initial roll out of the Nielsen//NetRatings
service in over 30 countries covered by the joint venture will be funded in its
entirety by ACNielsen. In general, the ongoing capital requirements of the joint
venture are the responsibility of both companies in proportion to their relative
equity ownership of the joint venture. Under the stockholders agreement,
ACNielsen has a right of first refusal to purchase any shares of the joint
venture that NetRatings wishes to sell to a third party. In addition, if the
joint venture does not effect an initial public offering within five years,
NetRatings has the right to require ACNielsen to purchase the NetRatings equity
stake at its then current fair market value.
NOTE 8: RELATED PARTY TRANSACTIONS
Concurrent with the sale of Series A preferred stock, NetRatings and a
related party entered into a technology transfer agreement which assigned and
transferred to NetRatings all ownership interest in
F-22
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 8: RELATED PARTY TRANSACTIONS (CONTINUED)
NetRatings' core products and technology. In January 1998, in consideration of
these technology assignments and transfers, NetRatings paid to the related party
$100,000 in cash.
In April 1999, NetRatings entered into a barter transaction under which an
annual subscription to a NetRatings service valued at $50,000 was exchanged for
web site design services provided by a company, one of whose officers is a
member of the NetRatings board of directors. The subscription was valued at its
fair value using NetRatings normal pricing and terms.
As described in Note 5, in August 1999, Nielsen Media Research converted its
notes payable into shares of Series C preferred stock and purchased $6 million
of Series C preferred stock. NetRatings also entered into an operating agreement
covering its relationship with Nielsen Media Research. Under the terms of the
operating agreement, NetRatings pays Nielsen Media Research a commission for
selling services to certain customers. These commissions total $334,000 for the
nine months ended September 30, 1999 and are included in sales and marketing
expenses in the accompanying statements of operations. NetRatings is also
charged by Nielsen Media Research for costs of maintaining the panel at the
rates. Nielsen Media Research charges its own internal divisions. These costs
total $3,883,000 for the nine months ended September 30, 1999 and are included
in cost of revenue in the accompanying statements of operations.
NOTE 9: COMMITMENTS AND CONTINGENCIES
LEASES
As of September 30, 1999, minimum payments under all noncancelable lease
agreements were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
October to December 31, 1999............................ $ 35,000 $ 64,000
Year ending December 31, 2000........................... 208,000 131,000
Year ending December 31, 2001........................... 159,000 --
Year ending December 31, 2002........................... 65,000 --
-------- --------
Total minimum lease payments............................ 467,000 $195,000
========
Less amount representing interest................... (101,000)
--------
Present value of minimum lease payments................. 366,000
Less current portion................................ (162,000)
--------
Long-term capital lease obligations..................... $204,000
========
</TABLE>
NetRatings leases its facility under an operating lease agreement which
expires in September 2000.
Rent expense was $32,000 for the period from July 2, 1997 (inception) to
December 31, 1997, $103,000 for the year ended December 31, 1998 and was $72,000
and $142,000 for the nine months ended September 30, 1998 and 1999.
In June 1999, NetRatings entered into a loan and security agreement under
which the lender committed to equipment financing up to a principal amount of
$700,000 at an interest rate of 8% per
F-23
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 9: COMMITMENTS AND CONTINGENCIES (CONTINUED)
annum. This facility expires on April 30, 2000. As of September 30, 1999, no
borrowings were outstanding under this facility. In conjunction with the
availability of this equipment financing commitment, NetRatings issued warrants
to purchase 26,000 shares of common stock at an exercise price of $2.12 per
share. The warrant has a term of nine years. At the date of grant, the fair
value ascribed to the warrants was approximately $132,000, based on a
Black-Scholes valuation model and was recorded as deferred financing costs and
is being amortized over the term of the facility.
BANK LINE OF CREDIT
In September 1999, NetRatings secured a $1,000,000 bank line of credit
expiring in one year with interest at the prime rate. The line of credit also
has an additional $350,000 available to NetRatings to fund fixed asset
purchases. Draws on the fixed asset facility are due over a 36 month period with
interest at the prime rate. The line of credit requires that NetRatings maintain
compliance with certain restrictive financial covenants. No borrowings have been
made under this agreement.
PENDING LITIGATION
On November 4, 1999, PaineWebber Incorporated filed a lawsuit against
NetRatings in the Supreme Court of the State of New York for the County of New
York. The suit involves an agreement entered into in May 1999 in which
NetRatings engaged PaineWebber to act as a financial advisor with respect to a
potential strategic transaction. The specific transaction for which PaineWebber
was engaged was not consummated. However, the lawsuit alleges that NetRatings
breached the obligations under the agreement by failing to pay PaineWebber a fee
based upon the subsequent sale of equity securities to Nielsen Media Research
and by failing to retain PaineWebber as a managing underwriter for the initial
public offering. The complaint seeks damages in the aggregate amount of not less
than $1.9 million and reimbursement for PaineWebber's attorneys' fees relating
to the dispute. Management believes, based on consultation with counsel, that
NetRatings has substantial defenses to PaineWebber's claims, and NetRatings
intends to defend the lawsuit vigorously. NetRatings expects to incur
substantial legal fees and expenses in connection with the litigation. The
litigation is in the preliminary stage, and management is unable to predict its
final outcome. However, management currently believes that the resolution of
this matter will not have a material adverse impact on NetRatings' financial
position, results of operations or cash flows. Depending on the amount and
timing, an unfavorable resolution could materially affect NetRatings' future
results of opeations or cash flows in a particular period.
NOTE 10: EMPLOYEE BENEFIT PLAN
NetRatings has a 401(k) plan which stipulates that all full-time employees
can elect to contribute to the 401(k) plan, subject to certain limitations, up
to 15% of salary on a pretax basis. NetRatings has the option to provide
matching contributions but has not done so to date.
NOTE 11: INCOME TAXES
No income tax expense was recorded for the period from July 2, 1997
(inception) to December 31, 1997, the year ended December 31, 1998, or the nine
months ended September 30, 1999 due to net operating losses.
F-24
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 11: INCOME TAXES (CONTINUED)
The difference between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate to income before
taxes is explained below:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 2, 1997 NINE MONTHS
(INCEPTION) TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
-------------- ------------ -------------
<S> <C> <C> <C>
Income tax benefit at federal statutory
rate................................. $(606,000) $(1,326,000) $(3,628,000)
Unutilized net operating losses........ 606,000 1,326,000 3,628,000
--------- ----------- -----------
Total.................................. $ -- $ -- $ --
========= =========== ===========
</TABLE>
Significant components of NetRatings' deferred tax assets are as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
---------------------- SEPTEMBER 30,
1997 1998 1999
-------- ----------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......... $ 8,000 $ 1,500,000 $ 4,700,000
Tax credit carryforwards................. -- 100,000 170,000
Other.................................... -- 40,000 860,000
------- ----------- -----------
Total deferred tax assets.................. 8,000 1,640,000 5,730,000
Valuation allowance........................ (8,000) (1,640,000) (5,730,000)
------- ----------- -----------
Net deferred tax assets.................... $ -- $ -- $ --
======= =========== ===========
</TABLE>
FASB Statement No. 109 provides for the recognition of deferred tax assets
if realization of such assets is more likely than not. Based upon the weight of
available evidence, which includes NetRatings' historical operating performance
and the reported cumulative net losses in all prior years, NetRatings has
provided a full valuation allowance against its net deferred tax assets.
NetRatings will continue to evaluate the realizability of the deferred tax
assets on a quarterly basis.
The net valuation allowance increased by $8,000 during the period July 2,
1997 (inception) to December 31, 1997, by $1,632,000 during the year ended
December 31, 1998, and by $4,090,000 for the nine months ended September 30,
1999.
As of September 30, 1999, NetRatings had net operating loss carryforwards
for federal and state income tax purposes of approximately $11.9 million.
NetRatings also had federal and state research and development tax credit
carryforwards of approximately $100,000 and $80,000 as of September 30, 1999.
The federal and state net operating loss and tax credit carryforwards will
expire at various dates beginning in 2005, if not utilized.
Utilization of the net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in the expiration of
the net operating loss and tax credit carryforwards before utilization.
F-25
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
NOTE 12: INVESTMENT IN NETRATINGS, K.K.
In June 1999, NetRatings granted a five year license for the use of its
proprietary software to NetRatings, K.K., in exchange for a 32% ownership
interest in NetRatings, K.K. The joint venture was formed to adapt, market,
service and sell interactive media and market research data in Japan. After the
initial five year period, the license is automatically renewed on a yearly basis
for no additional consideration. As NetRatings contributed technology to this
joint venture, it did not record any cost for this investment. NetRatings is
entitled to appoint one member to the six-member board of directors of
NetRatings, K.K.
NOTE 13: SUBSEQUENT EVENTS (UNAUDITED)
1999 EMPLOYEE STOCK PURCHASE PLAN
On October 26, 1999, NetRatings' Board of Directors adopted, subject to
stockholder approval, the 1999 Employee Stock Purchase Plan to be effective upon
the completion of NetRatings' initial public offering of its common stock.
NetRatings has reserved a total of 250,000 shares of common stock for issuance
under the plan. Eligible employees may purchase common stock at 85% of the
lesser of the fair market value of the Company's common stock on the first day
of the applicable offering period or the date of purchase.
1998 STOCK PLAN
On November 9, 1999, an additional 1,000,000 shares were reserved for
issuance under the 1998 Stock Plan
F-26
<PAGE>
[NETRATINGS LOGO]
<PAGE>
4,000,000 SHARES
[NETRATINGS LOGO]
COMMON STOCK
----------------
PROSPECTUS
, 1999
---------------------
LEHMAN BROTHERS
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
C.E. UNTERBERG, TOWBIN
FIDELITY CAPITAL MARKETS
A DIVISION OF NATIONAL FINANCIAL SERVICES CORPORATION
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all costs and expenses, other than the
underwriting discounts and commissions payable by the Registrant in connection
with the sale and distribution of the common stock being registered. All amounts
shown are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market application
fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 19,182
NASD filing fee............................................. 7,400
Nasdaq National Market application fee...................... 95,000
Blue sky qualification fees and expenses.................... 5,000
Printing and engraving expenses............................. 150,000
Legal fees and expenses..................................... 425,000
Accounting fees and expenses................................ 275,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous expenses...................................... 13,418
----------
Total................................................... $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Certificate of
Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnification agreements
(Exhibit 10.1) with its directors and officers which would require the
Registrant, among other things, to indemnify them against certain liabilities
which may arise by reason of their status or service (other than liabilities
arising from willful misconduct of a culpable nature). The Registrant also
intends to maintain director and officer liability insurance, if available on
reasonable terms. These indemnification provisions and the indemnification
agreements may be sufficiently broad to permit indemnification of the
Registrant's officers and directors for liabilities (including reimbursement of
expenses incurred) arising under the Securities Act.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of the Registrant and its officers and directors for certain
liabilities arising under the Securities Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Since July 2, 1997, NetRatings has issued and sold the following
unregistered securities:
1. From inception through September 30, 1999, NetRatings issued options
to purchase an aggregate of 2,324,000 shares of common stock under its 1998
Stock Plan, of which 555,080 have been exercised.
2. In December 1998, NetRatings sold 1,900,000 shares of its Series A
preferred stock to Hitachi, Ltd. at a purchase price of $0.18 per share, for
an aggregate purchase price of $350,001, and issued to Hitachi a warrant to
purchase an additional 450,000 shares of Common Stock at an exercise price
of $0.01 per share. This warrant was exercised in full in September 1999.
II-1
<PAGE>
3. In July 1999 NetRatings, sold 1,477,151 shares of its Series B
Preferred Stock to the following investors at a purchase price of $0.63 per
share, for an aggregate purchase price of $935,037, and issued to these
investors warrants to purchase an additional 706,950 shares of Series B
Preferred Stock at an exercise price of $0.63 per share:
<TABLE>
<CAPTION>
<S> <C>
Simon Chen Yen-Whei Chow
John Dunning Liang-fu Fan
Robert Hooven Wilbur Hooven
Kinetech, Inc. Stephen Klein
Susan Kurze Charles L. ("Tim") Meadows
David A. Norman Janice and Daniel Norman
Peters Trust Swiss Family Klein Ltd.
David Toth Wilmot Living Trust
David Norman, Jr.
</TABLE>
4. In August 1999, NetRatings sold an aggregate of 6,413,751 shares of
its Series C Preferred Stock to Nielsen Media Research and Trans Cosmos
U.S.A. Inc. at purchase price of $3.11 per share, for an aggregate purchase
price of $20,000,000, and issued to Nielsen Media Research a warrant to
purchase 553,054 shares of Common Stock at an exercise price of $7.20 per
share and a warrant to purchase 6,000,000 shares of Common Stock at an
exercise price of $12.00 per share or 60% of the public offering price in
the Company's initial public offering, whichever is lower.
5. In September 1999, NetRatings sold an aggregate of 4,887,050 shares
of its Series D Preferred Stock to Nielsen Media Research and Trans Cosmos
U.S.A. Inc. at a purchase price of $3.14 per share, for an aggregate
purchase price of $15,342,893.
There were no underwriters employed in connection with any of the
transactions set forth in this Item 15.
For additional information concerning these equity investment transactions,
see the section entitled "Related Party Transactions" in the prospectus.
The issuances described in Items 15(a)(2) through 15(a)(5) were deemed
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act as transactions by an issuer not involving a public offering.
The recipients of securities in each such transaction represented their
intention 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 other instruments issued in such
transactions. All recipients either received adequate information about
NetRatings or had access, through employment or other relationships, to such
information. The issuances described in Item 15(a)(1) were deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and contracts
relating to compensation.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.1* Fourth Restated Certificate of Incorporation of Registrant
3.2 Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed prior to the effectiveness of this
registration statement
3.3 Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed after the closing of the offering
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
3.4* Bylaws of Registrant
Second Restated Rights
4.1* Agreement
Second Restated
4.2* Stockholders Agreement
4.3 Specimen stock certificate
Agreement between
Registrant and Nielsen
Media Research, dated as of
4.4 November 9, 1999
Opinion of Gray Cary Ware &
5.1 Freidenrich LLP
Form of Indemnification
Agreement between
Registrant and its
10.1* directors and officers
1998 Stock Plan, including
10.2* form of option agreement
1999 Employee Stock
10.3 Purchase Plan
Form of Loan Agreement and
Promissory Note between
Registrant and certain
10.4* directors and officers
Form of Series B Preferred
10.5* Stock Warrant
Series B Preferred Stock
Purchase Agreement dated as
10.6* of November 15, 1998
Series C Preferred Stock
Purchase Agreement dated as
10.7* of August 5, 1999
Series D Preferred Stock
Purchase Agreement dated as
10.8* of September 22, 1999
Operating Agreement between
Registrant and Nielsen
Media Research dated as of
10.9* August 15, 1999
Common Stock Purchase
Warrant issued to Nielsen
Media Research, expiring
10.10* December 31, 2001
Common Stock Purchase
Warrant issued to Nielsen
Media Research, expiring
10.11* December 31, 2004
Common Stock Purchase
Agreement between
Registrant and ACNielsen
eRatings.com, dated as of
10.12* September 22, 1999
Rights Agreement among
Registrant, ACNielsen
Corporation and ACNielsen
eRatings.com, dated as of
10.13* September 22, 1999
Stockholders Agreement
among Registrant, ACNielsen
Corporation and ACNielsen
eRatings.com, dated as of
10.14* September 22, 1999
Operating Agreement between
Registrant and ACNielsen
eRatings.com, dated as of
10.15* September 22, 1999
Software License Agreement
between Registrant and
Nielsen Media Research,
10.16* dated as of August 15, 1999
Panel Maintenance Agreement
between Registrant and
Nielsen Media Research,
10.17* dated as of August 15, 1999
Software License Agreement
between Registrant and
ACNielsen eRatings.com,
dated as of September 22,
10.18* 1999
Support Services Agreement
between Registrant and
AboveNet Communications,
dated as of February 26,
10.19* 1999
Letter agreement between
Registrant and ACNielsen,
dated as of September 22,
10.20 1999
Consent of Ernst & Young
23.1 LLP, Independent Auditors
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Consent of Gray Cary Ware &
Freidenrich LLP (included
23.2 in Exhibit 5.1)
Power of Attorney (included
24.1* on signature page)
27.1* Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES.
All schedules 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 undersigned 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 by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities 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 whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
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 the time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused Amendment No. 3 to the registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in Santa Clara, State of
California, on November 15, 1999
<TABLE>
<S> <C> <C>
NETRATINGS INC.
By: /s/ DAVID J. TOTH
-----------------------------------------
David J. Toth
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID J. TOTH* President and Chief Executive
--------------------------------------- Officer (Principal Executive November 15, 1999
David J. Toth Officer)
/s/ DAVID A. NORMAN* Chairman of the Board
--------------------------------------- November 15, 1999
David A. Norman
Vice President, Chief
/s/ JACK R. LAZAR Financial Officer and
--------------------------------------- Secretary (Principal November 15, 1999
Jack R. Lazar Financial and Accounting
Officer)
/s/ JACK SERFASS* Director
--------------------------------------- November 15, 1999
Jack Serfass
/s/ JAMES J. GEDDES, JR.* Director
--------------------------------------- November 15, 1999
James J. Geddes, Jr.
/s/ DAVID H. HARKNESS* Director
--------------------------------------- November 15, 1999
David H. Harkness
/s/ MICHAEL P. CONNORS* Director
--------------------------------------- November 15, 1999
Michael P. Connors
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JACK R. LAZAR
-------------------------------
Jack R. Lazar
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.1* Fourth Restated Certificate of Incorporation of Registrant
3.2 Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed prior to the effectiveness of this
registration statement
3.3 Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed after the closing of the offering
3.4* Bylaws of Registrant
4.1* Second Restated Rights Agreement
4.2* Second Restated Stockholders Agreement
4.3 Specimen stock certificate
4.4 Agreement between Registrant and Nielsen Media Research,
dated as of November 9, 1999
5.1 Opinion of Gray Cary Ware & Freidenrich LLP
10.1* Form of Indemnification Agreement between Registrant and its
directors and officers
10.2* 1998 Stock Plan, including form of option agreement
10.3 1999 Employee Stock Purchase Plan
10.4* Form of Loan Agreement and Promissory Note between
Registrant and certain directors and officers
10.5* Form of Series B Preferred Stock Warrant
10.6* Series B Preferred Stock Purchase Agreement dated as of
November 15, 1998
10.7* Series C Preferred Stock Purchase Agreement dated as of
August 5, 1999
10.8* Series D Preferred Stock Purchase Agreement dated as of
September 22, 1999
10.9* Operating Agreement between Registrant and Nielsen Media
Research dated as of August 15, 1999
10.10* Common Stock Purchase Warrant issued to Nielsen Media
Research, expiring December 31, 2001
10.11* Common Stock Purchase Warrant issued to Nielsen Media
Research, expiring December 31, 2004
10.12* Common Stock Purchase Agreement between Registrant and
ACNielsen eRatings.com, dated as of September 22, 1999
10.13* Rights Agreement among Registrant, ACNielsen Corporation and
ACNielsen eRatings.com, dated as of September 22, 1999
10.14* Stockholders Agreement among Registrant, ACNielsen
Corporation and ACNielsen eRatings.com, dated as of
September 22, 1999
10.15* Operating Agreement between Registrant and ACNielsen
eRatings.com, dated as of September 22, 1999
10.16* Software License Agreement between Registrant and Nielsen
Media Research, dated as of August 15, 1999
10.17* Panel Maintenance Agreement between Registrant and Nielsen
Media Research, dated as of August 15, 1999
10.18* Software License Agreement between Registrant and ACNielsen
eRatings.com, dated as of September 22, 1999
10.19* Support Services Agreement between Registrant and AboveNet
Communications, dated as of February 26, 1999
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.20 Letter agreement between Registrant and ACNielsen, dated as
of September 22, 1999
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in
Exhibit 5.1)
24.1* Power of Attorney (included on signature page)
27.1* Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
Exhibit 1.1
4,000,000 SHARES
NETRATINGS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
____________, 1999
LEHMAN BROTHERS INC.
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS CORP.
C.E. UNTERBERG, TOWBIN
FIDELITY CAPITAL MARKETS
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
NetRatings, Inc., a Delaware corporation (the "Company"), proposes to
sell 4,000,000 shares (the "Firm Stock") of the Company's common stock, par
value $0.001 per share. In addition, the Company proposes to grant to the
Underwriters named in Schedule 1 hereto (the "Underwriters") an option to
purchase up to an additional 600,000 shares of the Common Stock on the terms
and for the purposes set forth in Section 3 (the "Option Stock"). The Firm
Stock and the Option Stock, if purchased, are hereinafter collectively called
the "Stock." This is to confirm the agreement concerning the purchase of the
Stock from the Company by the Underwriters named in Schedule 1 hereto (the
"Underwriters").
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The Company
represents, warrants and agrees that:
A registration statement on Form S-1, and amendments thereto, with respect
to the Stock has (i) been prepared by the Company in conformity with the
requirements of the United States Securities Act of 1933 (the "Securities Act")
and the rules and regulations (the "Rule and Regulations") of the United States
Securities and Exchange Commission (the "Commission") thereunder and (ii) been
filed with the Commission under the Securities Act. Copies of such registration
statement and the amendments thereto have been delivered by the Company to you
as the representatives (the "Representatives") of the Underwriters. As used in
this Agreement, "Effective Time" means the date and the time as of which such
registration statement, or the most recent post-effective amendment thereto, if
any, was declared effective by the Commission; "Effective Date" means the date
of the Effective Time; "Preliminary Prospectus" means each prospectus included
in such registration statement, or amendments thereof, before it became
effective under the Securities Act and any prospectus filed with the Commission
by the Company with the consent of the Representatives pursuant to Rule 424(a)
of the Rules and Regulations; "Registration Statement" means such registration
statement, as amended at the Effective Time, including all information contained
in the final prospectus filed with the
<PAGE>
Commission pursuant to Rule 424(b) of the Rules and Regulations in accordance
with Section 1 hereof and deemed to be a part of the registration statement
as of the Effective Time pursuant to paragraph (b) of Rule 430A of the Rules
and Regulations; and "Prospectus" means such final prospectus, as first filed
with the Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the
Rules and Regulations. The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus.
The Registration Statement conforms, and the Prospectus and any further
amendments or supplements to the Registration Statement or the Prospectus will,
when they become effective or are filed with the Commission, as the case may be,
conform in all respects to the requirements of the Securities Act and the Rules
and Regulations and do not and will not, as of the applicable effective date (as
to the Registration Statement and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or supplement
thereto contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary not misleading;
PROVIDED that no representation or warranty is made as to information contained
in or omitted from the Registration Statement or the Prospectus in reliance upon
and in conformity with written information furnished to the Company through the
Representatives by or on behalf of any Underwriter specifically for inclusion
therein.
The Company and each of its subsidiaries (as defined in Section 18) have
been incorporated and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation, are duly
qualified to do business and are in good standing as foreign corporations in
each jurisdiction in which their respective ownership or lease of property or
the conduct of their respective businesses requires such qualification, and have
all power and authority necessary to own or hold their respective properties and
to conduct the business in which they are engaged; and none of the subsidiaries
of the Company is a "significant subsidiary", as such term is defined in Rule
405 of the Rules and Regulations.
The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description thereof contained in the Prospectus; and all of
the issued shares of capital stock of each subsidiary of the Company have been
duly and validly authorized and issued and are fully paid and non-assessable and
are owned directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims.
The shares of the Stock to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued, fully paid and non-assessable; and the Stock will conform to the
description thereof contained in the Prospectus.
This Agreement has been duly authorized, executed and delivered by the
Company.
Except as accurately described in the Prospectus, the execution, delivery
and performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other
-2-
<PAGE>
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries is
subject, nor will such actions result in any violation of the provisions of
the charter or by-laws of the Company or any of its subsidiaries or any
statute or any order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or any of its subsidiaries or
any of their properties or assets; and except for the registration of the
registrations of the Stock under the Securities Act and such consents,
approvals, authorizations, registrations or qualifications as may be required
under the Exchange Act and applicable state securities laws in connection
with the purchase and distribution of the Stock by the Underwriters, no
consent, approval, authorization or order of, or filing or registration with,
any such court or governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby.
There are no contracts, agreements or understandings between the Company
and any person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any securities
of the Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Securities Act.
Except as described in the Prospectus, the Company has not sold or issued
any shares of Common Stock during the six-month period preceding the date of the
Prospectus, including any sales pursuant to Rule 144A under, or Regulations D or
S of, the Securities Act.
Neither the Company nor any of its subsidiaries has sustained, since the
date of the latest audited financial statements included in the Prospectus, any
material loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since such date, there has not been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus.
The financial statements (including the related notes and supporting
schedules) filed as part of the Registration Statement or included in the
Prospectus present fairly the financial condition and results of operations of
the entities purported to be shown thereby, at the dates and for the periods
indicated, and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved, except as otherwise stated therein.
Ernst & Young LLP, who have certified financial statements of the Company,
whose report appears in the Prospectus and who have delivered the initial letter
referred to in Section 9(g) hereof, are independent public accountants as
required by the Securities Act and the Rules and Regulations.
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The Company and each of its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries; and all real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases, with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries.
The Company and each of its subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the conduct
of their respective businesses and the value of their respective properties and
as is customary for companies engaged in similar businesses in similar
industries.
The Company and each of it subsidiaries own or possess adequate rights to
use all material patents, patent applications, trademarks, service marks, trade
names, trademark registrations, service mark registrations, copyrights and
licenses necessary for the conduct of their respective businesses and have no
knowledge that the conduct of their respective businesses will conflict with,
and have not received any notice of any claim of conflict with, any such rights
of others.
There are no legal or governmental proceedings pending to which the Company
or any of its subsidiaries is a party or of which any property or assets of the
Company or any of its subsidiaries is the subject which, if determined adversely
to the Company or any of its subsidiaries, might have a material adverse effect
on the consolidated financial position, stockholders' equity, results of
operations, business or prospects of the Company and its subsidiaries; and to
the best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration Statement
by the Securities Act or by the Rules and Regulations which have not been
described in the Prospectus or filed as exhibits to the Registration Statement
or incorporated therein by reference as permitted by the Rules and Regulations.
No relationship, direct or indirect, exists between or among the Company on
the one hand, and the directors, officers, stockholders, customers or suppliers
of the Company on the other hand, which is required to be described in the
Prospectus which is not so described.
No labor disturbance by the employees of the Company exists or, to the
knowledge of the Company, is imminent which might be expected to have a material
adverse effect on the consolidated financial position, stockholders' equity,
results of operations, business or prospects of the Company and its
subsidiaries.
The Company is in compliance in all material respects with all presently
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended, including the regulations and published interpretations thereunder
("ERISA"); no "reportable event" (as
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defined in ERISA) has occurred with respect to any "pension plan" (as defined
in ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.
The Company has filed all federal, state and local income and franchise tax
returns required to be filed through the date hereof and has paid all taxes due
thereon, and no tax deficiency has been determined adversely to the Company or
any of its subsidiaries which has had (nor does the Company have any knowledge
of any tax deficiency which, if determined adversely to the Company or any of
its subsidiaries, might have) a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations, business or
prospects of the Company and its subsidiaries.
Since the date as of which information is given in the Prospectus through
the date hereof, and except as may otherwise be disclosed in the Prospectus, the
Company has not (i) issued or granted any securities, (ii) incurred any
liability or obligation, direct or contingent, other than liabilities and
obligations which were incurred in the ordinary course of business, (iii)
entered into any transaction not in the ordinary course of business or (iv)
declared or paid any dividend on its capital stock.
The Company (i) makes and keeps accurate books and records and (ii)
maintains internal accounting controls which provide reasonable assurance that
(A) transactions are executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets, (C) access to its
assets is permitted only in accordance with management's authorization and (D)
the reported accountability for its assets is compared with existing assets at
reasonable intervals.
Neither the Company nor any of its subsidiaries (i) is in violation of its
charter or by-laws, (ii) except as accurately described in the Prospectus, is in
default in any material respect, and no event has occurred which, with notice or
lapse of time or both, would constitute such a default, in the due performance
or observance of any term, covenant or condition contained in any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which it is a party or by which it is bound or to which any of its
properties or assets is subject or (iii) is in violation in any material respect
of any law, ordinance, governmental rule, regulation or court decree to which it
or its property or assets may be subject or has failed to obtain any material
license, permit, certificate, franchise or other governmental authorization or
permit necessary to the ownership of its property or to the conduct of its
business.
Neither the Company nor any of its subsidiaries, nor any director, officer,
agent, employee or other person associated with or acting on behalf of the
Company or any of its subsidiaries, has used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expense relating to
political activity; made any direct or indirect unlawful payment to any foreign
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or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the Foreign Corrupt Practices Act of 1977; or
made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
There has been no storage, disposal, generation, manufacture, refinement,
transportation, handling or treatment of toxic wastes, medical wastes, hazardous
wastes or hazardous substances by the Company or any of its subsidiaries (or, to
the knowledge of the Company, any of their predecessors in interest) at, upon or
from any of the property now or previously owned or leased by the Company or its
subsidiaries in violation of any applicable law, ordinance, rule, regulation,
order, judgment, decree or permit or which would require remedial action under
any applicable law, ordinance, rule, regulation, order, judgment, decree or
permit, except for any violation or remedial action which would not have, or
could not be reasonably likely to have, singularly or in the aggregate with all
such violations and remedial actions, a material adverse effect on the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; there has been no material
spill, discharge, leak, emission, injection, escape, dumping or release of any
kind onto such property or into the environment surrounding such property of any
toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous
substances due to or caused by the Company or any of its subsidiaries or with
respect to which the Company or any of it subsidiaries have knowledge, except
for any such spill, discharge, leak, emission, injection, escape, dumping or
release which would not have or would not be reasonably likely to have,
singularly or in the aggregate with all such spills, discharges, leaks,
emissions, injections, escapes, dumpings and releases, a material adverse effect
on the general affairs, management, financial position, stockholders' equity or
results of operations of the Company and it subsidiaries; and the terms
"hazardous wastes", "toxic wastes", "hazardous substances" and "medical wastes"
shall have the meanings specified in any applicable local, state, federal and
foreign laws or regulations with respect to environmental protection.
Neither the Company nor any subsidiary is an "investment company" within
the meaning of such term under the Investment Company Act of 1940 and the rules
and regulations of the Commission thereunder.
[RESERVED.]
PURCHASE OF THE STOCK BY THE UNDERWRITERS. On the bases of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 4,000,000 shares of
the Firm Stock to the several Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase the number of shares of the Firm
Stock set opposite that Underwriter's name in Schedule 1 hereto. The respective
purchase obligations of the Underwriters with respect to the Firm Stock shall be
rounded among the Underwriters to avoid fractional shares, as Lehman Brothers
Inc. may determine.
In addition, the Company grants to the Underwriters an option to
purchase up to 600,000 shares of Option Stock. Such option is granted for the
purpose of covering over-allotments in the sale of Firm Stock and is
exercisable as provided in Section 5 hereof. Shares of Option Stock shall be
purchased severally for the account of the Underwriters in proportion to the
number of shares of Firm Stock set opposite the name of such Underwriters in
Schedule 1 hereto. The respective purchase obligations of each Underwriters
with respect to the Option
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Stock shall be adjusted by Lehman Brothers Inc. so that no
Underwriter shall be obligated to purchase Option Stock other than in 100 share
amounts. The price of both the Firm Stock and any Option Stock shall be
$________ per share.
The Company shall not be obligated to deliver any of the Stock to be
delivered on any Delivery Date (as hereinafter defined), as the case may be,
except upon payment for all the Stock to be purchased on such Delivery Date
as provided herein.
OFFERING OF STOCK BY THE UNDERWRITERS.
Upon authorization by Lehman Brothers Inc. of the release of the Firm
Stock, the several Underwriters propose to offer the Firm Stock for sale upon
the terms and conditions set forth in the Prospectus.
DELIVERY OF AND PAYMENT FOR THE STOCK. Delivery of and payment
for the Firm Stock shall be made at the office of Gray Cary Ware &
Freidenrich LLP, 400 Hamilton Avenue, Palo Alto, California, at 7:00 A.M.,
Pacific Standard Time, on the [fourth] full business day following the date
of this Agreement or at such other date or place as shall be determined by
agreement between the Representatives and the Company. This date and time are
sometimes referred to as the "First Delivery Date". On the First Delivery
Date, the Company shall deliver or cause to be delivered certificates
representing the Firm Stock to the Representatives for the account of each
Underwriter against payment to or upon the order of the Company of the
purchase price by wire transfer in immediately available funds. Time shall be
of the essence, and delivery at the time and place specified pursuant to this
Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Firm Stock shall be registered in such names
and in such denominations as the Representatives shall request in writing not
less than two full business days prior to the First Delivery Date. For the
purpose of expediting the checking and packaging of the certificates for the
Firm Stock, the Company shall make the certificates representing the Firm
Stock available for inspection by the Representatives in New York, New York,
not later than 2:00 P.M., New York City time, on the business day prior to
the First Delivery Date.
The option granted in Section 3 will expire 30 days after the date of
this Agreement and may be exercised in whole or in part from time to time by
written notice being given to the Company by Lehman Brothers Inc. Such notice
shall set forth the aggregate number of shares of Option Stock as to which
the option is being exercised, the names in which the shares of Option Stock
are to be registered, the denominations in which the shares of Option Stock
are to be issued and the date and time, as determined by Lehman Brothers
Inc., when the shares of Option Stock are to be delivered; PROVIDED, HOWEVER,
that this date and time shall not be earlier than the First Delivery Date nor
earlier than the second business day after the date on which the option shall
have been exercised nor later than the fifth business day after the date on
which the option shall have been exercised. The date and time the shares of
Option Stock are delivered are sometimes referred to as a "Second Delivery
Date" and the First Delivery Date and any Second Delivery Date are sometimes
each referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at the place
specified in the first sentence of the first paragraph of this Section 5 (or
at such other place as shall be determined by agreement between the
Representatives and the Company) at 7:00 A.M., Pacific Standard Time, on such
Second Delivery Date. On such Second Delivery Date, the Company shall deliver
or cause to be delivered the certificates representing the Option Stock to
the Representatives for the account of each Underwriter against payment to or
upon the order of the Company of the purchase price by wire transfer in
immediately available funds. Time shall be of
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<PAGE>
the essence, and delivery at the time and place specified pursuant to this
Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Option Stock shall be registered in such names
and in such denominations as the Representatives shall request in the
aforesaid written notice. For the purpose of expediting the checking and
packaging of the certificates for the Option Stock, the Company shall make
the certificates representing the Option Stock available for inspection by
the Representatives in New York, New York, not later than 2:00 P.M., New York
City time, on the business day prior to such Second Delivery Date.
FURTHER AGREEMENTS OF THE COMPANY. The Company agrees:
To prepare the Prospectus in a form approved by the Representatives and to
file such Prospectus pursuant to Rule 424(b) under the Securities Act not later
than Commission's close of business on the second business day following the
execution and delivery of this Agreement or, if applicable, such earlier time as
may be required by Rule 430A(a)(3) under the Securities Act; to make no further
amendment or any supplement to the Registration Statement or to the Prospectus
except as permitted herein; to advise the Representatives, promptly after it
receives notice thereof, of the time when any amendment to the Registration
Statement has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish the
Representatives with copies thereof; to advise the Representatives, promptly
after it receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, of the suspension of the qualification of the
Stock for offering or sale in any jurisdiction, of the initiation or threatening
of any proceeding for any such purpose, or of any request by the Commission for
the amending or supplementing of the Registration Statement or the Prospectus or
for additional information; and, in the event of the issuance of any stop order
or of any order preventing or suspending the use of any Preliminary Prospectus
or the Prospectus or suspending any such qualification, to use promptly its best
efforts to obtain its withdrawal.
To furnish promptly to the Representatives and to counsel for the
Underwriters a signed copy of the Registration Statement as originally filed
with the Commission, and each amendment thereto filed with the Commission,
including all consents and exhibits filed therewith;
To deliver promptly to the Representatives such number of the following
documents as the Representatives shall reasonably request: (i) conformed copies
of the Registration Statement as originally filed with the Commission and each
amendment thereto (in each case excluding exhibits other than this Agreement and
the computation of per share earnings) and, (ii) each Preliminary Prospectus,
the Prospectus and any amended or supplemented Prospectus and, if the delivery
of a prospectus is required at any time after the Effective Time in connection
with the offering or sale of the Stock or any other securities relating thereto
and if at such time any events shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statement therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary to amend or supplement the Prospectus in order to
comply with the Securities Act, to notify the Representatives and, upon their
request, to prepare and furnish without charge to each Underwriter and to any
dealer in securities as many copies as the Representatives may from time to time
reasonably request of an amended or supplemented Prospectus which will correct
such statement or omission or effect such compliance.
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<PAGE>
To file promptly with the Commission any amendment to the Registration
Statement or the Prospectus or any supplement to the Prospectus that may, in the
judgment of the Company or the Representatives, be required by the Securities
Act or requested by the Commission;
Prior to filing with the Commission any amendment to the Registration
Statement or supplement to the Prospectus or any Prospectus pursuant to Rule 424
of the Rules and Regulations, to furnish a copy thereof to the Representatives
and counsel for the Underwriters and obtain the consent of the Representatives
to the filing;
As soon as practicable after the Effective Date (it being understood that
the Company shall have until 455 days after the end of the Company's current
fiscal quarter), to make generally available to the Company's security holders
and to deliver to the Representatives an earnings statement of the Company and
its subsidiaries (which need not be audited) complying with Section 11(a) of the
Securities Act and the Rules and Regulations (including, at the option of the
Company, Rule 158);
For a period of five years following the Effective Date, to furnish to the
Representatives copies of all materials furnished by the Company to its
shareholders and all public reports and all reports and financial statements
furnished by the Company to the principal national securities exchange upon
which the Common Stock may be listed pursuant to requirements of or agreements
with such exchange or to the Commission pursuant to the Exchange Act or any rule
or regulation of the Commission thereunder;
Promptly from time to time to take such action as the Representatives may
reasonably request to qualify the Stock for offering and sale under the
securities laws of such jurisdictions as the Representatives may request and to
comply with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to complete the
distribution of the Stock; PROVIDED that in connection therewith the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction;
For a period of 180 days from the date of the Prospectus, not to, directly
or indirectly, (1) offer for sale, sell, pledge or otherwise dispose of (or
enter into any transaction or device which is designed to, or could be expected
to, result in the disposition by any person at any time in the future of) any
shares of Common Stock or securities convertible into or exchangeable for Common
Stock (other than the Stock and shares issued pursuant to employee benefit
plans, qualified stock option plans or other employee compensation plans
existing on the date hereof or pursuant to currently outstanding options,
warrants or rights), or sell or grant options, rights or warrants with respect
to any shares of Common Stock or securities convertible into or exchangeable for
Common Stock (other than the grant of options pursuant to option plans existing
on the date hereof), or (2) enter into any swap or other derivatives transaction
that transfers to another, in whole or in part, any of the economic benefits or
risks of ownership of such shares of Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock or other securities, in cash or otherwise, in each case without the prior
written consent of Lehman Brothers Inc.; and to cause each stockholder of the
Company to furnish to the Representatives, prior to the First Delivery Date, a
letter or letters, in form and substance satisfactory to counsel for the
Underwriters, pursuant to which each such
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person shall agree not to, directly or indirectly, (1) offer for sale, sell,
pledge or otherwise dispose of (or enter into any transaction or device which
is designated to, or could be expected to, result in the disposition by any
person at any time in the future of) any shares of Common Stock or securities
convertible into or exchangeable for Common Stock or (2) enter into any swap
or other derivatives transaction that transfers to another, in whole or in
part, any of the economic benefits or risks of ownership of such shares of
Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or other securities, in
cash or otherwise, in each case for a period of 180 days from the date of the
Prospectus, without the prior written consent of Lehman Brothers Inc.;
Prior to the Effective Date, to apply for the inclusion of the Stock on the
Nasdaq National Market System and to use its best efforts to complete that
listing, subject only to official notice of issuance and evidence of
satisfactory distribution, prior to the First Delivery Date;
Prior to filing with the Commission any reports pursuant to Rule 463 of the
Rules and Regulations, to furnish a copy thereof to the counsel for the
Underwriters and receive and consider its comments thereon, and to deliver
promptly to the Representatives a signed copy of each such report filed by it
with the Commission;
[RESERVED.]
EXPENSES. The Company agrees to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Stock and any taxes payable in
that connection; (b) the costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statement and any amendments and
exhibits thereto; (c) the costs of distributing the Registration Statement as
originally filed and each amendment thereto and any post-effective amendments
thereof (including, in each case, exhibits), any Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus, all as provided in
this Agreement; (d) the costs of producing and distributing this Agreement and
any other related documents in connection with the offering, purchase, sale and
delivery of the stock; (e) the filing fees incident to securing any required
review by the National Association of Securities Dealers, Inc. of the terms of
sale of the Stock; (f) any applicable listing or other fees; (g) the fees and
expenses of qualifying the Stock under the securities laws of the several
jurisdictions as provided in Section 6(h) and of preparing, printing and
distributing a Blue Sky Memorandum; and (h) all other costs and expenses
incident to the performance of the obligations of the Company under this
Agreement; PROVIDED that, except as provided in this Section 8 and in Section 14
the Underwriters shall pay their own costs and expenses, including the costs and
expenses of their counsel, any transfer taxes on the Stock which they may sell
and the expenses of advertising any offering of the Stock made by the
Underwriters.
CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective obligations of the
Underwriters hereunder are subject to the accuracy, when made and on each
Delivery Date, of the representations and warranties of the Company contained
herein, to the performance by the Company obligations hereunder, and to each of
the following additional terms and conditions:
The Registration Statement shall have become effective under the Securities
Act on the date of this Agreement; the Prospectus shall have been timely filed
with the Commission in
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accordance with Section 6(a); no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement or the Prospectus or otherwise
shall have been complied with.
No Underwriter shall have discovered and disclosed to the Company on or
prior to such Delivery Date that the Registration Statement or the Prospectus or
any amendment or supplement thereto contained an untrue statement of a fact
which, in the opinion of O'Melveny & Myers LLP, counsel for the Underwriters, is
material or omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading.
All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Stock, the Registration
Statement and the Prospectus, and all other legal matters relating to this
Agreement and the transactions contemplated hereby shall be reasonably
satisfactory in all material respects to counsel for the Underwriters, and the
Company shall have furnished to such counsel all documents and information that
they may reasonably request to enable them to pass upon such matters.
Gray Cary Ware & Freidenrich LLP shall have furnished to the
Representatives its written opinion, as counsel to the Company, addressed to the
Underwriters and dated such Delivery Date, in form and substance reasonably
satisfactory to the Representatives, to the effect that:
The Company and each of its subsidiaries have been duly incorporated and
are validly existing as corporations in good standing under the laws of their
respective jurisdictions of incorporation, are duly qualified to do business and
are in good standing as foreign corporations in the State of California and each
state listed on an Officers' Certificate of the Company listing each
jurisdiction in which the Company or any of its subsidiaries owns or leases
property or conducts business and the failure to be able to own or lease such
property or conduct such business would have a material adverse effect on the
consolidated financial position, stockholders' equity, results of operations,
business or prospects of the Company and its subsidiaries; and the Company and
each of its subsidiaries have all power and authority necessary to own or hold
their respective properties and conduct the businesses in which they are
engaged;
The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
(including the shares of Stock being delivered on such Delivery Date) have been
or, in the case of the shares of Stock being delivered on such Delivery Date,
upon payment for and delivery of such shares in accordance with this Agreement
will be, duly and validly authorized and issued, fully paid and non-assessable
and conform to the description thereof contained in the Prospectus; the shares
of capital stock of the Company issuable upon conversion of the Preferred Stock
of the Company have been duly and validly authorized and reserved for issuance
upon such conversion, which will occur on the First Delivery Date, and, when
issued and delivered in accordance with the terms of the Certificate of
Incorporation of the Company, will be duly and validly authorized and issued and
fully paid and non-assessable; the ______ shares of capital stock of the Company
to be issued to Nielsen Media
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Research, Inc. pursuant to Addendum No. 1 to Second Restated Rights Agreement
among the Company and each of the holders the Series A, Series B, Series C
and Series D Preferred Stock of the Company (the "NMR Agreement"), when
issued and paid for in accordance with the NMR Agreement, will be duly and
validly authorized and issued and fully paid and non-assessable; the
aggregate of 6,553,054 shares of capital stock of the Company to be issued to
Nielsen Media Research, Inc. upon exercise of the Common Stock Purchase
Warrant expiring December 31, 2001 and the Common Stock Purchase Warrant
expiring December 31, 2004 (collectively, the "Common Stock Purchase
Warrants"), when issued and paid for in accordance with the Common Stock
Purchase Warrants, will be duly and validly authorized and issued and fully
paid and non-assessable; and all of the issued shares of capital stock of
each subsidiary of the Company have been duly and validly authorized and
issued and are fully paid, non-assessable, and are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims;
Other than as accurately described in the Prospectus, there are no
preemptive or other rights to subscribe for or to purchase, nor any restriction
upon the voting or transfer of, any shares of the Stock pursuant to the
Company's charter or by-laws or any agreement or other instrument known to such
counsel;
To the best of such counsel's knowledge and other than as set forth in the
Prospectus, there are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any property or assets
of the Company or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, might have a material
adverse effect on the consolidated financial position, stockholders' equity,
results of operations, business or prospects of the Company and its
subsidiaries; and, to the best of such counsel's knowledge, no such proceedings
are threatened or contemplated by governmental authorities or threatened by
others;
The Registration Statement was declared effective under the Securities Act
as of the date and time specified in such opinion, the Prospectus was filed with
the Commission pursuant to the subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date specified therein and no stop
order suspending the effectiveness of the Registration Statement has been issued
and, to the knowledge of such counsel, no proceeding for that purpose is pending
or threatened by the Commission;
The Registration Statement and the Prospectus and any further amendments or
supplements thereto made by the Company prior to such Delivery Date (other than
the financial statements and related schedules and other financial data included
therein, as to which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the Securities Act and the Rules
and Regulations; and (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion), when they were filed
with the Commission complied as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder;
To the best of such counsel's knowledge, there are no contracts or other
documents which are required to be described in the Prospectus or filed as
exhibits to the Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described or filed as exhibits
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<PAGE>
to the Registration Statement or incorporated therein by reference as
permitted by the Rules and Regulations;
This Agreement has been duly authorized, executed and delivered by the
Company;
(i) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the compliance
by the Company with all of the provisions of this Agreement and
the consummation of the transactions contemplated hereby will not
conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the Company
or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is subject,
other than that certain letter agreement, dated May 28, 1999,
between PaineWebber Incorporated and the Company, as to which such
counsel need express no opinion, nor will such actions result in
any violation of the provisions of the charter or by-laws of the
Company or any of its subsidiaries or any statute or any order,
rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company
or any of its subsidiaries or any of their properties or assets;
and, except for the registration of the Stock under the Securities
Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state securities laws in connection with the purchase
and distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is required
for the execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated
hereby; and
(ii) To the best of such counsel's knowledge, there are no
contracts, agreements or understandings between the Company and
any person granting such person the right to require the Company
to file a registration statement under the Securities Act with
respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities
in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the
Securities Act.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the Federal laws of the United States of
America, the laws of the State of California and the General
Corporation Law of the State of Delaware and that such counsel is not
admitted in the State of Delaware. Such counsel shall also have
furnished to the Representatives a written statement, addressed to the
Underwriters and dated such Delivery Date, in form and substance
satisfactory to the Representatives, to the effect that (x) such
counsel has acted as counsel to the Company on a regular basis since
_____, 1999 and has acted as counsel to the Company in connection with
the preparation of the Registration Statement, and (y) based on the
foregoing, no facts have come to the
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attention of such counsel which lead it to believe that the
Registration Statement (other than the financial statements and
related schedules and other financial data included therein, as to
which such counsel need express no opinion or belief), as of the
Effective Date, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or
that the Prospectus (other than the financial statements and related
schedules and other financial data included therein, as to which
such counsel need express no opinion or belief) contains any untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, on the
date of the Prospectus or on the date of the opinion. The foregoing
opinion and statement may be qualified by a statement to the effect
that such counsel has not undertaken to independently verify and
does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement
or the Prospectus except for the statements made in the Prospectus
under the captions "Management - Stock Plans", "Management
Indemnification of Directors and Executive Officers and Limitation
of Liability", "Related Party Transactions" and "Description of
Capital Stock", insofar as such statements relate to the Stock and
concern legal matters.
[Reserved]
The Representatives shall have received from O'Melveny & Myers LLP, counsel
for the Underwriters, such opinion or opinions, dated such Delivery Date, with
respect to the issuance and sale of the Stock, the Registration Statement, the
Prospectus and other related matters as the Representatives may reasonably
require, and the Company shall have furnished to such counsel such documents as
they reasonably request for the purpose of enabling them to pass upon such
matters.
At the time of execution of this Agreement, the Representatives shall have
received from Ernst & Young LLP a letter, in form and substance satisfactory to
the Representatives, addressed to the Underwriters and dated the date hereof (i)
confirming that they are independent public accountants within the meaning of
the Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of Regulation S-X
of the Commission, (ii) stating, as of the date hereof (or, with respect to
matters involving changes or developments since the respective dates as of which
specified financial information is given in the Prospectus, as of a date not
more than five days prior to the date hereof), the conclusions and findings of
such firm with respect to the financial information and other matters ordinarily
covered by accountants' "comfort letters" to underwriters in connection with
registered public offerings.
With respect to the letter of Ernst & Young LLP referred to in the
preceding paragraph and delivered to the Representatives concurrently with the
execution of this Agreement (the "initial letter"), the Company shall have
furnished to the Representatives a letter (the "bring-down letter") of such
accountants, addressed to the Underwriters and dated such Delivery Date (i)
confirming that they are independent public accountants within the meaning of
the Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of Regulation S-X
of the Commission, (ii) stating, as of the date of
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the bring-down letter (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than five days
prior to the date of the bring-down letter), the conclusions and findings of
such firm with respect to the financial information and other matters covered
by the initial letter and (iii) confirming in all material respects the
conclusions and findings set forth in the initial letter.
The Company shall have furnished to the Representatives a certificate,
dated such Delivery Date, of its Chairman of the Board, its President or a Vice
President and its chief financial officer stating that:
The representations, warranties, and agreements of the Company in Section 1
are true and correct as of such Delivery Date; the Company has complied with all
its agreements contained herein; and the conditions set forth in Sections 9(a)
and 9(j) have been fulfilled; and
(iii) They have carefully examined the Registration
Statement and the Prospectus and, in their opinion (A) as of
the Effective Date, the Registration Statement and Prospectus
did not include any untrue statement of a material fact and did
not omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and
(B) since the Effective Date no event has occurred which should
have been set forth in a supplement or amendment to the
Registration Statement or the Prospectus.
(i) Neither the Company nor any of its subsidiaries shall have sustained
since the date of the latest audited financial statements included in the
Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus or (ii) since such date
there shall not have been any change in the capital stock or long-term debt
of the Company or any of its subsidiaries or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations
of the Company and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is, in the judgment of the Representatives,
so material and adverse as to make it impracticable or inadvisable to proceed
with the public offering or the delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in the Prospectus.
Subsequent to the execution and delivery of this Agreement there shall not
have occurred any of the following: (i) trading in securities generally on the
New York Stock Exchange or the American Stock Exchange or in the
over-the-counter market, or trading in any securities of the Company on any
exchange or in the over-the-counter market, shall have been suspended or minimum
prices shall have been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have been
declared by Federal or state authorities, (iii) the United States shall have
become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a declaration
of a national emergency or war by the United States or (iv) there shall have
occurred such a material
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adverse change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the United
States shall be such) as to make it, in the judgment of a majority in
interest of the several Underwriters, impracticable or inadvisable to proceed
with the public offering or delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in the Prospectus.
The Nasdaq National Market System shall have approved the Stock for
inclusion, subject only to official notice of issuance and evidence of
satisfactory distribution.
The Company shall have duly issued, and Nielsen Media Research, Inc. shall
have paid for: (1) ________ shares of common stock of the Company pursuant to
the NMR Agreement, and (2) 6,553,054 shares of common stock of the Company
pursuant to the Common Stock Purchase Warrants.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
[RESERVED.]
INDEMNIFICATION AND CONTRIBUTION.
The Company shall indemnify and hold harmless each Underwriter, its
officers and employees and each person, if any, who controls any Underwriter
within the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases and sales of Stock), to which that Underwriter, officer,
employee or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus or in any amendment or supplement thereto, (ii) the
omission or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be stated
therein or necessary to make the statements therein not misleading or (iii) any
act or failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Stock or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (PROVIDED that the Company shall not be
liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct), and shall reimburse each Underwriter and each
such officer, employee or controlling person promptly upon demand for any legal
or other expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred. The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to any Underwriter or to any
officer, employee or controlling person of that Underwriter.
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Each Underwriter, severally and not jointly, shall indemnify and hold
harmless the Company, its officers and employees, each of its directors
(including any person who, with his or her consent, is named in the Registration
Statement as about to become a director of the Company), and each person, if
any, who controls the Company within the meaning of the Securities Act, from and
against any loss, claim, damage or liability, joint or several, or any action in
respect thereof, to which the Company or any such director, officer or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in any Preliminary Prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto, or (B) in any Blue Sky
Application or (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information concerning such Underwriter furnished to the
Company through the Representatives by or on behalf of that Underwriter
specifically for inclusion therein, and shall reimburse the Company and any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred. The foregoing indemnity agreement is in addition to any liability
which any Underwriter may otherwise have to the Company or any such director,
officer, employee or controlling person.
Promptly after receipt by an indemnified party under this Section 11 of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 11, notify the indemnifying party in writing of the
claim or the commencement of that action; PROVIDED, HOWEVER, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have under this Section 11 except to the extent it has been materially
prejudiced by such failure and, PROVIDED FURTHER, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have to
an indemnified party otherwise than under this Section 11. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 11 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; PROVIDED, HOWEVER, that
the Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective officers,
employees and controlling persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Underwriters
against the Company under this Section 11 if, in the reasonable judgment of the
Representatives, it is advisable for the Representatives and those Underwriters,
officers, employees and controlling persons to be jointly represented by
separate counsel, and in that event the fees and expenses of such separate
counsel shall be paid by the Company. No
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indemnifying party shall (i) without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld),
settle or compromise or consent to the entry of any judgment with respect to
any pending or threatened claim, action, suit or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim or
action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the consent
of the indemnifying party or if there be a final judgment of the plaintiff in
any such action, the indemnifying party agrees to indemnify and hold harmless
any indemnified party from and against any loss or liability by reason of
such settlement or judgment.
If the indemnification provided for in this Section 11 shall for any reason
be unavailable to or insufficient to hold harmless an indemnified party under
Section 11(a) or 11(c) in respect of any loss, claim, damage or liability, or
any action in respect thereof, referred to therein, then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of such loss, claim,
damage or liability, or action in respect thereof, (i) in such proportion as
shall be appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other from the offering of the Stock or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other with respect to
the statements or omissions which resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other with respect to such offering shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Stock purchased under this Agreement (before deducting expenses) received by the
Company, on the one hand, and the total underwriting discounts and commissions
received by the Underwriters with respect to the shares of the Stock purchased
under this Agreement, on the other hand, bear to the total gross proceeds from
the offering of the shares of the Stock under this Agreement, in each case as
set forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or the Underwriters, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section were to be determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section shall be deemed to include, for
purposes of this Section 11(e), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 11(e), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Stock underwritten by it and distributed
to the public was offered to the public exceeds the amount of
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any damages which such Underwriter has otherwise paid or become liable to pay
by reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 11(e) are several in proportion to their respective underwriting
obligations and not joint.
The Underwriters severally confirm and the Company acknowledges that the
statements with respect to the public offering of the Stock by the Underwriters
set forth on the cover page of, the legend concerning over-allotments on the
inside front cover page of and the concession and reallowance figures appearing
under the caption "Underwriting" in, the Prospectus are correct and constitute
the only information concerning such Underwriters furnished in writing to the
Company by or on behalf of the Underwriters specifically for inclusion in the
Registration Statement and the Prospectus.
DEFAULTING UNDERWRITERS.
If, on either Delivery Date, any Underwriter defaults in the performance of
its obligations under this Agreement, the remaining non-defaulting Underwriters
shall be obligated to purchase the Stock which the defaulting Underwriter agreed
but failed to purchase on such Delivery Date in the respective proportions which
the number of shares of the Firm Stock set opposite the name of each remaining
non-defaulting Underwriter in Schedule 1 hereto bears to the total number of
shares of the Firm Stock set opposite the names of all the remaining
non-defaulting Underwriters in Schedule 1 hereto; PROVIDED, HOWEVER, that the
remaining non-defaulting Underwriters shall not be obligated to purchase any of
the Stock on such Delivery Date if the total number of shares of the Stock which
the defaulting Underwriter or Underwriters agreed but failed to purchase on such
date exceeds 9.09% of the total number of shares of the Stock to be purchased on
such Delivery Date, and any remaining non-defaulting Underwriter shall not be
obligated to purchase more than 110% of the number of shares of the Stock which
it agreed to purchase on such Delivery Date pursuant to the terms of Section 3.
If the foregoing maximums are exceeded, the remaining non-defaulting
Underwriters, or those other underwriters satisfactory to the Representatives
who so agree, shall have the right, but shall not be obligated, to purchase, in
such proportion as may be agreed upon among them, all the Stock to be purchased
on such Delivery Date. If the remaining Underwriters or other underwriters
satisfactory to the Representatives do not elect to purchase the shares which
the defaulting Underwriter or Underwriters agreed but failed to purchase on such
Delivery Date, this Agreement (or, with respect to the Second Delivery Date, the
obligation of the Underwriters to purchase, and of the Company to sell, the
Option Stock) shall terminate without liability on the part of any
non-defaulting Underwriter or the Company, except that the Company will continue
to be liable for the payment of expenses to the extent set forth in Sections 8
and 14. As used in this Agreement, the term "Underwriter" includes, for all
purposes of this Agreement unless the context requires otherwise, any party not
listed in Schedule 1 hereto who, pursuant to this Section 12, purchases Firm
Stock which a defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If other
underwriters are obligated or agree to purchase the Stock of a defaulting or
withdrawing Underwriter, either the Representatives or the
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Company may postpone the Delivery Date for up to seven full business days in
order to effect any changes that in the opinion of counsel for the Company or
counsel for the Underwriters may be necessary in the Registration Statement,
the Prospectus or in any other document or arrangement.
TERMINATION. The obligations of the Underwriters hereunder may be
terminated by the Representatives by notice given to and received by the Company
prior to delivery of and payment for the Firm Stock if, prior to that time, any
of the events described in Sections 9(j) or 9(k), shall have occurred or if the
Underwriters shall decline to purchase the Stock for any reason permitted under
this Agreement.
REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the Company shall fail to
tender the Stock for delivery to the Underwriters by reason of any failure,
refusal or inability on the part of the Company to perform any agreement on its
part to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by the Company is not fulfilled,
the Company will reimburse the Underwriters for all reasonable out-of-pocket
expenses (including fees and disbursements of counsel) incurred by the
Underwriters in connection with this Agreement and the proposed purchase of the
Stock, and upon demand the Company shall pay the full amount thereof to the
Representatives. If this Agreement is terminated pursuant to Section 12 by
reason of the default of one or more Underwriters, the Company shall not be
obligated to reimburse any defaulting Underwriter on account of those expenses.
NOTICES, ETC. All statements, requests, notices and agreements hereunder
shall be in writing, and:
if to the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission to Lehman Brothers Inc., Three World Financial Center,
New York, New York 10285, Attention: Syndicate Department (Fax: 212-526-6588),
with a copy, in the case of any notice pursuant to Section 11(d), to the
Director of Litigation, Office of the General Counsel, Lehman Brothers Inc., 3
World Financial Center, 10th Floor, New York, NY 10285;
if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Jack Lazar (Fax: 408-757-0487);
PROVIDED, HOWEVER, that any notice to an Underwriter pursuant to Section 11(d)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Underwriters by Lehman Brothers Inc.
PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to
the benefit of and be binding upon the Underwriters, the Company, and their
respective successors. This Agreement and the terms and provisions hereof are
for the sole benefit of only those persons, except that (A) the
representations, warranties, indemnities and agreements of the Company
contained in this Agreement shall also be deemed to be for the benefit of the
person or persons, if
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any, who control any Underwriter within the meaning of Section 15 of the
Securities Act and (B) the indemnity agreement of the Underwriters contained
in Section 11(c) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the Company within the
meaning of Section 15 of the Securities Act. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section 16, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
SURVIVAL. The respective indemnities, representations, warranties and
agreements of the Company and the Underwriters contained in this Agreement or
made by or on behalf on them, respectively, pursuant to this Agreement, shall
survive the delivery of and payment for the Stock and shall remain in full force
and effect, regardless of any investigation made by or on behalf of any of them
or any person controlling any of them.
DEFINITION OF THE TERMS "BUSINESS DAY" AND "SUBSIDIARY". For purposes of
this Agreement, (a) "business day" means each Monday, Tuesday, Wednesday,
Thursday or Friday which is not a day on which banking institutions in New York
are generally authorized or obligated by law or executive order to close and (b)
"subsidiary" has the meaning set forth in Rule 405 of the Rules and Regulations.
GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF NEW YORK.
COUNTERPARTS. This Agreement may be executed in one or more counterparts
and, if executed in more than one counterpart, the executed counterparts shall
each be deemed to be an original but all such counterparts shall together
constitute one and the same instrument.
HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
If the foregoing correctly sets forth the agreement between
the Company and the Underwriters, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
NETRATINGS, INC.
By _______________________
Name:
Title:
Accepted:
LEHMAN BROTHERS INC.
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS CORP.
C.E. UNTERBERG, TOWBIN
FIDELITY CAPITAL MARKETS
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By: Lehman Brothers Inc.
By ________________________________
AUTHORIZED REPRESENTATIVE
For itself and as Representatives
of the several Underwriters named
in Schedule 1 hereto
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LOCK-UP LETTER AGREEMENT
LEHMAN BROTHERS INC.
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS CORP.
C.E. UNTERBERG, TOWBIN
FIDELITY CAPITAL MARKETS
As Representatives of the several
Underwriters
c/o LEHMAN BROTHERS INC.
Three World Financial Center
New York, NY 10285
Dear Sirs:
The undersigned understands that you and certain other firms propose to
enter into an Underwriting Agreement (the "Underwriting Agreement") providing
for the purchase by you and such other firms (the "Underwriters") of shares (the
"Shares") of Common Stock, par value $_______ per share (the "Common Stock"), of
NetRatings, Inc. (the "Company") and that the Underwriters propose to reoffer
the Shares to the public (the "Offering").
In consideration of the execution of the Underwriting Agreement by the
Underwriters, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that, without the prior written consent of Lehman
Brothers Inc., the undersigned will not, directly or indirectly, (1) offer for
sale, sell, pledge, or otherwise dispose of (or enter into any transaction or
device that is designed to, or could be expected to, result in the disposition
by any person at any time in the future of) any shares of Common Stock
(including, without limitation, shares of Common Stock that may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission and shares of Common Stock
that may be issued upon exercise of any option or warrant) or securities
convertible into or exchangeable for Common Stock owned by the undersigned on
the date of execution of this Lock-Up Letter Agreement or on the date of the
completion of the Offering, or (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any of the economic
benefits or risks of ownership of such shares of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or other securities, in cash or otherwise, for a period 180 days
after the date of the final Prospectus relating to the Offering.
In furtherance of the foregoing, the Company and its Transfer Agent are
hereby authorized to decline to make any transfer of securities if such transfer
would constitute a violation or breach of this Lock-Up Letter Agreement.
It is understood that, if the Company notifies you that it does not
intend to proceed with the Offering, if the Underwriting Agreement does not
become effective, or if the Underwriting Agreement (other than the provisions
thereof which survive termination) shall terminate or be terminated prior to
payment for and delivery of the Shares, we will be released from our obligations
under this Lock-Up Letter Agreement.
The undersigned understands that the Company and the Underwriters will
proceed with the Offering in reliance on this Lock-Up Letter Agreement.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this Lock-Up Letter Agreement and that,
upon request, the undersigned will execute any additional documents necessary in
connection with the enforcement hereof. Any obligations of the undersigned shall
be binding upon the heirs, personal representatives, successors and assigns of
the undersigned.
Very truly yours,
__________________________
By ______________________
Name:
Title:
Dated: ____________________
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FIFTH RESTATED
CERTIFICATE OF INCORPORATION OF
NETRATINGS, INC.
David J. Toth, President of NetRatings, Inc., a corporation organized
and existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 242 and 245 thereof, DOES HEREBY
CERTIFY:
FIRST: That the name of this Corporation is NetRatings, Inc. (the
"Corporation") and that the original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware on
July 2, 1997.
SECOND: That the Amendment and Restatement of the Corporation's
Certificate of Incorporation set forth in the following resolution has been
approved by the Corporation's Board of Directors and stockholders and was duly
adopted in accordance with the provisions of Section 242 and 245 of the General
Corporation Law of the State of Delaware.
NOW, THEREFORE, BE IT RESOLVED, that the Certificate of Incorporation
of this Corporation be, and it hereby is, restated and further amended to read
in its entirety as follows:
ARTICLE I
The name of this Corporation is NetRatings, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The nature of the business and of the purposes to be conducted and
promoted by the Corporation are to conduct any lawful business, to promote any
lawful purpose, and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
A. This Corporation is authorized to issue two classes of shares
of stock, to be designated, respectively, "Common Stock" and "Preferred Stock."
The Preferred Stock may be issued in one or more series. The total number of
shares which the Corporation is authorized to issue is One Hundred Two Million
Four Hundred Twenty Two Thousand Six Hundred (102,422,600). Eighty-Six Million
Eight Hundred Fifty-One Thousand Four Hundred Thirty-Eight (86,851,438) shares
with a par value of $0.001 each shall be Common Stock, and Fifteen
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Million Five Hundred Seventy-One Thousand One Hundred Sixty-Two (15,571,162)
shares with a par value of $0.001 each shall be Preferred Stock, of which One
Million Nine Hundred Thousand (1,900,000) shares shall be designated "Series
A Preferred," Two Million One Hundred Eighty-Four Thousand One Hundred Eleven
(2,184,111) shares shall be designated "Series B Preferred," Six Million Six
Hundred Thousand (6,600,000) shares shall be designated "Series C Preferred,"
and Four Million Eight Hundred Eighty-Seven Thousand Fifty-One (4,887,051)
shares shall be designated "Series D Preferred." Upon the filing of this
Fifth Amended and Restated Certificate of Incorporation, and without further
action on the part of the Corporation or the holders of its stock, (i) every
two (2) issued and outstanding shares of Common Stock, $0.001 par value,
shall be combined and converted into one (1) share of Common Stock, $0.001
par value.
B. The following is a statement of the designations, preferences,
qualifications, limitations, privileges, restrictions and the special or
relative rights granted to or imposed upon the shares of capital stock of the
Corporation:
1. DIVIDENDS.
(a) The holders of the Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred shall be entitled, Pari
Passu, to receive dividends, prior and in preference to any dividend on the
Common Stock, at the rate of $0.056 per share of Series A Preferred or Series B
Preferred, $0.206 per share of Series C Preferred and $.1939 per share of Series
D Preferred, per annum (as adjusted for any stock dividends, combinations or
splits with respect to such shares that occurs after the date of filing of this
Third Restated Certificate of Incorporation), whenever funds are legally
available and when and as declared by the Board of Directors. The dividends
shall be non-cumulative.
(b) No dividends (other than those payable solely in
Common Stock) shall be paid on any Common Stock of the Corporation during any
fiscal year of the Corporation unless and until the holders of Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred shall
have received (i) dividends equal to the total amount due per share of Series A
Preferred Stock, Series B Preferred, Series C Preferred and Series D Preferred
per annum (as adjusted for any stock dividends, combinations or splits with
respect to such shares) as set forth in Section (a) above and (ii) additional
dividends in an amount for each such share of Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred held by such holder equal
to or greater than the amount of dividends which would be payable on all shares
of Common Stock into which each such share of Preferred Stock could then be
converted if such shares of Common Stock had been outstanding prior to the
declaration of such dividend.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
the Series A Preferred, the holders of the Series B Preferred, the holders of
Series C Preferred and the holders of Series D Preferred shall be entitled to
receive prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of Common Stock by reason of
their respective
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ownership thereof, the amount of $0.184211 per share of Series A Preferred
then held, and $0.633 per share of Series B Preferred then held, $3.1183 per
share of Series C Preferred and $3.1395 per share of Series D Preferred then
held (each as adjusted for any stock dividends, combinations or splits with
respect to such shares effective after the date of filing of this Third
Restated Certificate of Incorporation) plus all declared but unpaid dividends
on each such share of Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred. If, upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred
shall be insufficient to permit the payment to such holders of the full
preferential amount, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred in proportion to the preferential amount each such holder
is otherwise entitled to receive.
(b) After payment has been made to the holders of the
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred of the full amounts to which they shall be entitled as provided in
Section 2(a), the entire remaining assets and funds of the Corporation legally
available for distribution, if any, shall be distributed among the holders of
the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Common Stock in proportion to the shares of Common Stock then held
by each (assuming conversion into Common Stock of all such Preferred Stock);
provided, however, that the holders of Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred shall not receive any further
distribution from the assets and funds of the Corporation once such holders have
received an aggregate of $0.368, $1.266, $9.3549 and $9.4185 for each share,
respectively, of Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred then held by such holder.
(c) The merger or consolidation of the Corporation into
or with another corporation in which the stockholders of the Corporation shall
own less than 50% of the voting securities of the surviving corporation or its
parent or the sale, transfer or lease (but not including a transfer or lease by
pledge or mortgage to a bona fide lender) of all or substantially all of the
assets of the Corporation shall be deemed to be a liquidation, dissolution or
winding up of the Corporation as those terms are used in this Section IV.B.2.
(d) In the event of any liquidation, dissolution or
winding up of the Corporation, the Corporation shall, within ten (10) days after
the date the Board of Directors approves such action, or ten (10) days prior to
any stockholders' meeting called to approve such action, or ten (10) days after
the commencement of an involuntary proceeding, whichever is earlier, give each
holder of shares of Preferred Stock written notice of the proposed action. Such
written notice shall describe the material terms and conditions of such proposed
action, including a description of the stock, cash and property to be received
by the holders of shares of Preferred Stock upon consummation of the proposed
action and the date of delivery thereof. If any material change in the facts set
forth in the initial notice shall occur, the Corporation shall promptly give
written notice to each holder of shares of Preferred Stock of such material
change.
(e) The Corporation shall not consummate any liquidation,
dissolution or winding up of the Corporation before the expiration of ten (10)
days after the mailing of the
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written notice to the holders of shares of Preferred Stock; provided that any
such 10-day period may be shortened upon the written consent of the holders
of a majority of the outstanding shares of each series of Preferred Stock
then outstanding.
3. VOTING RIGHTS. The holder of each share of Preferred Stock
shall be entitled to the number of votes equal to the number of shares of Common
Stock into which such share of Preferred Stock could be converted and shall have
voting rights and powers equal to the voting rights and powers of the Common
Stock (except as otherwise expressly provided herein or as required by law),
voting together as a single class, and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation.
Fractional votes shall not be permitted, however, and any fractional voting
rights resulting from the above formula (after aggregating all shares into which
shares of Preferred Stock held by each holder could be converted) shall be
rounded to a nearest whole number (with one-half being rounded upward).
4. CONVERSION. The holders of the Preferred Stock shall have the
conversion rights as follows:
(a) RIGHT TO CONVERT. Each share of the Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share (the "Original Issue Date"), at the office of
this Corporation or any transfer agent for such shares, into such number of
fully paid and nonassessable shares of Common Stock determined: (i) in the case
of the Series A Preferred, by dividing $0.046053 by the Series A Conversion
Price applicable to such share, determined as hereinafter provided, in effect on
the date the certificate is surrendered for conversion (the "Series A Conversion
Price"), subject to adjustment as hereinafter provided; (ii) in the case of the
Series B Preferred, by dividing $0.633 by the Series B Conversion Price
applicable to such share, determined as hereinafter provided, in effect on the
date the certificate is surrendered for conversion (the "Series B Conversion
Price"), subject to adjustment as hereinafter provided; (iii) in the case of the
Series C Preferred, by dividing $3.1183 by the Series C Conversion Price
applicable to such share, determined as hereinafter provided, in effect on the
date the Certificate is surrendered for conversion (the "Series C Conversion
Price") and (iv) in the case of the Series D Preferred, by dividing $3.1395 by
the Series D Conversion Price applicable to such share, determined as
hereinafter provided, in effect on the date the Certificate is surrendered for
conversion (the "Series D Conversion Price"). The Series A Conversion Price
shall initially be $0.368422 per share of Common Stock. The Series B Conversion
Price shall initially be $1.266 per share of Common Stock. The Series C
Conversion Price shall initially be $6.2366 per share of Common Stock. The
Series D Conversion Price shall initially be $6.279 per share of Common Stock.
Such initial Conversion Prices shall be adjusted as hereinafter provided.
(b) AUTOMATIC CONVERSION. Each share of Preferred Stock
shall automatically be converted into shares of Common Stock at the applicable
Conversion Price for such series of Preferred Stock in effect immediately prior
to the closing of the sale of the Corporation's Common Stock in a firm
commitment, underwritten public offering registered under the Securities Act of
1933, as amended (other than a registration relating solely to a transaction
under Rule 145 under such Act (or any successor thereto) or to an employee
benefit plan of the
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Corporation), (i) at a public offering price (prior to underwriter
commissions and expenses) equal to or exceeding, in the case of the Series A
Preferred and Series B Preferred, $4.00 per share of Common Stock, in the
case of the Series C Preferred, $8.00 per share of Common Stock and in the
case of the Series D Preferred, $8.00 per share of Common Stock (in each
case, as adjusted for any stock dividends, combinations or splits with
respect to such shares occurring after the date of filing of this Restated
Certificate), and (ii) the aggregate proceeds to the Corporation (before
deduction for underwriter commissions and expenses relating to the issuance,
including without limitation fees of the Corporation's counsel) of which
equal or exceed $15,000,000. In addition, each share of any Series of
Preferred Stock shall automatically be converted into shares of Common Stock
upon the written consent of the holders of at least a majority of the then
outstanding shares of such Series of Preferred Stock at the applicable
Conversion Price for such series of Preferred Stock in effect immediately
prior to such consent.
(c) MECHANICS OF CONVERSION. Except as provided in
Section 4(b) above, before any holder of 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 the Corporation or of
any transfer agent for such stock, and shall give written notice to the
Corporation at such office that he elects to convert the same and shall state
therein the name or names in which he wishes the certificate or certificates for
shares of Common Stock to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Preferred Stock, a certificate or certificates for the number of shares of
Common Stock to which he shall be entitled as aforesaid. Except as provided in
Section 4(b) above, such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of the
shares of 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 on such date.
(d) ADJUSTMENTS FOR SUBDIVISIONS OR COMBINATIONS OF
COMMON STOCK. In the event the outstanding shares of Common Stock shall be
subdivided (by stock split or otherwise) into a greater number of shares of
Common Stock, the Conversion Price then in effect for each series of Preferred
Stock shall, concurrently with the effectiveness of such subdivision, be
proportionately decreased based on the ratio of (A) the number of shares of
Common Stock outstanding immediately prior to such subdivision to (B) the number
of shares of Common Stock outstanding immediately after such subdivision. In the
event the outstanding shares of Common Stock shall be combined or consolidated
by reclassification or otherwise into a lesser number of shares of Common Stock,
the Conversion Price then in effect for each series of Preferred Stock shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased on the same basis.
(e) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In the event the
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive, any
distribution payable in (A) securities of the Corporation or other entities
(other than shares of Common Stock and other than as otherwise adjusted in this
Section 4 or as otherwise provided in Section 1), (B) evidences of indebtedness
issued by the Corporation or other persons, or (C) assets (excluding cash
dividends) or options or rights, then
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and in each such event provision shall be made so that the holders of Series
A Preferred, Series B Preferred, Series C Preferred and Series D Preferred
shall receive upon conversion thereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of such distribution which they
would have received had their Series A Preferred, Series B Preferred, Series
C Preferred or Series D Preferred been converted into Common Stock on the
date of such event and had they thereafter, during the period from the date
of such event to and including the date of conversion, retained such
securities receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section 4 with
respect to the rights of the holders of the Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred.
(f) ADJUSTMENTS FOR RECAPITALIZATION, RECLASSIFICATION,
EXCHANGE AND SUBSTITUTION. If at any time or from time to time the Common Stock
issuable upon conversion of the Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred shall be changed into the same or a different
number of shares of any other class or classes of stock, whether by
recapitalization, capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares provided for in Section 4(d) above
or a merger or sale of assets transaction provided for in Section 4(g)), then
concurrently with the effectiveness of such recapitalization, reorganization or
reclassification, the shares of each series of Preferred Stock shall thereafter
be convertible into, in lieu of the number of shares of Common Stock which the
holders thereof would have been entitled to receive prior to such
recapitalization, reorganization or reclassification, a number of shares of such
other class or classes of stock equivalent to the number of shares of such other
class or classes of stock that a holder of the number of shares of Common Stock
into which shares of such series of Preferred Stock would have been converted
immediately before such recapitalization, reorganization or reclassification
would have received in connection with such recapitalization, reorganization or
reclassification. In addition, to the extent applicable in any reorganization or
recapitalization, provision shall be made so that the holders of shares of each
series of Preferred Stock shall thereafter be entitled to receive upon
conversion of such shares the number of shares of stock or other securities or
property of the Corporation or otherwise, to which a holder of the number of
shares of Common Stock deliverable upon conversion of shares of such series of
Preferred Stock immediately prior to such recapitalization or reorganization
would have been entitled on such reorganization or recapitalization.
(g) ADJUSTMENTS FOR MERGER OR SALE OF ASSETS. In case of
any consolidation or merger of the Corporation with or into another corporation
or corporations, or the conveyance of all or substantially all of the assets of
the Corporation to another corporation, each share of Preferred Stock shall
thereafter be convertible into the number of shares of stock or other securities
or property (including cash) to which a holder of the number of shares of Common
Stock deliverable upon conversion of such share of Preferred Stock would have
been entitled upon the record date of (or date of, if no record date is fixed)
such consolidation, merger or conveyance, and, in any case, appropriate
adjustment (as determined by the Board of Directors) shall be made in the
application of the provisions herein set forth with respect to the rights and
interests thereafter of the holders of the Preferred Stock, to the end that the
provisions set forth herein shall thereafter be applicable, as nearly as
equivalent as is practicable, in relation to any
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shares of stock or the securities or property (including cash) thereafter
deliverable upon the conversion of the shares of such Preferred Stock.
(h) ADJUSTMENT OF CONVERSION PRICE FOR DIVIDENDS,
DISTRIBUTIONS AND COMMON STOCK EQUIVALENTS. In the event the Corporation at any
time or from time to time after the Original Issue Date shall make or issue, or
fix a record date for 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 (hereinafter referred to as "Common Stock
Equivalents") convertible into or entitling the holder thereof to receive
additional shares of Common Stock without payment of any consideration by such
holder for such Common Stock Equivalents or the additional shares of Common
Stock, then and in each such event the maximum number of shares (as set forth in
the instrument relating thereto without regard to any provisions contained
therein for a subsequent adjustment of such number) of Common Stock issuable in
payment of such dividend or distribution or upon conversion or exercise of such
Common Stock Equivalents shall be deemed to be issued and outstanding as of the
time of such issuance or, in the event such a record date shall have been fixed,
as of the close of business on such record date. In each such event, the
Conversion Price in effect at the time for each series of the Preferred Stock
shall be decreased as of the time of such issuance or, in the event such a
record date shall have been fixed, as of the close of business on such record
date, by dividing the Conversion Price in effect at the time for each series of
Preferred Stock by a fraction,
(i) the numerator of which shall be the total
number of shares of Common Stock issued and outstanding or deemed to be issued
and outstanding immediately prior to the time of such issuance on the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution or upon conversion or exercise of
such Common Stock Equivalents, and
(ii) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding or deemed to be issued
and outstanding immediately prior to the time of such issuance on the close of
business on such record date; provided, however, (A) if such record date shall
have been fixed and such dividend is not fully paid or if such distribution is
not fully made on the date fixed therefor, the Conversion Price in effect at the
time for such series shall be recomputed accordingly as of the close of business
on such record date and thereafter the Conversion Price for such series shall be
adjusted pursuant to this Section 4(h) as of the time of actual payment of such
dividends or distribution; (B) if such Common Stock Equivalents provide, with
the passage of time or otherwise, for any decrease in the number of shares of
Common Stock issuable upon conversion or exercise thereof, the Conversion Price
in effect at the time for such series shall, upon any such decrease becoming
effective, be recomputed to reflect such decrease insofar as it affects the
rights of conversion or exercise of the Common Stock Equivalents then
outstanding; and (C) upon the expiration of any rights of conversion or exercise
under any unexercised Common Stock Equivalents, the Conversion Price in effect
at the time for such series computed upon the original issue thereof shall, upon
such expiration, be recomputed as if the only additional shares of Common Stock
issued were the shares of such stock, if any, actually issued upon the
conversion or exercise of such Common Stock Equivalents.
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(i) ADJUSTMENT OF CONVERSION PRICE FOR SUBSEQUENT SALES
BELOW CONVERSION PRICE. If the 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, the Series B Preferred, the
Series C Preferred or the Series D Preferred in effect immediately prior to the
issuance of such Additional Stock, then such Conversion Price shall be adjusted
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 the Corporation for such issuance would purchase at
the Conversion Price for such series of Preferred Stock in effect immediately
prior to the issuance of such Additional Stock 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 so issued. For
purposes of this Section 4(i) and Section 4(h) above, the shares of issued or
issuable Common Stock that are excluded from the definition of Additional Stock
will be deemed outstanding.
(i) No adjustment of the Conversion Price for
the Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred shall be made in an amount less than one cent per share, but any
adjustments which are not required to be made by reason of this sentence shall
be carried forward and taken into account in any subsequent adjustment. Except
to the limited extent provided for in Sections 4(i)(iv)(3) and 4(i)(iv)(4), no
adjustment of any such Conversion Price pursuant to this Section 4(i)(i) shall
have the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(ii) 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.
(iii) In the case of the issuance of the 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 determined by
the Board of Directors irrespective of any accounting treatment.
(iv) In the case of the issuance, whether before,
on or after the date of original issuance of any shares of Series A Preferred,
Series B Preferred, Series C Preferred or Series D Preferred, 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 (which are
not excluded from the definition of Additional Stock), the following provisions
shall apply:
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise 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 Sections 4(i)(ii) and
4(i)(iii)), if any, received by the Corporation upon the issuance of such
options or rights plus
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the minimum purchase price provided in such options or rights for the Common
Stock covered thereby.
(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange 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
the Corporation for any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Corporation 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 Sections 4(i)(ii) and 4(i)(iii)).
(3) In the event of any change in the
number of shares of Common Stock deliverable or any increase in the
consideration payable to the 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, the Conversion Price in effect at the time for
the Series A Preferred, the Series B Preferred, the Series C Preferred and
Series D Preferred obtained with respect to the adjustment which was made upon
the issuance of such options, rights or securities, and any subsequent
adjustments based thereon, 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 in effect at the time for the
Series A Preferred, the Series B Preferred, the Series C Preferred and the
Series D Preferred obtained with respect to the adjustment which was made upon
the issuance of such options, rights or securities or options or rights related
to such securities, and any subsequent adjustments based thereon, shall be
recomputed to reflect the issuance of only the number of shares of Common Stock
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. 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,
only the number of shares of Common Stock 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 shall
continue to be deemed to be issued.
(5) All Common Stock deemed issued
pursuant to this Section 4(i)(iv) shall be considered issued only at the time of
its deemed issuance and any actual issuance
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of such stock shall not be an actual issuance or a deemed issuance of the
Corporation's Common Stock under the provisions of this Section 4(i).
(j) ADDITIONAL STOCK. "Additional Stock" shall mean any
shares of Preferred Stock or Common Stock issued by this Corporation on or after
the Closing under the Series D Preferred Stock Purchase Agreement other than:
(i) shares issued or issuable pursuant to a
transaction described in Section 4(d) through 4(h) hereof,
(ii) shares of Common Stock reserved for issuance
to officers, directors, employees and consultants of the Corporation directly or
pursuant to a stock option plan or restricted stock plan or similar equity
incentive plan or agreement approved by the Board of Directors of the
Corporation;
(iii) Common Stock or Preferred Stock of any
series issued or issuable pursuant to the exercise of warrants, options or other
rights granted in connection with any equipment lease, technology license,
vendor or customer relationship or similar non-equity financing transaction
approved by the Board of Directors in accordance with reasonable and customary
business practices;
(iv) Common Stock issued pursuant to the
acquisition of another corporation by merger, purchase of all or substantially
all of the assets, or other reorganization; or
(v) shares issued or issuable upon conversion of
any series of Preferred Stock.
(k) NO IMPAIRMENT. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, 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 the 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 any
series of Preferred Stock, which is convertible by its terms, against
impairment.
(l) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence
of each adjustment or readjustment of any Conversion Price in effect at the time
for any series of Preferred Stock pursuant to this Section 4, the 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 Preferred Stock
whose Conversion Price is subject to adjustment or readjustment, as the case may
be, a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of shares
of any such series of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and
10
<PAGE>
readjustments, (ii) the applicable Conversion Price at the time in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of
shares of such series of Preferred Stock.
(m) NOTICES OF RECORD DATE. In the event of any taking by
the 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 security or
right convertible into or entitling the holder thereof to receive additional
shares of Common Stock, or 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, the Corporation shall mail to each holder of
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, security or right, and the amount and
character of such dividend, distribution, security or right.
(n) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
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 each series of Preferred Stock which is convertible
by its terms, 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 such
series of 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 Preferred Stock which is convertible by its
terms, the 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 purpose,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to this Certificate.
(o) FRACTIONAL SHARES. No fractional shares shall be
issued upon the conversion of any share or shares of Preferred Stock. All shares
of Common Stock (including fractions thereof) issuable upon conversion of more
than one share of Preferred Stock by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of
any fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market value
of such fraction on the date of conversion (which, if not readily determinable
by reference to sales prices on a stock exchange in the over-the-counter market
or otherwise, shall be determined in good faith by the Board of Directors of the
Corporation).
(p) NOTICES. Any notice required by the provisions of
this Section IV.B.4 to be given to the holders of shares of Preferred Stock
shall be deemed given on the third business day after deposit in the United
States mail, postage prepaid, addressed to each holder of record at his address
appearing on the books of the Corporation.
11
<PAGE>
5. REDEMPTION.
(a) At any time after the fifth anniversary of the
original issuance of the Series A Preferred, Series B Preferred, Series C
Preferred or Series D Preferred, as the case may be, upon the affirmative vote
or written consent of the holders of at least two-thirds of the then outstanding
shares of Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred, as the case may be (the "Redemption Request"), the Corporation shall
redeem all issued, outstanding and unconverted shares of Series A Preferred,
Series B Preferred, Series C Preferred or Series D Preferred, as the case may
be, at the applicable Redemption Price (as defined below) as provided herein
from any source of funds legally available therefor. Subject to the vote or
written consent of the holders of Series A Preferred, Series B Preferred, Series
C Preferred or Series D Preferred provided above, the Corporation shall redeem
all shares of Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred outstanding as of the date of such vote or written consent in
three (3) equal annual installments upon payment of the corresponding Redemption
Price for the shares so redeemed. The redemption date for each annual redemption
of shares pursuant to this subsection (the "Redemption Date") shall be not less
than thirty (30) and not more than forty-five (45) days after the completion of
each fiscal year during the specified redemption period. If the funds of the
Company legally available for redemption of the Series A Preferred, Series B
Preferred, Series C Preferred or Series D Preferred, as the case may be, on any
Redemption Date are insufficient to redeem the total number of outstanding
shares of Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred on such Redemption Date, those funds which are legally available will
be used to redeem the maximum number of shares of Series A Preferred, Series B
Preferred, Series C Preferred or Series D Preferred ratably among the holders of
such Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred. If, and only if, no funds or insufficient funds are available to the
Corporation at any redemption date to meet the Corporation's redemption
obligations pursuant to this subsection, then the Corporation's obligations to
redeem shares of Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred shall continue and at any time thereafter when additional
funds of the Corporation are legally available for the redemption of the Series
A Preferred, Series B Preferred, Series C Preferred or Series D Preferred, the
Corporation within ten (10) business days, shall use such funds to redeem the
balance of the shares which the Corporation has become obligated to redeem on
any Redemption Date but which it has not redeemed. The shares of Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred which
have not been redeemed shall continue to be entitled to the dividend, conversion
and other rights, preferences, privileges and restrictions of the Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred, as the
case may be.
(b) The Series A redemption price (the "Series A
Redemption Price") for each share of Series A Preferred repurchased shall be
equal to the sum of (i) $0.184211 (as adjusted for any stock splits, stock
dividends, reorganizations and the like) and (ii) any declared but unpaid
dividends payable in accordance with Section 1 above on each such share to be
redeemed. The Series B redemption price (the "Series B Redemption Price") for
each share of Series B Preferred repurchased shall be equal to the sum of (i)
$0.633 (as adjusted for any stock splits, stock dividends, reorganizations and
the like) and (ii) any declared but unpaid dividends payable
12
<PAGE>
in accordance with Section 1 above on each such share to be redeemed. The
Series C redemption price (the "Series C Redemption Price") for each share of
Series C Preferred repurchased shall be equal to the sum of (i) $3.1183 (as
adjusted for any stock splits, stock dividends, reorganizations and the like)
and (ii) any declared but unpaid dividends payable in accordance with Section
1 above on each such share to be redeemed. The Series D redemption price (the
"Series D Redemption Price") for each share of Series D Preferred repurchased
shall be equal to the sum of (i) $3.1395 (as adjusted for any stock splits,
stock dividends, reorganizations and the like) and (ii) any declared but
unpaid dividends payable in accordance with Section 1 above on each such
share to be redeemed.
(c) Within fifteen (15) days of the Corporation's receipt
of a Redemption Request, the Corporation will mail written notice, 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 shares to be
redeemed, at the address for such holder as it appears on the stock transfer
books of the Corporation, notifying such holder of the redemption, specifying
the Redemption Dates upon which the Corporation shall satisfy the Redemption
Request, the applicable Redemption Price, the place at which payment may be
obtained and the date on which such holder's conversion rights as to such shares
terminate, and calling upon such holder to surrender to the Corporation, in the
manner and at the place designated, his certificate or certificates representing
the shares to be redeemed (the "Redemption Notice"). On or after each Redemption
Date, each holder of shares to be redeemed shall surrender to the Corporation
the certificate or certificates representing such shares to be redeemed, in the
manner and at the place designated in the Redemption Notice, and thereupon the
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. In
the event that less than all the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
(d) From and after each Redemption Date, unless there
shall have been a default in payment of the Redemption Price, all rights of the
holders of the shares thereupon redeemed, as holders of shares of Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred, as the
case may be (except the right to receive the Redemption Price 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. The shares not
redeemed shall remain outstanding and entitled to all the rights and preferences
provided herein.
6. ACTIONS REQUIRING APPROVAL OF A SERIES. In addition to any
other rights provided by law, the Corporation shall not, without first obtaining
the affirmative vote or written consent of the holders of a majority of any
outstanding series of Preferred Stock affected thereby voting separately as a
series:
(a) amend or repeal any provision of, or add any
provision to, the Certificate of Incorporation or By-Laws that would alter or
change the rights, preferences, privileges or powers of, such series of
Preferred Stock;
13
<PAGE>
(b) authorize any additional shares of such outstanding
series of Preferred Stock;
(c) authorize or issue, or obligate itself to issue, any
other equity security senior to or on a parity with such series of Preferred
Stock as to dividend or redemption rights, liquidation preferences, conversion
rights, voting rights or otherwise, or create any obligation or security
convertible into or exchangeable for, or having any option rights to purchase,
any such equity security which is senior to or on a parity with such series of
Preferred Stock; or
(d) effect a reclassification or recapitalization of the
outstanding capital stock of the Corporation.
7. RESTRICTIONS AND LIMITATIONS. So long as at least 500,000
shares of Preferred Stock remain outstanding, the Corporation shall not, without
the vote or written consent by the holders of at least two-thirds of the then
outstanding shares of Preferred Stock, voting separately as a class:
(a) effect a merger or consolidation with any other
entity where the stockholders of the Corporation before such merger or
consolidation would hold less than 50% of the surviving entity;
(b) sell, convey, or otherwise dispose of, all or
substantially all of the property or business of the Corporation;
(c) grant a license to the Corporation's intellectual
property to a third party, which grant, by virtue of its scope, geographical
coverage, terms of exclusivity and irrevocability, is tantamount to a sale,
conveyance or other disposal of, all or substantially all of the property or
business of the Corporation; provided however, that no such vote or written
consent shall be required for licenses granted by the Corporation in the
ordinary course of its business, including licenses granted as part of a joint
alliance or venture or other collaboration to third parties within the U.S. or
in foreign countries;
(d) declare or pay any dividends or any other
distribution on the Common Stock;
(e) except as otherwise provided herein, purchase, redeem
or otherwise acquire (or pay into or set aside for a sinking fund for such
purpose), any of the Common Stock (or other capital stock or rights to acquire
capital stock) of the Corporation; provided, however, that this restriction
shall not apply to the repurchase of shares of Common Stock from directors,
officers, consultants or employees of the Corporation or any subsidiary pursuant
to agreements approved by the Corporation's Board of Directors under which the
Corporation has the option to repurchase such shares upon the occurrence of
certain events, including termination of employment or services;
(f) Amend the Certificate of Incorporation to increase
the authorized number of directors of the Corporation;
14
<PAGE>
(g) increase the number of shares of Common Stock
reserved for issuance to officers, directors, employees and consultants of the
Corporation directly or pursuant to a stock option plan or restricted stock plan
or similar equity incentive plan or agreement approved by the Board of Directors
of the Corporation (i) by more than 1,000,000 shares or (ii) prior to August 4,
2000; or
(h) authorize any additional shares of any outstanding
series of Preferred Stock;
(i) subject to Section 6(a), amend or waive any
provision of this Article IV.
8. SPECIAL RIGHTS OF HOLDERS OF SERIES C PREFERRED. So long as at
least 1,000,000 shares of Series C Preferred remain outstanding, the Corporation
shall not, without the vote or written consent of the holders of at least a
majority of the then outstanding shares of Series C Preferred:
(a) authorize or issue, or obligate itself to issue, any
other equity security on a parity with the Series C Preferred as to dividend or
redemption rights, liquidation preferences, conversion rights, voting rights or
otherwise, or create any obligation or security convertible into or exchangeable
for, or having any option rights to purchase, any such equity security which is
senior to or on a parity with the Series C Preferred; or
(b) effect a merger or consolidation with any other
entity where the stockholders of the Corporation before such merger or
consolidation would hold less than 50% of the surviving entity and the
consideration per share received by the holders of the Series C Preferred would
be less than $5.16 in value.
9. SPECIAL RIGHTS OF HOLDERS OF SERIES D PREFERRED. So long as at
least 1,000,000 shares of Series D Preferred remain outstanding, the Corporation
shall not, without the vote or written consent of the holders of at least a
majority of the then outstanding shares of Series D Preferred:
(a) authorize or issue, or obligate itself to issue, any
other equity security on a parity with the Series D Preferred as to dividend or
redemption rights, liquidation preferences, conversion rights, voting rights or
otherwise, or create any obligation or security convertible into or exchangeable
for, or having any option rights to purchase, any such equity security which is
senior to or on a parity with the Series D Preferred; or
(b) effect a merger or consolidation with any other
entity where the stockholders of the Corporation before such merger or
consolidation would hold less than 50% of the surviving entity and the
consideration per share received by the holders of the Series D Preferred would
be less than $5.16 in value.
C. Except as provided in Section IV.B. above, the rights,
preferences, privileges, restrictions and other matters relating to the Common
Stock of the Corporation are as follows:
15
<PAGE>
1. DIVIDENDS. Dividends may be paid upon the Common Stock as and
when declared by the Board of Directors out of any funds legally available
therefor.
2. VOTING RIGHTS. Except as otherwise provided by statute, by any
express provision of this Certificate (including Section IV.B.3 herein) or by
any agreement to the contrary between the Corporation and its stockholders, all
rights to vote and all voting power shall be exclusively vested in the Common
Stock and the holders thereof shall be entitled to one vote for each share of
Common Stock for the election of directors and upon all other matters.
3. REGISTERED OWNERS. The Corporation shall be entitled to treat
the person in whose name any share, right or option is registered as the owner
thereof, for all purposes, and shall not be bound to recognize any equitable or
other claim to or interest in such share, right or option on the part of any
other person, whether or not the Corporation shall have notice thereof, save as
may be expressly provided by the laws of the State of Delaware.
ARTICLE V
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
(a) The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors. The number
of directors which shall constitute the whole Board of Directors shall be fixed
by the Board of Directors in the manner provided in the Bylaws. Except as may
otherwise be required by law and subject to the terms of any agreement to the
contrary between the Corporation and its stockholders, vacancies in the Board of
Directors of the Corporation and newly 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.
(b) The directors of the Corporation need not be elected
by written ballot unless the Bylaws so provide.
ARTICLE VI
Subject to Section 6(a) the Board of Directors may from time to time
make, amend, supplement or repeal the Bylaws except as provided therein;
provided, however, that the stockholders may change or repeal any Bylaw adopted
by the Board of Directors by the affirmative vote of the holders of a majority
of the voting power of all of the then outstanding shares of the capital stock
of the Corporation; and, provided further, that no amendment or supplement to
the Bylaws adopted by the Board of Directors shall vary or conflict with any
amendment or supplement thus adopted by the stockholders.
16
<PAGE>
ARTICLE VII
A. No director shall have any personal liability to the
Corporation or its stockholders for any monetary damages for breach of fiduciary
duty as a director, except that this Article shall not eliminate or limit the
liability of each director (i) for any breach of such director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which such director derived an improper personal benefit.
B. It being the intention of the foregoing provision to eliminate
the liability of the Corporation's directors to the fullest extent permitted by
Section 102(b)(7) of the Delaware General Corporation Law, as amended from time
to time, any repeal or modification of the foregoing Section VII.A of this
Article VII by the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification.
C. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article VII to authorize corporate action
further eliminating or limiting the personal liability of directors, then a
director of the Corporation, in addition to the circumstances in which he is not
now personally liable, shall be free of liability to the fullest extent
permitted by the Delaware General Corporation Law as so amended.
D. Each director, officer, employee and agent, past or present,
of the Corporation, and each person who serves or may have served at the request
of the Corporation as a director, trustee, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, and their
respective heirs, administrators and executors, shall be indemnified by the
Corporation in accordance with and to the fullest extent permitted by, the
provisions of the Delaware General Corporation Law as it may from time to time
be amended. The provisions of this subparagraph D shall apply to any member of
any committee appointed by the Board of Directors as fully as though such person
shall have been an officer or director of the Corporation.
E. The provisions of this Article VII shall be in addition to and
not in limitation of any other rights, indemnities, or limitations of liability
to which any director or officer may be entitled, as a matter of law or under
the Bylaws of the Corporation.
F. The Corporation shall pay expenses incurred by an officer or
director in defending a civil or criminal action, suit or proceeding in advance
of the final disposition of such action, suit or proceeding upon receipt of any
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Certificate of Incorporation.
17
<PAGE>
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
executed on behalf of the Corporation by David J. Toth, its President, as of the
__ day of November, 1999.
NETRATINGS, INC.
By: /s/ David J. Toth
------------------------
David J. Toth, President
<PAGE>
Exhibit 3.3
RESTATED CERTIFICATE OF INCORPORATION
OF
NETRATINGS, INC.
David J. Toth, President of NetRatings, Inc., a corporation organized
and existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 242 and 245 thereof, DOES HEREBY
CERTIFY:
FIRST: That the name of this Corporation is NetRatings, Inc. (the
"Corporation") and that the original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware on
July 2, 1997.
SECOND: That the Amendment and Restatement of the Corporation's
Certificate of Incorporation set forth in the following resolution has been
approved by the Corporation's Board of Directors and stockholders and was duly
adopted in accordance with the provisions of Section 242 and 245 of the General
Corporation Law of the State of Delaware:
NOW, THEREFORE, BE IT RESOLVED, that the Certificate of Incorporation
of this Corporation be, and it hereby is, restated and further amended to read
in its entirety as follows:
ARTICLE I
The name of the Corporation is NetRatings, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The nature of the business and of the purposes to be conducted and
promoted by the Corporation are to conduct any lawful business, to promote any
lawful purpose, and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
(A) The Corporation is authorized to issue two classes of shares,
designated "Common Stock" and "Preferred Stock," respectively. The number of
shares of Common Stock authorized to be issued is 200,000,000 shares, $0.001 par
value per share, and the number of shares of Preferred Stock authorized to be
issued is 5,000,000 shares, $0.001 par value per share.
<PAGE>
(B) The Preferred Stock authorized by this Certificate of
Incorporation may be issued from time to time in one or more series. The Board
of Directors is authorized to determine, alter or eliminate any or all of the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock, and to fix, increase or decrease the
number of shares comprising any such series and the designation thereof, or any
of them, and to provide for the rights and terms of redemption or conversion of
the shares of any such series.
ARTICLE V
(A) The number of directors constituting the Board shall be
fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the entire Board of Directors; provided,
however, that the number of directors shall not be reduced so as to shorten
the term of any director at the time in office.
(B) Unless the Board of Directors determines otherwise, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies on the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
shall be filled by a majority vote of the directors then in office, although
less than a quorum, and directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of office of
the class to which they have been elected expires and until such directors'
successors shall have been duly elected and qualified.
ARTICLE VI
The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(A) The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation.
(B) The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
(C) On and after the closing of the first sale of the
Corporation's Common Stock pursuant to a firmly underwritten registered initial
public offering ("IPO") any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders. Prior to the IPO, unless otherwise
provided by law, any action which may otherwise be taken at any meeting of the
stockholders may be taken without a meeting and without prior notice, if a
written consent describing such actions is signed by the
2
<PAGE>
holders of outstanding shares having not less than the minimum number of
votes which would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted.
(D) Special meetings of stockholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption).
ARTICLE VII
The Board of Directors is expressly empowered to adopt, amend or repeal
Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the
Corporation by the Board of Directors shall require the approval of a majority
of the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any resolution
providing for adoption, amendment or repeal is presented to the Board).
The stockholders shall also have power to adopt, amend or repeal the
Bylaws of the Corporation.
ARTICLE VIII
Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock required by law or this
Certificate of Incorporation, the affirmative vote of the holders of a majority
of the voting power of the then outstanding shares of capital stock of the
Corporation, voting together as a single class, shall be required to alter,
amend or repeal any provision of Articles V, VI, or VII, this Article VIII or
Article IX of this Certificate of Incorporation.
ARTICLE IX
To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or may hereafter be amended, a director of the
Corporation shall be indemnified by the Corporation in accordance with the
Bylaws and shall not be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for any act or omission not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii) for
any act related to the unlawful stock repurchase or payment of a dividend under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
If the Delaware General Corporation Law is hereafter amended to
authorize the further elimination or limitation of the liability of a director,
then the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the Delaware General Corporation Law,
as so amended.
3
<PAGE>
Any repeal or modification of the foregoing provisions of this Article
9 by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
THIRD: That the Board of Directors of the Corporation adopted
resolutions approving and adopting the foregoing amendment and restatement by
executing a unanimous written consent in lieu of a meeting in accordance with
Section 141(f) of the Delaware General Corporation Law.
FOURTH: That the stockholders of the Corporation took action by
executing a written consent in lieu of a meeting in accordance with the
applicable provisions of Sections 228 and 242 of the Delaware General
Corporation Law in order to approve the foregoing amendment and restatement.
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be signed by its duly authorized officer, this
__ day of ________, 1999.
NETRATINGS, INC.
By: /s/ David J. Toth
----------------------------------
David J. Toth, President & CEO
4
<PAGE>
Exhibit 4.3
Number Shares
NRI
[NetRatings Logo]
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 641164 1D 8
THIS CERTIFIES that SEE REVERSE FOR RESERVATIONS
AND A STATEMENT OF RIGHTS
GRANTED TO SUCH CLASS
OF SHARES
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $0.001 PAR VALUE, OF
NETRATINGS, INC.
transferable on the share register of the Corporation in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrant.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated
NETRATINGS INC.
CORPORATE
SEAL
/s/ Jack R. Lazar 1997 /s/ David J. Toth
DELAWARE
VICE PRESIDENT, CHIEF FINANCIAL PRESIDENT AND CHIEF
OFFICER AND SECRETARY EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ)
TRANSFER AGENT
AND REGISTRAR
<PAGE>
NETRATINGS, INC.
A statement of 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 as established, from time to time, by the
Certificate of Incorporation of the Corporation and by any certificate of
designation, the number of shares constituting each class and series, and the
designations thereof, may be obtained by the holder hereof upon request and
without charge at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ................ Custodian ................
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act.............................................................
in common (State)
UNIF TRF MIN ACT -- ........... Custodian (until age .........)
(Cust)
........................................ under Uniform Transfers
(Minor)
to Minors Act...................................................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------
- ------------------------------------
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________________
X __________________________________________
X __________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By _______________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
AGREEMENT
This Agreement (the "Agreement") is made as of November 9,
1999 by and between NetRatings, Inc., a Delaware corporation (the "Company") and
Nielsen Media Research, Inc., a Delaware corporation ("NMR").
W I T N E S S E T H
-------------------
WHEREAS, in connection with the purchase by NMR of shares of
Series C Preferred Stock of the Company pursuant to that certain Series C
Preferred Stock Purchase Agreement dated August 15, 1999, NMR was granted by the
Company (i) a common stock purchase warrant ("Warrant I") to purchase 1,106,109
shares of Common Stock, par value $.001 per share, of the Company ("Common
Stock"), with an exercise price equal to $3.60 per share, exercisable in whole
or in part from the earlier of January 1, 2000 and the effectiveness (the date
on which such effectiveness is declared by the Securities and Exchange
Commission is hereinafter referred to as the "Effective Date") of the
registration statement on Form S-1 relating to the initial public offering of
the Company's Common Stock (the "IPO"), until December 31, 2001, and (ii) a
common stock purchase warrant (together with Warrant I, the "Warrants") to
purchase 12,000,000 shares of Common Stock with an exercise price equal to the
lower of $6.00 per share or 60% of the price at which the Company's Common Stock
is sold in the IPO (in the aggregate for the purchase of all shares under the
Warrants, the "Total Exercise Amount") exercisable in whole or in part from the
earlier of January 1, 2002 and the Effective Date, until December 31, 2004
(subject to adjustment of the Warrant shares and Exercise Price to give effect
to a contemplated 1-for-2 reverse stock split by the Company);
WHEREAS, pursuant to that certain Second Restated Rights
Agreement and Addendum No. 1 to Second Restated Rights Agreement each dated as
of September 22, 1999 by and among the Company, NMR and certain stockholders of
the Company set forth therein (which amended and restated the Restated Rights
Agreement and Addendum No. 1 to Restated Rights Agreement dated August 15,
1999)(collectively, the "Rights Agreement"), NMR has the right (the "Top-Off
Right"), for so long as it owns at least 5.0% of the issued and outstanding
Common Stock on a fully-diluted basis (as defined in the Rights Agreement), to
purchase from the Company, either as registered securities in connection with
the IPO or in a private placement occurring concurrently therewith, that number
of additional shares of Common Stock as may be necessary to cause the number of
shares of Common Stock beneficially owned by NMR (including all shares
underlying the Warrants) to increase to an amount which, after giving effect to
the IPO, is equal to but not greater than 54.0% of the issued and outstanding
shares of Common Stock on a fully-diluted basis upon the closing of the IPO at a
price per share equal to the offering price in the IPO (the sum of the total
cost of the exercise of the Top-Off Right as modified by Section 1 and the Total
Exercise Amount as defined in the Addendum No. 1 to the Rights Agreement, the
"Purchase Price");
<PAGE>
WHEREAS, on October 28, 1999, the Company filed with the
Securities and Exchange Commission an amendment to its registration statement on
Form S-1 which contemplates the offering of 4,000,000 shares of Common Stock and
states an expected offering price per share of between $12.00 and $14.00 (the
registration statement and all amendments thereto, including amendments after
the date of this Agreement, collectively "Form S-1");
WHEREAS, pursuant to Section 2.1 of Addendum No. 1 to the
Rights Agreement, (i) on September 26, 1999, the Company notified NMR of its
intention to file a Company-IPO and (ii) on October 26, 1999, NMR notified the
Company that it intended to exercise its Top-Off Right (each, a "Top-Off Notice"
and collectively, the "Top-Off Notices");
WHEREAS, the Company and NMR desire to enter into this
Agreement to provide for (i) the commitment by NMR to exercise the Warrants and
the Top-Off Right with certain changes upon the later to occur of (A) the
closing of the IPO and (B) the date on which all filing requirements under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR") have
been satisfied including, without limitation, the expiration or early
termination of all applicable waiting periods thereunder (such later date, the
"Control Date"), such that on the Control Date, NMR shall own greater than a
majority of the issued and outstanding shares of Common Stock on a Fully Diluted
Basis as defined below and (ii) the expansion of the Board of Directors of the
Company from six members to eleven members through the creation of five new
directorships on the Board and the filling of such newly created directorships
with designees of NMR, such that, upon the Control Date, NMR shall control a
majority (rounded to the next highest whole number) of the seats on the Board
(the "Board Expansion") ; and
WHEREAS, the Board Expansion may be accomplished by action of
the Company's Board of Directors without shareholder or any other approval;
NOW THEREFORE, in consideration of the premises, mutual
covenants and terms hereof, and for other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. COMMITMENT BY NMR. Subject to the simultaneous fulfillment
by the Company of its obligations set forth below in Section 2 (a), NMR hereby
agrees to exercise the Warrants in full and the Top-Off Right in accordance with
their respective terms (subject to the provisions hereof) and pay the Purchase
Price (whether or not the offering price is within the proposed price range of
$12 to $14) such that NMR shall own at least 52% of the Company's issued and
outstanding shares of Common Stock on a Fully Diluted Basis (as defined below)
determined as of the closing date of the IPO but may purchase sufficient
additional shares of Common Stock at the final IPO offering price to own at
least a majority of the Company's issued and outstanding shares of Common Stock
on a Fully Diluted Basis on the Control Date, but in no case more than 54% of
the issued and outstanding shares of Common Stock of the Company on a Fully
Diluted Basis on the closing date of the IPO, and to pay to the Company, in
immediately available funds, the Purchase Price upon the Control Date.
Notwithstanding the foregoing, NMR shall no longer be obligated to exercise the
Warrants and the Top-Off Right and to pay the Purchase Price hereunder if (i)
the Control Date has not occurred prior to February 1, 2000 or
<PAGE>
(ii) the number of shares outstanding upon the closing of the IPO or on the
Control Date on a Fully Diluted Basis is greater than indicated in the Form
S-1 in its final form; except for employee stock options authorized by or
granted by the Company between the closing date of the IPO and the Control
Date to acquire up to 1,000,000 shares of Common Stock pursuant to the
Company's 1998 Stock Plan as amended. "Fully Diluted Basis" shall mean the
assumption that all options, warrants or other convertible securities or
instruments or other rights to acquire Common Stock or any other existing or
future classes of capital stock have been exercised or converted, as
applicable, in full, regardless of whether any such options, warrants,
convertible securities or instruments or other rights are then vested or
exercisable or convertible in accordance with their terms.
2. EXPANSION OF THE BOARD; ISSUANCE OF ADDITIONAL SHARES. (a)
Subject to the fulfillment by NMR of its obligations set forth above in Section
1, the Company hereby agrees to take or cause to be taken , prior to the closing
date of the IPO, all action necessary to increase the size of the Board from six
members to eleven members and to cause six members of the Board to be the
designees of NMR whose names are set forth on SCHEDULE I attached hereto (the
"NMR Designees"), such action to be contingent and effective upon the IPO and
the Control Date occurring.
(b) The Company agrees that, commencing on the closing date of
the IPO until the Control Date, it shall not issue additional shares of Common
Stock (or securities convertible or exercisable into Common Stock) except for
employee stock options authorized by or granted by the Company between the
closing date of the IPO and the Control Date to acquire up to 1,000,000 shares
of Common Stock pursuant to the Company's 1998 Stock Plan as amended.
3. FORM S-1. Upon execution and delivery of this Agreement by
each of NMR and the Company, the Company agrees to cause the Form S-1 to be
amended to include appropriate disclosure of this Agreement and all relevant
information concerning the NMR Designees as may be required under the Securities
Act of 1933 and the rules and regulations promulgated thereunder.
4. ADDITIONAL INFORMATION. Each party hereby agrees to provide
the other with such information as it may reasonably request in order to fulfill
its obligations hereunder and to take such additional action as may be required
in connection herewith.
5. CONSENT BY NMR TO INCREASE IN BOARD. NMR hereby consents to
an increase in the size of the Board of the Company in accordance with the terms
and conditions hereof, as required pursuant to Section 2.2(a) of Addendum No. 1
to Second Restated Stockholders Agreement of the Company dated September 22,
1999.
6. TOP-OFF NOTICES. Each of the Company and NMR acknowledges
and agrees that the Top-Off Notice given by the other party was validly and
timely given in accordance with the Rights Agreement and waives any right to
challenge the validity or timeliness thereof. The parties further agree that
NMR's Top-Off Notice is superseded by this Agreement, and that this Agreement
shall constitute a valid and timely Top-Off Notice of NMR, with effect as if
given on October 26, 1999. The Company waives its rights under the Top-Off Right
in the Rights
<PAGE>
Agreement to have NMR purchase 54% of the shares of Common Stock on a Fully
Diluted Basis upon the closing of an IPO.
7. HSR FILING. NMR and the Company agree to use their
reasonable best efforts to promptly make any required filings under HSR and to
respond promptly to any request for additional information from the agency
handling the HSR filing.
8. GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California without giving effect to the
conflicts of laws principles thereof.
9. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall inure to the benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the parties to this Agreement.
10. ENTIRE AGREEMENT; AMENDMENT. Except for the Rights
Agreement and Warrants which it modifies, this Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and supersedes all prior agreements and merges all prior
discussions, negotiations, proposals and offers (written or oral) between them.
Except as expressly provided in this Agreement, neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by both parties.
11. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and both of which together shall constitute one
instrument.
12. TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not considered in
construing or interpreting this Agreement.
The foregoing Agreement is hereby executed as of the date
first above written.
NIELSEN MEDIA RESEARCH, INC. NETRATINGS, INC.
By: /s/ Stephen J. Boatti By: /s/ David J. Toth
----------------------------------- -----------------------------------
Name: Stephen J. Boatti Name: David J. Toth
Title: Senior Vice President, Chief Title: President and CEO
Legal Officer & Secretary
By: /s/ David A. Norman
-----------------------------------
Name: David A. Norman
Title: Chairman of the Board
<PAGE>
[GRAY CARY WARE FREIDENRICH LLP LETTERHEAD]
November __, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: NETRATINGS, INC. REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
As counsel to NetRatings, Inc. (the "Company"), we are rendering this
opinion in connection with a proposed sale of those certain shares of the
Company's newly-issued Common Stock as set forth in the Registration Statement
on Form S-1 to which this opinion is being filed as Exhibit 5.1 (the "Shares").
We have examined all instruments, documents and records which we deemed relevant
and necessary for the basis of our opinion hereinafter expressed. In such
examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that the Shares
identified in the above-referenced Registration Statement will be, upon
effectiveness of the Registration Statement and receipt by the Company of
payment therefor, validly authorized, legally issued, fully paid, and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in said Registration Statement, including the Prospectus constituting a
part thereof, as originally filed or as subsequently amended.
Very truly yours,
GRAY CARY WARE & FREIDENRICH LLP
<PAGE>
NETRATINGS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. This 1999 Employee Stock Purchase
Plan (the "PLAN") is hereby established effective as of the effective date of
the initial registration by the Company of its Stock under Section 12 of the
Securities Exchange Act of 1934, as amended (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the
interests of Company and its stockholders by providing an incentive to
attract, retain and reward Eligible Employees of the Participating Company
Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group. The Plan provides such
Eligible Employees with an opportunity to acquire a proprietary interest in
the Company through the purchase of Stock. The Company intends that the Plan
qualify as an "employee stock purchase plan" under Section 423 of the Code.
1.3 TERM OF PLAN. The Plan shall continue in effect
until the earlier of its termination by the Board or the date on which all of
the shares of Stock available for issuance under the Plan have been issued.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Any term not expressly defined in the
Plan but defined for purposes of Section 423 of the Code shall have the same
definition herein. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of
1986, as amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board
duly appointed to administer the Plan and having such powers as shall be
specified by the Board. Unless the powers of the Committee have been
specifically limited, the Committee shall have all of the powers of the Board
granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "COMPANY" means NetRatings, Inc., a Delaware
corporation, or any successor corporation thereto.
1
<PAGE>
(e) "COMPENSATION" means, with respect to any
Offering Period, base wages or salary and commissions paid in cash during
such Offering Period before deduction for any contributions to any plan
maintained by a Participating Company and described in Section 401(k) or
Section 125 of the Code. Compensation shall not include overtime, bonuses,
annual awards, other incentive payments, shift premiums, reimbursements of
expenses, allowances, long-term disability, workers' compensation or any
amount deemed received without the actual transfer of cash or any amounts
directly or indirectly paid pursuant to the Plan or any other stock purchase
or stock option plan, or any other compensation not included above.
(f) "ELIGIBLE EMPLOYEE" means an Employee who
meets the requirements set forth in Section 5 for eligibility to participate
in the Plan.
(g) "EMPLOYEE" means a person treated as an
employee of a Participating Company for purposes of Section 423 of the Code.
A Participant shall be deemed to have ceased to be an Employee either upon an
actual termination of employment or upon the corporation employing the
Participant ceasing to be a Participating Company. For purposes of the Plan,
an individual shall not be deemed to have ceased to be an Employee while such
individual is on any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event an
individual's leave of absence exceeds ninety (90) days, the individual shall
be deemed to have ceased to be an Employee on the ninety-first (91st) day of
such leave unless the individual's right to reemployment with the
Participating Company Group is guaranteed either by statute or by contract.
The Company shall determine in good faith and in the exercise of its
discretion whether an individual has become or has ceased to be an Employee
and the effective date of such individual's employment or termination of
employment, as the case may be. For purposes of an individual's
participation in or other rights, if any, under the Plan as of the time of
the Company's determination, all such determinations by the Company shall be
final, binding and conclusive, notwithstanding that the Company or any
governmental agency subsequently makes a contrary determination.
(h) "ENTRY DATE" means (i) the Offering Date of
an Offering Period, or (ii) with respect to persons who first become Eligible
Employees after the commencement of the Initial Offering Period (as defined
in Section 6.1 below) but prior to the commencement of the final Purchase
Period of the Initial Offering Period, the first day of the Purchase Period
following the date on which such person becomes an Eligible Employee.
Notwithstanding the foregoing, in the event that the Fair Market Value of a
share of Stock on the first, second or third Purchase Date of the Initial
Offering Period is less than the Fair Market Value of a share of Stock on the
Entry Date for a Participant who was participating in the Offering as of such
Purchase Date, the Entry Date for such Participant for the remainder of the
Offering shall be the first day of the next Purchase Period immediately
following such Purchase Date.
(i) "FAIR MARKET VALUE" means, as of any date, if
there is then a public market for the Stock, the closing price of a share of
Stock (or the mean of the closing bid and asked prices if the Stock is so
quoted instead) as quoted on the Nasdaq National Market, The Nasdaq SmallCap
Market or such other national or regional securities exchange or market
system constituting the primary market for the Stock, as reported in THE WALL
STREET JOURNAL or such other source as the Company deems reliable. If the
relevant date does not fall on a day on which the Stock has traded on such
securities exchange or market system, the date on which the
2
<PAGE>
Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day
as shall be determined by the Board, in its discretion. If, as of any date,
there is then no public market for the Stock, the Fair Market Value on any
relevant date shall be as determined by the Board. Notwithstanding the
foregoing, the Fair Market Value per share of Stock on the Effective Date
shall be deemed to be the public offering price set forth in the final
prospectus filed with the Securities and Exchange Commission in connection
with the initial public offering of the Stock.
(j) "OFFERING" means an offering of Stock as
provided in Section 6.
(k) "OFFERING DATE" means, for any Offering, the
first day of the Offering Period with respect to such Offering.
(l) "OFFERING PERIOD" means a period established
in accordance with Section 6.1.
(m) "PARENT CORPORATION" means any present or
future "parent corporation" of the Company, as defined in Section 424(e) of
the Code.
(n) "PARTICIPANT" means an Eligible Employee who
has become a participant in an Offering Period in accordance with Section 7
and remains a participant in accordance with the Plan.
(o) "PARTICIPATING COMPANY" means the Company or
any Parent Corporation or Subsidiary Corporation designated by the Board as a
corporation the Employees of which may, if Eligible Employees, participate in
the Plan. The Board shall have the sole and absolute discretion to determine
from time to time which Parent Corporations or Subsidiary Corporations shall
be Participating Companies.
(p) "PARTICIPATING COMPANY GROUP" means, at any
point in time, the Company and all other corporations collectively which are
then Participating Companies.
(q) "PURCHASE DATE" means the last day of (i) any
Purchase Period during the Initial Offering Period, or (ii) an Offering
Period which begins after the Initial Offering Period.
(r) "PURCHASE PERIOD" means a period established
in accordance with Section 6.2.
(s) "PURCHASE PRICE" means the price at which a
share of Stock may be purchased under the Plan, as determined in accordance
with Section 9.
(t) "PURCHASE RIGHT" means an option granted to a
Participant pursuant to the Plan to purchase such shares of Stock as provided
in Section 8, which the Participant may or may not exercise during the
Offering Period in which such option is outstanding. Such option arises from
the right of a Participant to withdraw any accumulated payroll deductions of
the Participant not previously applied to the purchase of Stock under the
Plan and to terminate participation in the Plan at any time during an
Offering Period.
3
<PAGE>
(u) "STOCK" means the common stock of the
Company, as adjusted from time to time in accordance with Section 4.2.
(v) "SUBSCRIPTION AGREEMENT" means a written
agreement in such form as specified by the Company, stating an Employee's
election to participate in the Plan and authorizing payroll deductions under
the Plan from the Employee's Compensation.
(w) "SUBSCRIPTION DATE" means the last business
day prior to an Entry Date or such other date as the Company shall establish.
(x) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f)
of the Code.
2.2 CONSTRUCTION. Captions and titles contained herein
are for convenience only and shall not affect the meaning or interpretation
of any provision of the Plan. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include
the singular. Use of the term "or" is not intended to be exclusive, unless
the context clearly requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board. All questions of interpretation of the Plan, of
any form of agreement or other document employed by the Company in the
administration of the Plan, or of any Purchase Right shall be determined by
the Board and shall be final and binding upon all persons having an interest
in the Plan or the Purchase Right. Subject to the provisions of the Plan,
the Board shall determine all of the relevant terms and conditions of
Purchase Rights granted pursuant to the Plan; provided, however, that all
Participants granted Purchase Rights pursuant to the Plan shall have the same
rights and privileges within the meaning of Section 423(b)(5) of the Code.
All expenses incurred in connection with the administration of the Plan shall
be paid by the Company.
3.2 AUTHORITY OF OFFICERS. Any officer of the Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, determination or election that is the
responsibility of or that is allocated to the Company herein, provided that
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
3.3 POLICIES AND PROCEDURES ESTABLISHED BY THE COMPANY.
The Company may, from time to time, consistent with the Plan and the
requirements of Section 423 of the Code, establish, change or terminate such
rules, guidelines, policies, procedures, limitations, or adjustments as
deemed advisable by the Company, in its sole discretion, for the proper
administration of the Plan, including, without limitation, (a) a minimum
payroll deduction amount required for participation in an Offering, (b) a
limitation on the frequency or number of changes permitted in the rate of
payroll deduction during an Offering, (c) an exchange ratio applicable to
amounts withheld in a currency other than United States dollars, (d) a
payroll deduction greater than or less than the amount designated by a
Participant in order to adjust for the Company's delay or mistake in
processing a Subscription Agreement or in otherwise effecting a Participant's
election under the Plan or as advisable to comply with the requirements
4
<PAGE>
of Section 423 of the Code, and (e) determination of the date and manner by
which the Fair Market Value of a share of Stock is determined for purposes of
administration of the Plan.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to
adjustment as provided in Section 4.2, the maximum aggregate number of shares
of Stock that may be issued under the Plan shall be 250,000, cumulatively
increased on January 1, 2001 and each January 1 thereafter until and
including January 1, 2010 by an amount equal to the lesser of (a) 500,000
shares, (b) 2% of the number of shares of Stock that were issued and
outstanding on the preceding December 31, or (c) a lesser amount of shares
determined by the Board, and shall consist of authorized but unissued or
reacquired shares of Stock, or any combination thereof. If an outstanding
Purchase Right for any reason expires or is terminated or canceled, the
shares of Stock allocable to the unexercised portion of such Purchase Right
shall again be available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In
the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification or similar change in the
capital structure of the Company, or in the event of any merger (including a
merger effected for the purpose of changing the Company's domicile), sale of
assets or other reorganization in which the Company is a party, appropriate
adjustments shall be made in the number and class of shares subject to the
Plan and each Purchase Right and in the Purchase Price. If a majority of the
shares which are of the same class as the shares that are subject to
outstanding Purchase Rights are exchanged for, converted into, or otherwise
become (whether or not pursuant to an Ownership Change Event) shares of
another corporation (the "NEW SHARES"), the Board may unilaterally amend the
outstanding Purchase Rights to provide that such Purchase Rights are
exercisable for New Shares. In the event of any such amendment, the number
of shares subject to, and the Purchase Price of, the outstanding Purchase
Rights shall be adjusted in a fair and equitable manner, as determined by the
Board, in its sole discretion. Notwithstanding the foregoing, any fractional
share resulting from an adjustment pursuant to this Section 4.2 shall be
rounded down to the nearest whole number, and in no event may the Purchase
Price be decreased to an amount less than the par value, if any, of the stock
subject to the Purchase Right. The adjustments determined by the Board
pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY.
5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Each Employee of
a Participating Company is eligible to participate in the Plan and shall be
deemed an Eligible Employee, except the following:
(a) Any Employee who is customarily employed by
the Participating Company Group for less than twenty (20) hours per week; or
(b) Any Employee who is customarily employed by
the Participating Company Group for not more than five (5) months in any
calendar year.
5
<PAGE>
5.2 EXCLUSION OF CERTAIN STOCKHOLDERS. Notwithstanding
any provision of the Plan to the contrary, no Employee shall be granted a
Purchase Right under the Plan if, immediately after such grant, such Employee
would own or hold options to purchase stock of the Company or of any Parent
Corporation or Subsidiary Corporation possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of such
corporation, as determined in accordance with Section 423(b)(3) of the Code.
For purposes of this Section 5.2, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of such Employee.
6. OFFERINGS.
6.1 OFFERING PERIODS.
(a) INITIAL OFFERING PERIOD. The Plan shall be
implemented by sequential Offerings (an "OFFERING PERIOD"). The first
Offering Period shall commence on the Effective Date and end on the last day
of January, 2002 (the "INITIAL OFFERING PERIOD").
(b) SUBSEQUENT OFFERING PERIODS. After the
completion of the Initial Offering Period, subsequent Offerings shall
commence on the first day of February and August of each year and end on the
last day of July and January, respectively, occurring thereafter, and will
have a duration of approximately six (6) months.
6.2 PURCHASE PERIODS. The Initial Offering Period shall
consist of four (4) consecutive Purchase Periods of approximately six (6)
months duration. Purchase Periods shall commence on the Effective Date,
August 1, 2000, February 1, 2001 and August 1, 2001. Purchase Periods
beginning on the first day of February and August shall end on the last day
of July and January, respectively, occurring thereafter. The Purchase Period
commencing on the Effective Date shall end on July 31, 2000.
6.3 DISCRETION TO VARY DURATION. Notwithstanding the
foregoing, the Board may establish a different duration for one or more
Offering Periods or Purchase Periods or different commencing or ending dates
for such periods; provided, however, that no Offering Period may have a
duration exceeding twenty-seven (27) months. If the first or last day of an
Offering Period or a Purchase Period is not a day on which the national
securities exchanges or Nasdaq Stock Market are open for trading, the Company
shall specify the trading day that will be deemed the first or last day, as
the case may be, of the period.
7. PARTICIPATION IN THE PLAN.
7.1 INITIAL PARTICIPATION. An Eligible Employee may
become a Participant in an Offering Period by delivering a properly completed
Subscription Agreement to the Company not later than the close of business
for such office on the Subscription Date established by the Company for the
applicable Entry Date. An Eligible Employee who does not deliver a properly
completed Subscription Agreement to the Company's designated office on or
before the Subscription Date shall not participate in that Offering Period or
any subsequent Offering Period unless such Eligible Employee subsequently
delivers a properly completed Subscription Agreement to the appropriate
office of the Company on or before the Subscription Date for such subsequent
Offering Period. An Employee who becomes an Eligible Employee after the
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Offering Date of an Offering Period (other than the Initial Offering Period)
shall not be eligible to participate in such Offering Period but may
participate in any subsequent Offering Period provided such Employee is still
an Eligible Employee as of the Offering Date of such subsequent Offering
Period.
7.2 CONTINUED PARTICIPATION. A Participant shall
automatically participate in the next Offering Period commencing immediately
after the final Purchase Date of each Offering Period in which the
Participant participates provided that such Participant remains an Eligible
Employee on the Offering Date of the new Offering Period and has not either
(a) withdrawn from the Plan pursuant to Section 10.7 or (b) terminated
employment as provided in Section 13. A Participant who may automatically
participate in a subsequent Offering Period, as provided in this Section, is
not required to deliver any additional Subscription Agreement for the
subsequent Offering Period in order to continue participation in the Plan.
However, a Participant may deliver a new Subscription Agreement for a
subsequent Offering Period in accordance with the procedures set forth in
Section 7.1 if the Participant desires to change any of the elections
contained in the Participant's then effective Subscription Agreement.
8. RIGHT TO PURCHASE SHARES.
8.1 GRANT OF PURCHASE RIGHT. Except as set forth below,
on the Offering Date of each Offering Period, each Participant in such
Offering Period shall be granted automatically, on his or her Entry Date, a
Purchase Right consisting of an option to purchase, on each Purchase Date
within such Offering Period, that number of whole shares of Stock determined
by dividing the aggregate payroll deductions collected from the Participant
by the applicable Purchase Price on such Purchase Date; provided, that no
Participant may purchase more than two thousand five hundred (2,500) shares
of Stock on any Purchase Date.
8.2 CALENDAR YEAR PURCHASE LIMITATION. Notwithstanding
any provision of the Plan to the contrary, no Participant shall be granted a
Purchase Right which permits his or her right to purchase shares of Stock
under the Plan to accrue at a rate which, when aggregated with such
Participant's rights to purchase shares under all other employee stock
purchase plans of a Participating Company intended to meet the requirements
of Section 423 of the Code, exceeds Twenty-Five Thousand Dollars ($25,000) in
Fair Market Value (or such other limit, if any, as may be imposed by the
Code) for each calendar year in which such Purchase Right is outstanding at
any time. For purposes of the preceding sentence, the Fair Market Value of
shares purchased during a given Offering Period shall be determined as of the
Entry Date for such Offering Period. The limitation described in this
Section shall be applied in conformance with applicable regulations under
Section 423(b)(8) of the Code.
9. PURCHASE PRICE.
The Purchase Price at which each share of Stock may be
acquired in an Offering Period upon the exercise of all or any portion of a
Purchase Right shall be established by the Board; provided, however, that the
Purchase Price shall not be less than eighty-five percent (85%) of the lesser
of (a) the Fair Market Value of a share of Stock on the Participant's Entry
Date of the Offering Period or (b) the Fair Market Value of a share of Stock
on the Purchase Date. Unless otherwise provided by the Board prior to the
commencement of an Offering
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Period, the Purchase Price for that Offering Period shall be eighty-five
percent (85%) of the lesser of (a) the Fair Market Value of a share of Stock
on the Participant's Entry Date of the Offering Period, or (b) the Fair
Market Value of a share of Stock on the Purchase Date.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION.
Shares of Stock acquired pursuant to the exercise of all or
any portion of a Purchase Right may be paid for only by means of payroll
deductions from the Participant's Compensation accumulated during the
Offering Period for which such Purchase Right was granted, subject to the
following:
10.1 AMOUNT OF PAYROLL DEDUCTIONS. Except as otherwise
provided herein, the amount to be deducted under the Plan from a
Participant's Compensation on each payday during an Offering Period (after
the Participant's Entry Date) shall be determined by the Participant's
Subscription Agreement. The Subscription Agreement shall set forth the
percentage of the Participant's Compensation to be deducted on each payday
during an Offering Period (after the Participant's Entry Date) in whole
percentages of not less than one percent (1%) (except as a result of an
election pursuant to Section 10.3 to stop payroll deductions made effective
following the first payday during an Offering after the Participant's Entry
Date) or more than fifteen percent (15%). Notwithstanding the foregoing, the
Board may change the limits on payroll deductions effective as of any future
Offering Date.
10.2 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll
deductions shall commence on the first payday following the Entry Date and
shall continue to the end of the Offering Period unless sooner altered or
terminated as provided herein.
10.3 ELECTION TO CHANGE OR STOP PAYROLL DEDUCTIONS.
During an Offering Period, a Participant may elect to increase or decrease
the rate of or to stop deductions from his or her Compensation by delivering
to the Company an amended Subscription Agreement authorizing such change on
or before the "Change Notice Date." The "CHANGE NOTICE DATE" shall be a date
prior to the beginning of the first pay period for which such election is to
be effective as established by the Company from time to time and announced to
the Participants. A Participant who elects to decrease the rate of his or
her payroll deductions to zero percent (0%) shall nevertheless remain a
Participant in the current Offering Period unless such Participant withdraws
from the Plan as provided in Section 12.1.
10.4 ADMINISTRATIVE SUSPENSION OF PAYROLL DEDUCTIONS.
The Company may, in its sole discretion, suspend a Participant's payroll
deductions under the Plan as the Company deems advisable to avoid
accumulating payroll deductions in excess of the amount that could reasonably
be anticipated to purchase the maximum number of shares of Stock permitted
during a calendar year under the limit set forth in Section 8.2. Payroll
deductions shall be resumed at the rate specified in the Participant's then
effective Subscription Agreement at the beginning of the next Purchase Period
the Purchase Date of which falls in the following calendar year.
10.5 PARTICIPANT ACCOUNTS. Individual bookkeeping
accounts shall be maintained for each Participant. All payroll deductions
from a Participant's Compensation shall be credited to such Participant's
Plan account and shall be deposited with the general funds of
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the Company. All payroll deductions received or held by the Company may be
used by the Company for any corporate purpose.
10.6 NO INTEREST PAID. Interest shall not be paid on
sums deducted from a Participant's Compensation pursuant to the Plan.
10.7 VOLUNTARY WITHDRAWAL FROM PLAN ACCOUNT. A
Participant may withdraw all or any portion of the payroll deductions
credited to his or her Plan account and not previously applied toward the
purchase of Stock by delivering to the Company a written notice on a form
provided by the Company for such purpose. A Participant who withdraws the
entire remaining balance credited to his or her Plan account shall be deemed
to have withdrawn from the Plan in accordance with Section 12.1. Amounts
withdrawn shall be returned to the Participant as soon as practicable after
the withdrawal and may not be applied to the purchase of shares in any
Offering under the Plan. The Company may from time to time establish or
change limitations on the frequency of withdrawals permitted under this
Section, establish a minimum dollar amount that must be retained in the
Participant's Plan account, or terminate the withdrawal right provided by
this Section.
11. PURCHASE OF SHARES.
11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date,
each Participant who has not withdrawn from the Plan and whose participation
in the Offering has not terminated before such Purchase Date shall
automatically acquire pursuant to the exercise of the Participant's Purchase
Right the number of whole shares of Stock determined by dividing (a) the
total amount of the Participant's payroll deductions accumulated in the
Participant's Plan account during the Purchase Period and not previously
applied toward the purchase of Stock by (b) the Purchase Price. No shares of
Stock shall be purchased on a Purchase Date on behalf of a Participant whose
participation in the Offering or the Plan has terminated before such Purchase
Date.
11.2 PRO RATA ALLOCATION OF SHARES. In the event that
the number of shares of Stock which might be purchased by all Participants in
the Plan on a Purchase Date exceeds the number of shares of Stock available
in the Plan as provided in Section 4.1, the Company shall make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
practicable and as the Company shall determine to be equitable. Any
fractional share resulting from such pro rata allocation to any Participant
shall be disregarded.
11.3 DELIVERY OF CERTIFICATES. As soon as practicable
after each Purchase Date, the Company shall arrange the delivery to each
Participant, as appropriate, of a certificate representing the shares
acquired by the Participant on such Purchase Date; provided that the Company
may deliver such shares to a broker that holds such shares in street name for
the benefit of the Participant. Shares to be delivered to a Participant
under the Plan shall be registered in the name of the Participant, or, if
requested by the Participant, in the name of the Participant and his or her
spouse, or, if applicable, in the names of the heirs of the Participant.
11.4 RETURN OF CASH BALANCE. Any cash balance remaining
in a Participant's Plan account following any Purchase Date shall be refunded
to the Participant as soon as
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practicable after such Purchase Date. However, if the cash to be returned to
a Participant pursuant to the preceding sentence is an amount less than the
amount that would have been necessary to purchase an additional whole share
of Stock on such Purchase Date, the Company may retain such amount in the
Participant's Plan account to be applied toward the purchase of shares of
Stock in the subsequent Purchase Period or Offering Period, as the case may
be.
11.5 TAX WITHHOLDING. At the time a Participant's
Purchase Right is exercised, in whole or in part, or at the time a
Participant disposes of some or all of the shares of Stock he or she acquires
under the Plan, the Participant shall make adequate provision for the
foreign, federal, state and local tax withholding obligations of the
Participating Company Group, if any, which arise upon exercise of the
Purchase Right or upon such disposition of shares, respectively. The
Participating Company Group may, but shall not be obligated to, withhold from
the Participant's compensation the amount necessary to meet such withholding
obligations.
11.6 EXPIRATION OF PURCHASE RIGHT. Any portion of a
Participant's Purchase Right remaining unexercised after the end of the
Offering Period to which the Purchase Right relates shall expire immediately
upon the end of the Offering Period.
11.7 REPORTS TO PARTICIPANTS. Each Participant who has
exercised all or part of his or her Purchase Right shall receive, as soon as
practicable after the Purchase Date, a report of such Participant's Plan
account setting forth the total payroll deductions accumulated prior to such
exercise, the number of shares of Stock purchased, the Purchase Price for
such shares, the date of purchase and the cash balance, if any, remaining
immediately after such purchase that is to be refunded or retained in the
Participant's Plan account pursuant to Section 11.4. The report required by
this Section may be delivered in such form and by such means, including by
electronic transmission, as the Company may determine.
12. WITHDRAWAL FROM OFFERING OR PLAN.
12.1 VOLUNTARY WITHDRAWAL FROM THE PLAN. A Participant
may withdraw from the Plan by signing and delivering to the Company a written
notice of withdrawal on a form provided by the Company for such purpose.
Such withdrawal may be elected at any time prior to the end of an Offering
Period; provided, however, that if a Participant withdraws from the Plan
after the Purchase Date of a Purchase Period, the withdrawal shall not affect
shares of Stock acquired by the Participant on such Purchase Date. A
Participant who voluntarily withdraws from the Plan is prohibited from
resuming participation in the Plan in the same Offering from which he or she
withdrew, but may participate in any subsequent Offering by again satisfying
the requirements of Sections 5 and 7.1. The Company may impose a requirement
that the notice of withdrawal from the Plan be on file with the Company for a
reasonable period prior to the effectiveness of the Participant's withdrawal.
12.2 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's
voluntary withdrawal from the Plan pursuant to Section 12.1, the
Participant's accumulated payroll deductions which have not been applied
toward the purchase of shares of Stock shall be refunded to the Participant
as soon as practicable after the withdrawal, without the payment of any
interest, and the Participant's interest in the Plan or the Offering, as
applicable, shall terminate.
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Such accumulated payroll deductions to be refunded in accordance with this
Section may not be applied to any other Offering under the Plan.
13. TERMINATION OF EMPLOYMENT OR ELIGIBILITY.
Upon a Participant's ceasing, prior to a Purchase Date, to be
an Employee of the Participating Company Group for any reason, including
retirement, disability or death, or the failure of a Participant to remain an
Eligible Employee, the Participant's participation in the Plan shall
terminate immediately. In such event, the payroll deductions credited to the
Participant's Plan account since the last Purchase Date shall, as soon as
practicable, be returned to the Participant or, in the case of the
Participant's death, to the Participant's legal representative, and all of
the Participant's rights under the Plan shall terminate. Interest shall not
be paid on sums returned pursuant to this Section 13. A Participant whose
participation has been so terminated may again become eligible to participate
in the Plan by again satisfying the requirements of Sections 5 and 7.1.
14. CHANGE IN CONTROL.
14.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or series of related
transactions by the stockholders of the Company of more than fifty percent
(50%) of the voting stock of the Company; (ii) a merger or consolidation in
which the Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively,
the "TRANSACTION") wherein the stockholders of the Company immediately before
the Transaction do not retain immediately after the Transaction, in
substantially the same proportions as their ownership of shares of the
Company's voting stock immediately before the Transaction, direct or indirect
beneficial ownership of more than fifty percent (50%) of the total combined
voting power of the outstanding voting stock of the Company or the
corporation or corporations to which the assets of the Company were
transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For
purposes of the preceding sentence, indirect beneficial ownership shall
include, without limitation, an interest resulting from ownership of the
voting stock of one or more corporations which, as a result of the
Transaction, own the Company or the Transferee Corporation(s), as the case
may be, either directly or through one or more subsidiary corporations. The
Board shall have the right to determine whether multiple sales or exchanges
of the voting stock of the Company or multiple Ownership Change Events are
related, and its determination shall be final, binding and conclusive.
14.2 EFFECT OF CHANGE IN CONTROL ON PURCHASE RIGHTS. In
the event of a Change in Control, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"ACQUIRING CORPORATION"), may assume the Company's rights and obligations
under the Plan. If the Acquiring Corporation elects not to
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assume the Company's rights and obligations under outstanding Purchase
Rights, the Purchase Date of the then current Purchase Period shall be
accelerated to a date before the date of the Change in Control specified by
the Board, but the number of shares of Stock subject to outstanding Purchase
Rights shall not be adjusted. All Purchase Rights which are neither assumed
by the Acquiring Corporation in connection with the Change in Control nor
exercised as of the date of the Change in Control shall terminate and cease
to be outstanding effective as of the date of the Change in Control.
15. NONTRANSFERABILITY OF PURCHASE RIGHTS.
A Purchase Right may not be transferred in any manner
otherwise than by will or the laws of descent and distribution and shall be
exercisable during the lifetime of the Participant only by the Participant.
16. COMPLIANCE WITH SECURITIES LAW.
The issuance of shares under the Plan shall be subject to
compliance with all applicable requirements of federal, state and foreign law
with respect to such securities. A Purchase Right may not be exercised if
the issuance of shares upon such exercise would constitute a violation of any
applicable federal, state or foreign securities laws or other law or
regulations or the requirements of any securities exchange or market system
upon which the Stock may then be listed. In addition, no Purchase Right may
be exercised unless (a) a registration statement under the Securities Act of
1933, as amended, shall at the time of exercise of the Purchase Right be in
effect with respect to the shares issuable upon exercise of the Purchase
Right, or (b) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Purchase Right may be issued in accordance with
the terms of an applicable exemption from the registration requirements of
said Act. The inability of the Company to obtain from any regulatory body
having jurisdiction the authority, if any, deemed by the Company's legal
counsel to be necessary to the lawful issuance and sale of any shares under
the Plan shall relieve the Company of any liability in respect of the failure
to issue or sell such shares as to which such requisite authority shall not
have been obtained. As a condition to the exercise of a Purchase Right, the
Company may require the Participant to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation, and to make any representation or warranty with respect thereto
as may be requested by the Company.
17. RIGHTS AS A STOCKHOLDER AND EMPLOYEE. A Participant shall have
no rights as a stockholder by virtue of the Participant's participation in
the Plan until the date of the issuance of a certificate for the shares
purchased pursuant to the exercise of the Participant's Purchase Right (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company). No adjustment shall be made for
dividends, distributions or other rights for which the record date is prior
to the date such certificate is issued, except as provided in Section 4.2.
Nothing herein shall confer upon a Participant any right to continue in the
employ of the Participating Company Group or interfere in any way with any
right of the Participating Company Group to terminate the Participant's
employment at any time.
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18. LEGENDS.
The Company may at any time place legends or other identifying
symbols referencing any applicable federal, state or foreign securities law
restrictions or any provision convenient in the administration of the Plan on
some or all of the certificates representing shares of Stock issued under the
Plan. The Participant shall, at the request of the Company, promptly present
to the Company any and all certificates representing shares acquired pursuant
to a Purchase Right in the possession of the Participant in order to carry
out the provisions of this Section. Unless otherwise specified by the
Company, legends placed on such certificates may include but shall not be
limited to the following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN
EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES
EVIDENCED HEREBY SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF
THE SHARES BY THE REGISTERED HOLDER HEREOF. THE REGISTERED HOLDER SHALL HOLD
ALL SHARES PURCHASED UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME (AND NOT
IN THE NAME OF ANY NOMINEE)."
19. NOTIFICATION OF SALE OF SHARES.
The Company may require the Participant to give the Company
prompt notice of any disposition of shares acquired by exercise of a Purchase
Right within two (2) years from the date of granting such Purchase Right or
one (1) year from the date of exercise of such Purchase Right. The Company
may require that until such time as a Participant disposes of shares acquired
upon exercise of a Purchase Right, the Participant shall hold all such shares
in the Participant's name (or, if elected by the Participant, in the name of
the Participant and his or her spouse but not in the name of any nominee)
until the lapse of the time periods with respect to such Purchase Right
referred to in the preceding sentence. The Company may direct that the
certificates evidencing shares acquired by exercise of a Purchase Right refer
to such requirement to give prompt notice of disposition.
20. NOTICES.
All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
21. INDEMNIFICATION.
In addition to such other rights of indemnification as they
may have as members of the Board or officers or employees of the
Participating Company Group, members of the Board and any officers or
employees of the Participating Company Group to whom authority to act for the
Board or the Company is delegated shall be indemnified by the Company against
all reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection
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with the defense of any action, suit or proceeding, or in connection with any
appeal therein, to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the Plan, or any
right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is
liable for gross negligence, bad faith or intentional misconduct in duties;
provided, however, that within sixty (60) days after the institution of such
action, suit or proceeding, such person shall offer to the Company, in
writing, the opportunity at its own expense to handle and defend the same.
22. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may at any time amend or terminate the Plan, except
that (a) such termination shall not affect Purchase Rights previously granted
under the Plan, provided that the Board may terminate the Plan (and any
Offering thereunder) on any Purchase Date if the Board determines that such
termination is in the best interests of the Company and its stockholders
except as permitted under the Plan, and (b) no amendment may adversely affect
a Purchase Right previously granted under the Plan (except to the extent
permitted by the Plan or as may be necessary to qualify the Plan as an
employee stock purchase plan pursuant to Section 423 of the Code or to obtain
qualification or registration of the shares of Stock under applicable
federal, state or foreign securities laws). In addition, an amendment to the
Plan must be approved by the stockholders of the Company within twelve (12)
months of the adoption of such amendment if such amendment would authorize
the sale of more shares than are authorized for issuance under the Plan or
would change the definition of the corporations that may be designated by the
Board as Participating Companies.
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Exhibit 10.20
[ ACNielsen Letterhead ]
Earl H. Doppelt
Executive Vice President
and General Counsel
September 22, 1999
NetRatings, Inc.
830 Hillview Court
Milpitas, California 95035
ACNIELSEN ERATINGS.COM -- NETRATINGS, INC. AGREEMENTS
-----------------------------------------------------
Gentlemen:
In connection with the agreements that you are entering into today
with our subsidiary ACNielsen eRatings.com ("ACNsub"), we agree as follows:
1. Defined terms used herein shall have the meanings given to
them in the Operating Agreement dated today between ACNSub and NetRatings.
2. We will make available to ACNSub the ACN Sampling Methodology
without charge, and we will not charge ACNSub for the use of the Nielsen mark
for so long as the Operating Agreement is in effect.
3. We will use reasonable commercial efforts to make our Chief
Executive Officer available to the extent required by the dispute resolution
provisions set forth in Section 3.1(f) of the Operating Agreement.
4. We will afford to NetRatings reasonable access during normal
business hours to such of our and our subsidiaries' books and records as may
be reasonably necessary in order to allow NetRatings to verify compliance by
ACNSub with the provisions of Section 2.2(c) of the Operating Agreement.
NetRatings agrees to keep any such information confidential.
5. We will use reasonable commercial efforts to reach agreements
with Nielsen Media Research, Inc. to address intellectual property issues in
order to further the purposes contemplated by the Operating Agreement.
6. Although we do not hereby make any commitment to NetRatings
or ACNSub, we can advise you that it is our current intention to spend about
$50 million over the next two years to roll out the Nielsen//NetRatings
Service.
<PAGE>
7. We agree with NetRatings that it is important to properly
incent the employees of ACNSub. In that connection, we can advise you that
we strongly favor the adoption by ACNSub of a stock option plan and the
issuance of options pursuant to such plan in order to appropriately incent
such ACNSub employees.
Please acknowledge your agreement to be bound by paragraph 4 of this
letter by countersigning and returning one counterpart of this letter.
Very truly yours,
/s/ Earl H. Doppelt
NetRatings, Inc.
By: /s/ David J. Toth
-----------------
Title: President and CEO
-----------------
Dated as of the date set out above.
2
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 12, 1999 except for paragraph 6 of Note 9,
as to which the date is November 4, 1999, in the Registration Statement
(Amendment No. 3 to Form S-1) of NetRatings, Inc. dated November 15, 1999.
Palo Alto, California
November 11, 1999
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the
effectiveness of the stock split as described in Note 5 to the financial
statements.
/s/ ERNST & YOUNG LLP
Palo Alto, California
November 11, 1999
