<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
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 (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code No.)
organization) 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. WALTER R. BURKLEY, 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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock (par value $0.001)................................................... $69,000,000 $19,182
</TABLE>
(1) Estimated solely for the purposes of determining the registration fee
pursuant to Rule 457(o) under the Securities Act.
--------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 September 24, 1999.
PROSPECTUS
SHARES
[LOGO]
COMMON STOCK
------------------------------------------------------------
This is our initial public offering of shares of common stock. We are
offering 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 $ and $ per share.
INVESTING IN THE SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 6.
<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
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
, 1999
<PAGE>
[inside front cover]
[LOGO]
DELIVERING HIGH-QUALITY INTERNET AUDIENCE INFORMATION AND ANALYSIS TO THE GLOBAL
INTERNET MARKETPLACE
Site, advertising and e-commerce usage and audience behavior, captured by
NetRatings' Internet measurement technology in real time, is delivered online in
the Nielsen//NetRatings audience measurement services.
Nielsen//NetRatings market research and analysis services evaluate and
report on emerging Internet trends based on current audience data and e-commerce
activity.
NetRatings' strategic alliances with Nielsen Media Research and ACNielsen
enable high-quality Internet audience measurement solutions for the global
marketplace. (show logos)
[Graphic: Global sphere showing users accessing Internet along
latitude/longitude lines of the globe.
Illustration: tracking/gathering of market intelligence translated into online
reports and market analysis studies.]
[inside spread]
INFORMATION QUALITY FOR NEW MEDIA [IQ button graphic]
- Proven panel research methodology and practices based on industry accepted
Random Digit Dialing (RDD).
- Nielsen//NetRatings representative sample of the Internet user population
that meets the industry demand for accurate and reliable data.
REAL-TIME INTERNET MEASUREMENT TECHNOLOGY
- NetRatings' proprietary technology captures comprehensive data of site,
advertising and e-commerce user activity in real time.
- Daily, weekly and monthly reports are available online via a flexible,
easy-to-use interface.
[Screen shots: Top Sites Report screen with Demographic Report screen overlap
Banner Impression report screen:
- 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.]
ANALYTICAL SERVICES
- E-commerce and Internet Investment Strategies services providing the
critical Internet market intelligence required for companies to make
business-critical decisions.
- Timely and in-depth trend analysis of emerging sectors and companies based
on high-quality Internet user behavior.
[Screen shots: Commerce Data report, Spotlights report
caption: Insightful analysis based on detailed E-commerce information including
audience traffic patterns and "look-to-book" information.
Photo: E-commerce and Investment Trend Books]
STRATEGIC PARTNERSHIPS
- [LOGO:] Through the combination of our advanced Internet measurement
technology and Nielsen Media Research's 50 years of expertise in panel
methodology, we have successfully developed and delivered
Nielsen//NetRatings research services to over 140 customers.
- [LOGO:] Leveraging our strategic relationship with ACNielsen, the world's
leading supplier of market research information, we intend to expand the
Nielsen//NetRatings services into over 30 countries worldwide, bringing
high-quality Internet audience information to the global marketplace.
<PAGE>
[inside back cover]
NIELSEN//NETRATINGS MEDIA OUTLETS
Nielsen//NetRatings audience measurement data appears regularly in major
print and online media, including Advertising Age, Bloomberg, Forbes.com, San
Jose Mercury News, Washington Post, Business 2.0 and USA Today.
[Photo of AdAge 'Netresults' data page featuring Nielsen//NetRatings data]
[Photo of Bloomberg terminal showing daily audience report]
AdAge caption:
Advertising Age, a Crain publication serving traditional and interactive
advertising agencies, publishes weekly Nielsen//NetRatings data including Top
Advertisers and Top Banners.
Bloomberg caption: Daily audience statistics for the top Internet sites are
featured on 140,000 Bloomberg terminals worldwide.
NETRATINGS STRATEGIC RELATIONSHIPS
[Logos: Nielsen Media Research, ACNielsen, Bloomberg, AdAge, AdAuction,
AdKnowledge, NetGravity]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 6
Use of Proceeds............................... 17
Dividend Policy............................... 17
Capitalization................................ 18
Dilution...................................... 19
Selected Financial Data....................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 22
Business...................................... 30
<CAPTION>
PAGE
---------
<S> <C>
Management.................................... 47
Related Party Transactions.................... 54
Principal Stockholders........................ 57
Description of Capital Stock.................. 59
Shares Eligible for Future Sale............... 62
Underwriting.................................. 64
Legal Matters................................. 66
Experts....................................... 66
Where You Can Find More Information........... 66
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 and NetRatings Online Observer are registered
trademarks of ours and 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 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 are a leading provider of 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. In order to provide our
customers with the highest quality products and services, we have formed
strategic alliances with Nielsen Media Research, the leading source of
television audience measurement and related services in the United States and
Canada, and ACNielsen, the world's leading provider of market research
information and analysis to the consumer products and services industries. We
introduced our line of Nielsen//NetRatings products and services in March 1999,
and we currently have more than 140 customers, including leading e-commerce
companies, advertising agencies, media companies, Internet companies and
financial institutions.
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.
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 comprehensive solution meets the needs of this market by
providing the following benefits:
- PROVEN SAMPLING METHODOLOGIES. Through our strategic alliances with
Nielsen Media Research and ACNielsen, we provide reliable, independent
information using proven sampling methodologies to create statistically
representative groups of Internet users, referred to as panels.
- PROPRIETARY MEASUREMENT TECHNOLOGY. Our proprietary activity tracking and
data collection technology gathers comprehensive and detailed information
regarding Internet site and advertising activity in real time.
- POWERFUL, FLEXIBLE REPORTING SYSTEMS. We provide customers with flexible
reports and powerful analytics, enabling them to easily manipulate data to
meet specific information requirements.
3
<PAGE>
- TIMELY, INSIGHTFUL ANALYSIS. We augment high-quality audience behavior
information with meaningful analysis delivered on a timely 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 seamless 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, increasing the size,
scope and number of our audience measurement panels, developing new products and
entering new markets, expanding internationally, and positioning ourselves to
capitalize on the convergence of television and the Internet.
Nielsen Media Research has the right, but not the obligation, to purchase
additional shares of our common stock that will result in Nielsen Media Research
owning up to 54% of our issued and outstanding common stock on a fully-diluted
basis. Nielsen Media Research may purchase the additional shares from other
stockholders or from us.
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.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by NetRatings........... shares
Common stock to be outstanding after the
offering................................... 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 June 30, 1999 and excludes:
- 2,393,500 shares issuable under our 1998 Stock Plan, consisting of:
- 1,693,100 shares issuable upon exercise of options outstanding as of
June 30, 1999, with a weighted average exercise price of $0.30 per
share;
- 307,500 shares issuable upon exercise of options issued subsequent to
June 30, 1999, with an exercise price of $6.22 per share; and
- 392,900 shares available for future grants;
- 661,943 shares issuable upon the exercise of warrants outstanding as of
June 30, 1999, at a weighted average exercise price of $0.83 per share;
- 43,293 shares issuable upon exercise of a warrant issued subsequent to
June 30, 1999, with an exercise price of $6.24 per share;
- 553,054 shares issuable upon the exercise of a warrant issued subsequent
to June 30, 1999, with an exercise price of $7.20 per share;
4
<PAGE>
']
- 6,000,000 shares issuable upon the exercise of a warrant issued subsequent
to June 30, 1999, with an exercise price equal to the lower of $12.00 per
share or 60% of the initial public offering price of the shares offered
hereby;
- shares available for issuance under our 1999 Employee Stock
Purchase Plan; and
- 6,388,971 shares issuable upon conversion of shares of our Series B,
Series C and Series D preferred stock issued after June 30, 1999.
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 as of
June 30, 1999 and for the six months ended June 30, 1998 and 1999 are unaudited.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD FROM JULY 2, YEAR ENDED JUNE 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 $ 54 $ 642
Gross profit (loss)................ -- (824) (147) (1,514)
Loss from operations............... (1,787) (3,768) (1,574) (5,658)
Net loss........................... (1,781) (3,879) (1,598) (5,780)
Basic and diluted net loss per
common share..................... $ (2.03) $ (2.78) $ (1.24) $ (3.05)
Shares used to compute basic and
diluted net loss per common
share............................ 878 1,393 1,286 1,892
Pro forma basic and diluted net
loss per common share............ $ (1.67) $ (0.77) $ (2.03)
Shares used to compute pro forma
basic and diluted net loss per
common share..................... 2,319 2,077 2,842
</TABLE>
The following table provides a summary of our balance sheet as of June 30,
1999. The as adjusted column reflects the sale of shares of common
stock in this offering at an assumed initial public offering price of $ per
share, after deducting the estimated underwriting discount and offering
expenses, and giving effect to the application of the net proceeds from this
offering.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 678
Working capital (deficit).............................................................. (7,450)
Total assets........................................................................... 2,571
Current amounts due to Nielsen Media Research.......................................... 5,683
Long-term debt and capital lease obligations, less current portion..................... 371
Total stockholders' equity (deficit)................................................... (6,908)
</TABLE>
5
<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. THE RISKS AND
UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING US. ADDITIONAL RISKS
AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US, OR THAT WE CURRENTLY SEE AS
IMMATERIAL MAY ALSO HARM OUR BUSINESS.
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 operating losses of $3.8 million for the year ended
December 31, 1998 and $5.7 million for the six months ended June 30, 1999, and
as of June 30, 1999, our accumulated deficit was $11.4 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 our anticipated growth,
which could lead to management distractions and increased operating
expenses;
- the uncertainties surrounding the acceptance of the Internet as an
effective advertising medium;
- the risks associated with our international expansion; and
- the uncertainties surrounding the emergence of new Internet access
devices.
To address these uncertainties, we must, among other things:
- establish and build our brand identity;
- maintain and establish strategic alliances;
- maintain research sample quality;
- maintain technological leadership;
- continue to develop leading-edge products and services;
- expand the geographic coverage of our Internet audience measurement
products and services; and
- develop technologies for capturing data from new forms of Internet access
devices.
6
<PAGE>
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. Moreover, 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.
Factors that may cause fluctuations in our operating results on a quarterly
basis include the following, many of which are beyond our control:
- our ability to attract new clients and retain our current clients;
- our ability to sell additional products and services to current clients;
- 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;
- the announcement or introduction of new products and services by us or our
competitors;
- the services and pricing offered by our competitors;
- 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.
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 and rapidly
evolving. We expect competition in this market to intensify in the future. We
believe that the market for Internet audience measurement services will
eventually gravitate toward a uniform standard 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. Our principal competitor, 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. Accordingly, if we cannot successfully compete against Media Metrix or
any other competitors that emerge in the future, our business may fail.
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.
7
<PAGE>
With respect to the provision of analytical services, we compete with
companies such as Forrester Research, Gartner Group, International Data
Corporation and Jupiter Communications that provide Internet market research and
industry analysis based on data derived from surveys.
Many 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.
WE ARE DEPENDENT ON NIELSEN MEDIA RESEARCH FOR THE DEVELOPMENT AND MAINTENANCE
OF OUR INTERNET AUDIENCE MEASUREMENT PANELS IN THE UNITED STATES AND CANADA AND
ON ACNIELSEN FOR THE DEVELOPMENT AND MAINTENANCE OF OUR INTERNET AUDIENCE
MEASUREMENT PANELS IN INTERNATIONAL MARKETS
Our at-home Internet audience measurement panel in the United States and
Canada is developed and maintained by Nielsen Media Research as part of our
strategic alliance 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 August 1999, Nielsen Media Research
agreed to be 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. See "Business--Strategic
Relationships," "Related Party Transactions--Strategic Relationships--Strategic
Alliance With Nielsen Media Research" and "--Joint Venture With ACNielsen."
IF NIELSEN MEDIA RESEARCH IS REQUIRED TO CONSOLIDATE OUR OPERATING RESULTS WITH
ITS OWN, IT MAY ATTEMPT TO INFLUENCE OUR EXPENDITURES
Nielsen Media Research currently holds rights to purchase our common stock,
which, if exercised, would leave it with a majority of our outstanding shares of
common stock, based on the number of shares that will be outstanding upon
completion of this offering. During any time that Nielsen Media Research is a
majority stockholder, it 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
Nielsen Media Research in maximizing its net earnings, and Nielsen Media
Research 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. See
"--Our officers, directors and principal stockholders may exert substantial
influence over us."
OUR FUTURE REVENUE IS DEPENDENT ON RENEWALS OF SUBSCRIPTIONS FOR OUR SERVICES
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
8
<PAGE>
proportion of our revenue. However, because of our limited operating history, we
have no historical basis for projecting the rate at 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 MUST FURTHER DEVELOP OUR BRAND IN ORDER TO REMAIN COMPETITIVE
We believe that maintaining and strengthening the Nielsen//NetRatings brand
is an important aspect of our business. Our ability to promote and position the
Nielsen//NetRatings brand depends 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
expenditures, and we may increase our financial commitment in other ways in
order to create and maintain brand loyalty among our clients. If we fail to
promote and maintain our brand, or incur excessive expenses attempting to
promote and maintain our brand, our business will be harmed.
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 MEASUREMENT PANELS ARE SIGNIFICANT AND
MAY INCREASE
A significant portion of our costs consists of the expense of recruiting and
maintaining our panels and collecting and processing data generated by the
panels. 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.
WE MUST DEVELOP AN AT-WORK MEASUREMENT PANEL IN ORDER TO REMAIN COMPETITIVE
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. 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 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.
OUR MANAGEMENT AND INTERNAL SYSTEMS MAY BE INADEQUATE TO HANDLE THE POTENTIAL
GROWTH OF OUR BUSINESS
To manage future growth, our management must continue to improve our
operational, sales and financial systems and expand, train, retain and manage
our employee base. Our management may not be able to manage our growth
effectively. If our systems, procedures and controls are inadequate to
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support our operations, our expansion would be halted. Any inability to manage
growth effectively may harm our business.
WE MAY NOT BE ABLE TO RECRUIT OR RETAIN QUALIFIED PERSONNEL TO MEET OUR EXPECTED
GROWTH
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, 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. 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 any new products or services.
These challenges 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. 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.
In addition, if we are successful in establishing our international
operations, we will be subject to a number of inherent risks, including:
- the impact of recessions in economies outside the United States;
- 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.
WE MIGHT NOT BE SUCCESSFUL IN THE DEVELOPMENT OR INTRODUCTION OF NEW PRODUCTS
AND SERVICES OR IN OUR ATTEMPTS TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE
We depend in part on our ability to develop new or enhanced products and
services in a timely and cost-effective manner and to provide new products and
services that achieve rapid and broad market acceptance. We must also keep up
with the proliferation of alternative Internet access devices and technologies
related to the convergence of the Internet and television as we develop our
products and services. We may be unsuccessful in identifying new product and
service opportunities or in
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<PAGE>
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. Our future success will depend,
in part, on our ability to:
- enhance our current products and services;
- develop new products and services that meet changing customer needs;
- use and continue to develop leading technologies; and
- influence and respond to emerging industry standards and other
technological changes.
These requirements must be met in a timely and cost-effective manner. We may
not be successful in effectively using new technologies, developing new products
or services or enhancing our existing products or services on a timely basis.
These new technologies or enhancements may not achieve market acceptance. Our
pursuit of necessary technological advances may require substantial time and
expense.
BECAUSE THE INTERNET AUDIENCE MEASUREMENT INDUSTRY IS IN ITS INFANCY, THE
PRICING AND ACCEPTANCE OF CERTAIN AUDIENCE MEASUREMENT PRODUCTS 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
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.
OUR OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS 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 % of our common stock following this offering. 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 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.
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Nielsen Media Research holds warrants and other rights to acquire our common
stock which, if exercised, would give it up to 54% of our outstanding stock
after the offering, based on the number of shares outstanding upon completion of
this offering and assuming exercise of all options and warrants that are
outstanding upon completion of this offering. Therefore, if it exercises these
rights, Nielsen Media Research may 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.
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. We are currently obligated to use our best efforts to
elect a person designated by Nielsen Media Research to serve as a member of our
Board of Directors. In the event that Nielsen Media Research exercises all of
its warrants, we will be obligated to use our best efforts to elect a second
designee. See "Business--Strategic Relationships--Strategic Alliance with
Nielsen Media Research" and "Related Party Transactions--Strategic
Relationships-- Strategic Alliance with Nielsen Media Research."
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. Nielsen Media Research, along
with some of our other stockholders, has 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 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. See "Description of Capital
Stock--Registration Rights" and "Shares Eligible for Future Sale."
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.
OUR BUSINESS COULD SUFFER IF WE LOSE THE SERVICES OF KEY PERSONNEL
Our future success depends to a significant extent on the continued service
of our senior management and other key personnel. The loss of the services of
any of our executive officers or other key employees 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.
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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.
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. 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 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 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. We have applied for U.S. patents with respect to our BannerTrack
advertising tracking technology. We have registered the NetRatings, NetRatings
Insight and NetRatings Online Observer trademarks in the U.S. and have applied
to register the BannerTrack and CommerceTrack trademarks in the U.S. 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. Notwithstanding these laws, we may be unsuccessful in protecting our
intellectual property rights or in obtaining patents or registered trademarks
for which we apply. See "Business--Intellectual Property."
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. Any claims
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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,
including proceeds from financings completed subsequent to June 30, 1999,
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. 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 or in order 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WE FACE RISKS RELATED TO STORAGE OF PERSONAL INFORMATION ABOUT OUR 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 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.
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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 rapid 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.
In addition, 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 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance."
THE PRICE OF OUR STOCK IS LIKELY TO BE VOLATILE
The market prices of the securities of Internet-related companies have been
especially volatile, and such securities may be overvalued. Thus, the market
price of our common stock is likely to be subject to wide fluctuations. If our
revenue does not grow or grows more slowly than we anticipate, or if operating
or capital expenditures exceed our expectations and cannot be adjusted
accordingly, or if some other event adversely affects us, the market price of
our common stock could decline. In addition, if the market for Internet-related
stocks or the stock market in general experiences a loss in investor confidence
or otherwise fails, the market price of our common stock could fall for reasons
unrelated to our business, results of operations and financial condition.
Investors might be unable to resell their shares of our common stock at or above
the offering price. In the past, companies that have experienced volatility in
the market price of their stock have been the subject of securities class action
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litigation. If we were to become the subject of securities class action
litigation, it could result in substantial costs and a diversion of management's
attention and resources.
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
$ 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 shares of common stock to be outstanding upon the closing of this
offering, the 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 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>
/ . %......... 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. of these shares will also
be subject to sales volume restrictions under Rule 144 under
the Securities Act.
/ . %......... Upon expiration of applicable one-year holding periods under
Rule 144, which will expire between , 2000 and
, 2000, 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 shares of common stock issued or reserved for issuance
under our various stock plans.
DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE
OR PREVENT A POTENTIAL TAKEOVER
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. See "Description of Capital Stock."
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 $ . 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. See
"Dilution."
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USE OF PROCEEDS
We estimate the net proceeds from this offering to be approximately $
million, or approximately $ million if the underwriters' exercise their
over-allotment option in full, based on an assumed initial public offering price
of $ per share and after deducting the estimated underwriting discount and
offering expenses. We intend to use the net proceeds of this offering 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.
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CAPITALIZATION
The following table sets forth our actual capitalization as of June 30,
1999. Our capitalization is also presented:
- on a pro forma basis to give effect to the automatic conversion of all
outstanding shares of preferred stock, including the shares of our Series
B, Series C and Series D preferred stock issued after June 30, 1999, into
an aggregate of 6,388,971 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 shares of common stock in this offering, at an assumed initial
public offering and of $ per share, after deducting the estimated
underwriting discount and offering expenses, and our receipt and
application of the net proceeds.
<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..................................................... $ 371 $ 371 $ 371
--------- ----------- -----------
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; 1,900,000 shares
authorized, 950,000 issued or outstanding, actual;
15,571,162 shares authorized, none issued or outstanding,
pro forma and pro forma as adjusted....................... 1 -- --
Common stock, $0.001 par value; 20,600,000 shares
authorized, 3,170,000 shares issued and outstanding,
actual; 9,795,471 shares issued and outstanding, pro
forma; 86,851,000 shares authorized, shares issued
and outstanding, pro forma as adjusted.................... 3 10
Additional paid-in capital.................................. 7,656 43,044
Deferred compensation....................................... (3,128) (3,128) (3,126)
Accumulated deficit......................................... (11,440) (11,440) (11,440)
--------- ----------- -----------
Total stockholders' equity (deficit)...................... (6,908) 28,486
--------- ----------- -----------
Total capitalization.................................... $ (6,537) $ 28,857 $
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of June 30, 1999 and excludes:
- 2,393,500 shares issuable under our 1998 Stock Plan consisting of:
- 1,693,100 shares issuable upon exercise of options outstanding at June
30, 1999, with a weighted average exercise price of $0.30 per share;
- 307,500 shares issuable upon exercise of options granted subsequent to
June 30, 1999, with an exercise price of $6.22 per share; and
- 392,900 shares available for future grants;
- 661,943 shares issuable upon exercise of warrants outstanding as of June
30, 1999 with a weighted average exercise price of $0.83 per share;
- 43,293 shares issuable upon exercise of a warrant issued subsequent to
June 30, 1999, with an exercise price of $6.24 per share;
- 553,054 shares issuable upon exercise of a warrant issued subsequent to
June 30, 1999, with an exercise price of $7.20 per share;
- 6,000,000 shares issuable upon exercise of a warrant issued subsequent to
June 30, 1999, with an exercise price equal to the lower of $12.00 per
share or 60% of the initial public offering price of the shares offered
hereby; and
- 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.
18
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of June 30,
1999 was $ million, or $ 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 the shares of common stock in this offering, at an
assumed initial public offering price of $ per share, and after deducting
the estimated underwriting discount and offering expenses payable by us, the pro
forma net tangible book value of our common stock would have been $
million, or $ per share. This represents an immediate increase in pro
forma net tangible book value of $ per share to existing stockholders and
an immediate dilution of $ per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
---------
Pro forma net tangible book value per share as of June 30,
1999........................................................ $
Increase in pro forma net tangible book value attributable to
new public investors........................................ $
---------
Pro forma net tangible book value per share after the
offering...................................................... $
---------
Dilution per share to new public investors...................... $
---------
---------
</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 $ per
share. The increase in pro forma net tangible book value per share to existing
stockholders would be $ per share, and the dilution in pro forma net tangible
book value to new investors would be $ per share.
The following table summarizes, as of June 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 $
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............................. % $ % $
Shares owned by existing stockholders........................
----------- ----------- ----------- -----------
Total.................................................... 100.0% $ 100.0% $
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The information in the above table excludes:
- 2,393,500 shares issuable under our 1998 Stock Plan consisting of:
- 1,693,100 shares issuable upon exercise of options outstanding at June
30, 1999, with a weighted average exercise price of $0.30 per share;
- 307,500 shares issuable upon exercise of options granted subsequent to
June 30, 1999, with an exercise price of $6.22 per share; and
- 392,900 shares available for future grants;
- 661,943 shares issuable upon exercise of warrants outstanding at June 30,
1999, with a weighted average exercise price of $0.83 per share;
19
<PAGE>
- 43,293 shares issuable upon exercise of a warrant issued subsequent to
June 30, 1999, with an exercise price of $6.24 per share;
- 553,054 shares issuable upon exercise of a warrant issued subsequent to
June 30, 1999, with an exercise price of $7.20 per share; and
- 6,000,000 shares issuable upon exercise of a warrant issued subsequent to
June 30, 1999, with an exercise price equal to the lower of $12.00 per
share or 60% of the initial public offering price of the shares offered
hereby.
20
<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 and the year
ended December 31, 1998 and the balance sheet data as of December 31, 1997 and
1998 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 six month periods ended June 30, 1998 and 1999 and
the balance sheet data as of June 30, 1999 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
six months ended June 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 SIX MONTHS
(INCEPTION) YEAR ENDED ENDED JUNE 30,
TO DECEMBER DECEMBER 31, --------------------
31, 1997 1998 1998 1999
------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ -- $ 237 $ 54 $ 642
Cost of revenue............................................. -- 1,061 201 2,156
------------- ------------- --------- ---------
Gross profit (loss)......................................... -- (824) (147) (1,514)
------------- ------------- --------- ---------
Operating expenses:
Research and development.................................. 994 1,185 573 1,123
Sales and marketing....................................... 452 1,134 564 1,373
General and administrative................................ 341 600 290 509
Stock-based compensation.................................. -- 25 -- 1,139
------------- ------------- --------- ---------
Total operating expenses................................ 1,787 2,944 1,427 4,144
------------- ------------- --------- ---------
Loss from operations........................................ (1,787) (3,768) (1,574) (5,658)
Interest income (expense), net.............................. 6 (111) (24) (122)
------------- ------------- --------- ---------
Net loss.................................................... $ (1,781) $ (3,879) $ (1,598) $ (5,780)
------------- ------------- --------- ---------
------------- ------------- --------- ---------
Basic and diluted net loss per common share................. $ (2.03) $ (2.78) $ (1.24) $ (3.05)
------------- ------------- --------- ---------
------------- ------------- --------- ---------
Shares used to compute basic and diluted net loss per common
share..................................................... 878 1,393 1,286 1,892
------------- ------------- --------- ---------
------------- ------------- --------- ---------
Pro forma basic and diluted net loss per common share....... $ (1.67) $ (2.03)
------------- ---------
------------- ---------
Shares used to compute pro forma basic and diluted net loss
per common share.......................................... 2,319 2,842
------------- ---------
------------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------- JUNE 30,
1997 1998 1999
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................... $ 551 $ 1,343 $ 678
Working capital (deficit)....................................................... 78 (2,791) (7,450)
Total assets.................................................................... 980 1,965 2,571
Current amounts due to Nielsen Media Research................................... -- 2,539 5,683
Long-term debt and capital lease obligations, less current portion.............. -- 130 371
Total stockholders' equity (deficit)............................................ 472 (2,448) (6,908)
</TABLE>
21
<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 are a leading provider of 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 Internet audience information collected from a representative sample of
Internet users, and augment this information with detailed, flexible reporting
and in-depth 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
minority 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. We anticipate that the joint venture, in which we
currently hold a 19.9% ownership interest, will commence the introduction of
localized versions of our products and services in over 30 countries.
We generate revenue from the sale of our Internet audience measurement
products and services. Through June 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 133 as of June 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
22
<PAGE>
involved in significant panel development activities. We believe that the
continued development and enhancement of high-quality audience panels is
essential to the long-term expansion of our business, and therefore we expect to
continue to incur significant cost of revenue. 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 to incur significant costs relating to these development activities.
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 $3.3 million for the six months ended
June 30, 1999, representing the difference between the exercise price of these
options and the deemed 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. We recognized non-cash amortization of
these deferred stock compensation charges of $25,000 in the year ended December
31, 1998 and $1,139,000 in the six months ended June 30, 1999. As of June 30,
1999, the remaining deferred compensation was scheduled to be amortized at the
rate of approximately $1.0 million, $1.3 million, $600,000, and $200,000 in the
years ended December 31, 1999, 2000, 2001 and 2002, 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
December 31, 1998, we had approximately $3.7 million of net operating loss
carryforwards for both federal and state income tax purposes, available to
reduce future taxable income, expiring in 2005. Under the Tax Reform Act of
1986, the amounts of and benefits from net operating loss carryforwards may be
impaired or limited. See Note 9 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 $5.8 million for the six months ended June 30,
1999. Our accumulated deficit at June 30, 1999 was $11.4 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 foreseeable future. In view of the rapidly
evolving nature of our business and our limited operating history, we
23
<PAGE>
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
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
REVENUE. Revenue increased from $54,000 for the six months ended June 30,
1998 to $642,000 for the six months ended June 30, 1999. Sales of our
information and analytical products and services accounted for substantially all
of the revenue for each of the six-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 $201,000 for the six months
ended June 30, 1998 to $2.2 million for the six months ended June 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 96%
from $573,000 for the six months ended June 30, 1998 to $1.1 million for the six
months ended June 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 143% from
$564,000 for the six months ended June 30, 1998 to $1.4 million for the six
months ended June 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
76% from $290,000 for the six months ended June 30, 1998 to $509,000 for the six
months ended June 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, increased 408% from
$24,000 for the six months ended June 30, 1998 to $122,000 for the six months
ended June 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.
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 services and, beginning in November
1998, initial panel development expenses related to our Nielsen//NetRatings
product and service offerings.
24
<PAGE>
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.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited statement of operations
data for the six quarters ended June 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,
1998 1998 1998 1998 1999 1999
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................... $ 3 $ 51 $ 77 $ 106 $ 166 $ 476
Cost of revenue.................. 103 97 161 700 1,031 1,125
----------- ----------- ----------- ----------- ----------- -----------
Gross profit (loss).............. (100) (46) (84) (594) (865) (649)
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development....... 323 250 247 365 428 695
Sales and marketing............ 283 282 273 296 490 883
General and administrative..... 154 137 120 189 256 253
Stock-based compensation....... -- -- -- 25 71 1,068
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses..... 760 669 640 875 1,245 2,899
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations............. (860) (715) (724) (1,469) (2,110) (3,548)
Interest income (expense), net... -- (25) (35) (51) (67) (55)
----------- ----------- ----------- ----------- ----------- -----------
Net loss......................... $ (860) $ (740) $ (759) $ (1,520) $ (2,177) $ (3,603)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
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
25
<PAGE>
services. The substantial increases in revenue in the quarters ended March 31,
1999 and June 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 and March 31, 1999, primarily reflecting audience panel recruitment
expenses incurred in connection with the introduction of our Nielsen//NetRatings
products and services. Quarterly increases in operating expenses over the past
three 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 June and July 1998, we raised a total of
$914,000, net of offering costs, from the issuance of promissory notes that were
converted into 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 preferred stock in August 1999
in connection with a preferred stock financing in which we raised $19.5 million,
net of offering costs. In September 1999, we completed an additional preferred
stock financing of $15.1 million, net of estimated offering costs.
We have a total $1.2 million equipment line of credit with Venture Lending &
Leasing I 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 22, 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
and tangible net worth requirements. As of September 22, 1999, we were in
compliance with all of these covenants.
As of June 30, 1998, our principal source of liquidity was $678,000 in cash
and cash equivalents. As of September 22, 1999, we had cash and cash equivalents
of $31.4 million and $2.1 million available under our lines of credit.
Net cash used in operating activities was $1.3 million in 1997, $2.9 million
in 1998 and $1.6 million in the six months ended June 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
$333,000 and an increase in deferred revenue of $280,000. Net cash used in
operating activities in the six months ended June 30, 1999 reflected a net loss
of $5.8 million and an increase of $809,000 in accounts receivable offset by
non-cash stock-based compensation charges totaling $1,139,000, an increase of
$1.1 million in deferred revenue and an increase of $2.5 million 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 $0 in the six months ended June 30, 1999. Although we had
no material capital expenditure commitments as of June 30, 1999, we expect that
26
<PAGE>
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 $970,000 in the six months ended June 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 six months ended June 30, 1998, included proceeds from the
equipment line of credit.
We believe that our existing balances of cash and cash equivalents, together
with the proceeds of preferred stock financings in August and September 1999 and
the net proceeds of 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, 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. We cannot be certain that additional financing 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.
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.
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.
27
<PAGE>
INTEREST RATE RISK
As of June 30, 1999, we had cash and cash equivalents of $678,000 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;
- 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 assurances
from our vendors 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.
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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. 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 are a leading provider of 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 alliances with
Nielsen Media Research, the leading source of television audience measurement
and related services in the United States and Canada, and ACNielsen, the world's
leading provider of market research information and analysis to the consumer
products and services industries. We believe that these alliances 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. Our high-quality Internet sampling methodologies, our
real-time data collection technology, our powerful, flexible reporting systems,
and our strong 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:
PROVEN SAMPLING METHODOLOGIES. Our solution is designed to provide
reliable, independent information that customers need to make critical business
decisions. We believe that our strategic alliance 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, in part because of the company's
employment of a proven sampling methodology maintained in accordance with the
best practices in panel-based media research. Nielsen Media Research develops
our panel using the same recruitment methodology that it uses in developing
television audience panels. In addition, through our strategic alliance with
ACNielsen, we intend to offer solutions in international markets utilizing
ACNielsen's proven 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
flexible online reports and powerful analytics, 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 to
facilitate the rapid deployment of our service with leading companies. Since
March 1999, we have leveraged Nielsen Media Research's brand name reputation and
industry relationships through our services marketed under the
Nielsen//NetRatings brand. Using our combined sales and marketing efforts, we
have deployed our products and services with over 140 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. 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.
LEVERAGE OUR ACCESS TO INFORMATION TO DEVELOP NEW PRODUCTS AND ENTER NEW
MARKETS. We plan to continually innovate and introduce new products that will
leverage our access to extensive Internet activity data. 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 with a goal of establishing operations in over
30 countries. 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 ALLIANCE 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 television program
production, distribution and scheduling decision making, and are the currency
for transactions between buyers and sellers of television advertising time.
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In October 1998, we began a strategic alliance 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. In March 1999, we launched our
Nielsen//NetRatings product and service offerings. In August 1999, Nielsen Media
Research made an equity investment in NetRatings.
Through the alliance, 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. Nielsen Media Research is responsible for marketing the service to
traditional media customers, advertising agencies and to other customers in
North America. 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.
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.
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 goals.
The alliance may be terminated in the event of any of the following:
- mutual agreement of the parties;
- a material breach of the agreement by either party; 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 operating agreement 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.
In some circumstances, Nielsen Media Research's obligation to maintain the
at-home panel, and NetRatings' obligation to pay the related fees, could
continue after the termination of the alliance.
JOINT VENTURE WITH ACNIELSEN
Since its founding 76 years ago, ACNielsen has become the leading provider
of media research services outside North America. It is also the 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. Through the joint venture, in
which we hold a 19.9% interest, we plan to launch audience measurement services
in over 30 countries.
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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.
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 based on a percentage of certain specific
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 allocated 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.
- 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 initially capitalize the joint venture, ACNielsen has agreed to
contribute cash 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. The initial start-up costs of the joint venture, including the
costs incurred to establish Internet audience measurement panels in each of the
countries, are the responsibility of 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 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.
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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.
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>
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- 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 detailed
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>
- 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>
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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>
39
<PAGE>
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>
40
<PAGE>
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
proven 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 33,000 persons, and we are in the process of
increasing the size of this panel.
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. We believe that most audience measurement firms conduct enumeration
studies on a quarterly or semi-annual 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 (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.
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.
41
<PAGE>
TECHNOLOGY
Through the use of our proprietary tracking software, we pioneered 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 platform (i.e., PC,
Mac, UNIX) 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.
CUSTOMERS
More than 140 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
42
<PAGE>
Internet investment opportunities. The following table is a list of six of our
top ten customers in each of our principal customer sectors.
<TABLE>
<CAPTION>
CUSTOMER SECTOR REPRESENTATIVE CUSTOMERS
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Advertising Agencies BBDO J. Walter Thompson
DDB Needham Ogilvy & Mather
Hal Riney & Partners TBWA/Chiat/Day
- ------------------------------------------------------------------------
Advertisers and E-Commerce Amazon.com Gateway
Companies Autobytel Land's End
Drugstore.com Procter & Gamble
- ------------------------------------------------------------------------
Media Companies Bloomberg USA Today
Reuters Viacom
Time Warner The Weather Channel
- ------------------------------------------------------------------------
Internet Companies Alta Vista Microsoft
America Online Women.com Networks
Lycos Yahoo!
- ------------------------------------------------------------------------
Financial Services Companies Banc of America Securities CIBC World Markets
C.E. Unterberg, Towbin Fidelity Investments
Chase Manhattan Lehman Brothers
- ------------------------------------------------------------------------
</TABLE>
SALES AND MARKETING
Nielsen//NetRatings products and services are sold by NetRatings and Nielsen
Media Research in their respective markets. NetRatings has responsibility for
selling to publishers, interactive companies, major corporations and financial
institutions. As of September 1, 1999, we had 10 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.
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
43
<PAGE>
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.
The goal of this alliance is to deliver local market, regional and worldwide
information to customers in over 30 countries. 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 six months ended June 30, 1999, our research and
development expenses were $994,000, $1.2 million and $1.1 million, respectively.
As of September 1, 1999, we had 17 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 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.
44
<PAGE>
COMPETITION
The market for Internet audience measurement and analysis is new and rapidly
evolving. We expect competition in this market to intensify in the future. We
believe that the market for Internet audience measurement services will
eventually gravitate toward a uniform standard 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. Our principal competitor, 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. Accordingly, if we cannot successfully compete against Media Metrix or
any other competitors that emerge in the future, our business may fail.
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.
With respect to provision of analytical services, we compete with companies
such as Forrester Research, Gartner Group, International Data Corporation and
Jupiter Communications that provide Internet market research and industry
analysis based on data derived from surveys.
Many 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.
EMPLOYEES
As of September 1, 1999, we had 42 full-time employees, with:
- 17 in research and development;
- 20 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 9,734 square feet for our headquarters which includes research and
development, sales and marketing and
45
<PAGE>
general and administrative operations, under leases expiring between January
2000 and September 2000. We also lease a sales office in Chatham, New Jersey.
46
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth our directors, executive officers and other
key employees, their ages and the positions held by them as of September 23,
1999:
<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
Charles L. ("Tim") Meadows (1)......... 45 Vice President of Marketing
Simon Chen (1)......................... 50 Vice President of Engineering
Stephen J. Gross....................... 43 Vice President of Finance and Controller
Robert L. Hooven....................... 46 Vice President of Sales and Business Development
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)(3)............ 49 Director
David H. Harkness (2).................. 55 Director
Michael P. Connors..................... 44 Director
</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.
CHARLES L. ("TIM") MEADOWS co-founded NetRatings in July 1997 and has served
as our Vice President of Marketing since our inception. He also served 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
47
<PAGE>
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 of Sales and Business
Development since August 1997. From July 1983 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 Research at Dataquest, Inc. 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. 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
high technology 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
48
<PAGE>
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. 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. 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.
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. 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.
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
49
<PAGE>
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 upon the
optionee's termination as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Messrs. Norman, Geddes 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. See
"Related Party Transactions--Financing Transactions."
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:
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 and do not represent NetRatings' estimate or projection of the
future stock price.
50
<PAGE>
OPTIONS GRANTED IN YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SHARE) DATE
- -------------------------------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
David J. Toth................... -- -- -- --
Charles L. ("Tim") Meadows...... 173,000 30.5% $ 0.10 6/5/08
Simon Chen...................... 129,750 22.9 $ 0.10 6/5/08
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM
--------------------------------
NAME 5% 10%
- -------------------------------- -------------- ---------------
<S> <C> <C>
David J. Toth................... -- --
Charles L. ("Tim") Meadows...... $ 1,087,988 $ 2,757,174
Simon Chen...................... $ 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.
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
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<PAGE>
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 June 30, 1999, 71,500 shares of common stock had been issued pursuant
to the 1998 Stock Plan, options to purchase 1,693,100 shares of common stock,
with a weighted average exercise price of $0.30, were outstanding, and 201,000
shares remained available for future grants.
1999 EMPLOYEE STOCK PURCHASE PLAN
NetRatings' 1999 employee stock purchase plan was adopted by the Board of
Directors and approved by the stockholders in 1999. A total of
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 and have been so employed
for at least months. The plan will be implemented during sequential
-month offering periods, the first of which will commence on the effective
date of this offering and will terminate on , 2000. After the effective
date of this offering, offering periods under the plan will generally begin on
and of each year.
The employee stock purchase plan permits eligible employees to purchase
NetRatings common stock through payroll deductions, which may not exceed % 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
in any calendar year or more than 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.
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<PAGE>
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 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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<PAGE>
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 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 preferred stock in the next
equity financing. In July 1999, we sold a total of 1,477,151 shares of Series B
preferred stock to a group of investors at purchase price of $0.63 per share. At
this time, the May 1998 promissory notes were converted into shares of Series B
preferred stock and each lender received a warrant to purchase additional shares
of Series B preferred stock, at an exercise price of $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
directors, executive officers and 5%-or-greater stockholders:
<TABLE>
<CAPTION>
INVESTOR LOAN AMOUNT SERIES B SHARES WARRANTS
- ------------------------------------------ ------------- --------------- -----------
<S> <C> <C> <C>
David A. Norman........................... $ 100,000 165,206 78,989
David J. Toth............................. $ 50,000 82,603 39,495
Charles L. ("Tim") Meadows................ $ 25,000 41,302 19,748
Simon Chen................................ $ 25,000 41,302 19,748
</TABLE>
SERIES C PREFERRED STOCK FINANCING
In August 1999, we sold an aggregate of 6,413,751 shares of Series C
preferred stock at a purchase price of $3.12 per share to the following
investors:
<TABLE>
<CAPTION>
SERIES C
INVESTOR SHARES
- -------------------------------------------------------------- ------------
<S> <C>
Trans Cosmos.................................................. 3,527,563
Nielsen Media Research........................................ 2,886,188
</TABLE>
In connection with this financing transaction, we entered into additional
agreements with Nielsen Media Research supplementing the terms of our strategic
alliance 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 Alliance With Nielsen
Media Research," "-- Strategic Relationships--Japanese Joint Venture" and
"Business--Strategic Relationships--Strategic Alliance With Nielsen Media
Research."
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<PAGE>
SERIES D PREFERRED STOCK FINANCING
In September 1999, we sold an aggregate of 4,887,050 shares of Series D
preferred stock at a purchase price of $3.14 per share to the following
investors:
<TABLE>
<CAPTION>
INVESTOR SERIES D SHARES
- --------------------------------------------------------------- ---------------
<S> <C>
ACNielsen...................................................... 3,992,454
Trans Cosmos................................................... 492,029
Nielsen Media Research......................................... 402,567
</TABLE>
STRATEGIC RELATIONSHIPS
STRATEGIC ALLIANCE WITH NIELSEN MEDIA RESEARCH
In August 1999, simultaneous with our sale of Series C preferred stock to
Nielsen Media Research, we entered into additional agreements with Nielsen Media
Research supplementing the terms of our strategic alliance. 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 right to purchase a sufficient
number of shares of our common stock to enable it to own 54% of our outstanding
common stock, 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 a pro rata portion of the shares it
has elected to purchase. 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.
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. In the event that Nielsen Media Research exercises both
of its warrants in full, it will have the right to nominate two directors. We
are required to use our best efforts to cause Nielsen Media Research's nominees
to be elected. 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. 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. See "Business-- Strategic Relationships--Joint Venture With ACNielsen."
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<PAGE>
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, simultaneously with
its purchase of shares of our Series C preferred stock, Trans Cosmos 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 September 23, 1999, and as adjusted to
reflect the sale of the common stock offered hereby, 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
- 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>
PERCENTAGE OF SHARES
NUMBER OF OUTSTANDING(1)
SHARES --------------------------
BENEFICIALLY PRIOR TO THE AFTER THE
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ----------------------------------------------------------------------------- ----------- ------------- -----------
<S> <C> <C> <C>
5% STOCKHOLDERS:
Nielsen Media Research, Inc.(2).............................................. 8,197,431 48.8% %
299 Park Avenue
New York, NY 10171
Trans Cosmos U.S.A. Inc...................................................... 2,009,795 19.6
777 108th Avenue N.E.
Bellevue, WA 98004
ACNielsen Corporation........................................................ 1,996,227 19.5
177 Broad Street
Stamford, CT 06901
EXECUTIVE OFFICERS AND DIRECTORS:
David J. Toth(3)............................................................. 1,858,543 18.1
Charles L. ("Tim") Meadows(4)................................................ 667,483 6.4
David A. Norman(5)........................................................... 542,097 5.3
Simon Chen(6)................................................................ 445,743 4.3
Jack T. Serfass(7)........................................................... 105,000 1.0
James J. Geddes, Jr.(8)...................................................... 25,000 *
Jack R. Lazar................................................................ -- --
David H. Harkness(9)......................................................... -- --
Michael P. Connors........................................................... -- --
All executive officers and directors as a group (9 persons)(10).............. 3,643,866 34.3
</TABLE>
- ------------------------
* Less than 1%.
(1) The number of shares beneficially owned and the percentage of shares
outstanding are based on (a) 10,245,470 shares outstanding as of September
23, 1999 and (b) shares outstanding after completion of this offering,
assuming no exercise of the underwriters' over-allotment option. 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 exercisable within 60 days
following September 23, 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
57
<PAGE>
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 are
currently exercisable or are exercisable within 60 days after September 1,
1999.
(3) Includes 19,942 shares issuable upon exercise of warrants that are currently
exercisable.
(4) Includes 136,958 shares issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days after September 1,
1999 and 9,874 shares issuable upon exercise of warrants that are currently
exercisable.
(5) Includes 39,494 shares issuable upon exercise of warrants that are currently
exercisable.
(6) Includes 102,718 shares issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days after September 1,
1999 and 9,874 shares issuable upon exercise of warrants that are currently
exercisable.
(7) Includes 42,500 shares issuable upon exercise of options that are currently
exercisable.
(8) Includes 25,000 shares issuable upon exercise of options that are currently
exercisable. Excludes shares held of record by Trans Cosmos. 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.
(9) Excludes shares held of record by Nielsen Media Research. Mr. Harkness is an
executive officer of Nielsen Media Research and may be deemed to share
voting or investment control with respect to these shares. Mr. Harkness
disclaims beneficial ownership of these shares.
(10) Includes 307,176 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
September 1, 1999 and 78,984 shares issuable upon exercise of warrants that
are currently exercisable.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, NetRatings' authorized capital stock will
consist of shares of common stock, $0.001 par value per share, and
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 23, 1999, there were 10,245,470 shares of NetRatings common
stock outstanding held of record by 39 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.
PREFERRED STOCK
Upon the closing of this offering, all NetRatings preferred stock
outstanding will be converted into an aggregate of 6,626,471 shares of common
stock. Thereafter, up to 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 23, 1999, after giving effect to the conversion of all
outstanding shares of preferred stock into common stock there were outstanding
warrants to purchase common stock as follows:
- a warrant to purchase 225,000 shares at an exercise price of $0.02 per
share, expiring in July 2000;
- warrants to purchase an aggregate of 353,476 shares at an exercise price
of $1.27 per share, expiring 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;
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<PAGE>
- warrants to purchase 9,434 shares at an exercise price of $2.12, expiring
in December 2006;
- 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 13,607,034 shares of NetRatings common stock 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.
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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 .
LISTING
We have applied to have our common stock approved for listing on the Nasdaq
National Market under the trading symbol "NTRT."
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<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 shares to be outstanding after the offering, assuming that the
underwriters do not exercise their over-allotment option, only the 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 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
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>
/ . %............... 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. of these shares will also be
subject to sales volume restrictions under Rule 144 under the Securities Act.
/ . %............... Upon expiration of applicable one-year holding periods under Rule 144, which will
expire between , 2000 and , 2000, subject to sales volume
restrictions under Rule 144.
</TABLE>
In addition, as of June 30, 1999, there were outstanding warrants to
purchase shares of common stock and options to purchase shares of
common stock, of which options for shares were fully vested. An additional
shares are reserved for issuance under our 1998 Stock Plan. We intend to
register the shares of common stock issuable or reserved for issuance under this
plan as soon as practicable following the date of this prospectus.
Holders of warrants to purchase shares of preferred stock and holders
of shares of common stock issuable upon conversion of the preferred stock
are entitled to registration rights with respect to these shares for resale
under the Securities Act. If these holders, by exercising their
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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.
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<PAGE>
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., Banc of America Securities LLC, CIBC World
Markets Corp. and C. E. Unterberg Towbin are acting as representatives, have
each 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........................................................
-------------
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 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 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. In determining the initial
64
<PAGE>
public offering price of the common stock, the representatives considered, among
other things and in addition to prevailing market conditions:
- 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.
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, including
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.
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.
65
<PAGE>
At our request, the underwriters have reserved up to shares of the
common stock offered by this prospectus for sale to our officers, directors,
employees and their family members and to our business associates 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 for the period from July 2, 1997
(inception) through December 31, 1997 and the year ended December 31, 1998, 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.
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.
66
<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
Statement 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 the related statements of operations,
stockholders' equity (deficit), and cash flows for the period from July 2, 1997
(inception) to December 31, 1997 and the year ended December 31, 1998. 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 the results of its operations and its cash flows for the
period from July 2, 1997 (inception) to December 31, 1997 and for the year ended
December 31, 1998, in conformity with generally accepted accounting principles.
Palo Alto, California
September 9, 1999
except for Note 11 as to which the date is
September 21, 1999
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the
effectiveness of the stock split as described in Note 11 to the financial
statements.
/s/ ERNST & YOUNG LLP
Palo Alto, California
September 23, 1999
F-2
<PAGE>
NETRATINGS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31, (DEFICIT) AT
------------------------ JUNE 30, JUNE 30,
1997 1998 1999 1999
----------- ----------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents... $ 551,000 $ 1,343,000 $ 678,000
Accounts receivable, net.... -- 133,000 780,000
Other current assets........ 35,000 16,000 200,000
----------- ----------- ------------
Total current assets...... 586,000 1,492,000 1,658,000
Property and equipment net.... 367,000 394,000 596,000
Deferred financing costs...... -- -- 132,000
Other assets.................. 27,000 79,000 185,000
----------- ----------- ------------
$ 980,000 $ 1,965,000 $ 2,571,000
----------- ----------- ------------
----------- ----------- ------------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable............ $ 93,000 $ 353,000 $ 327,000
Accrued liabilities......... 415,000 210,000 588,000
Deferred revenue............ -- 280,000 1,391,000
Capital lease obligations,
current portion........... -- 77,000 148,000
Notes payable............... -- -- 120,000
Amounts due to Nielsen Media
Research.................. -- 2,539,000 5,683,000
Convertible notes payable... -- 824,000 851,000
----------- ----------- ------------
Total current
liabilities............... 508,000 4,283,000 9,108,000
Capital lease obligations,
long-term portion........... -- 130,000 235,000
Notes payable, long-term
portion..................... -- -- 136,000
Commitments and contingencies
STOCKHOLDERS' EQUITY
(DEFICIT):
Convertible preferred stock,
$0.001 par value,
15,571,000 shares
authorized and issuable in
series: Series A:
Authorized shares:
1,900,000
Issued and outstanding
shares: 1,900,000 at
December 31, 1998 and
June 30, 1999 and none
pro forma (aggregate
liquidation preference
of $350,000)............ -- 1,000 1,000 $ --
Common stock, par value
$0.001:
Authorized shares:
84,429,000
Issued and outstanding
shares: 3,875,000 at
December 31, 1997,
3,113,000 at December
31, 1998, 3,170,000 at
June 30, 1999 and
4,119,000 pro forma..... 4,000 3,000 3,000 4,000
Additional paid-in
capital................... 2,249,000 3,437,000 7,656,000 7,656,000
Deferred compensation....... -- (229,000) (3,128,000) (3,128,000)
Accumulated deficit......... (1,781,000) (5,660,000) (11,440,000) (11,440,000)
----------- ----------- ------------ -------------
Total stockholders' equity
(deficit)................. 472,000 (2,448,000) (6,908,000) $ (6,908,000)
----------- ----------- ------------ -------------
-------------
$ 980,000 $ 1,965,000 $ 2,571,000
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE>
NETRATINGS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 2, 1997 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ------------------------
1997 1998 1998 1999
-------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue........................... $ -- $ 237,000 $ 54,000 $ 642,000
Cost of revenue................... -- 1,061,000 201,000 2,156,000
-------------- ------------ ----------- -----------
Gross profit (loss)............... -- (824,000) (147,000) (1,514,000)
-------------- ------------ ----------- -----------
Operating expenses:
Research and development........ 994,000 1,185,000 573,000 1,123,000
Sales and marketing............. 452,000 1,134,000 564,000 1,373,000
General and administrative...... 341,000 600,000 290,000 509,000
Stock-based compensation........ -- 25,000 -- 1,139,000
-------------- ------------ ----------- -----------
Total operating expenses...... 1,787,000 2,944,000 1,427,000 4,144,000
-------------- ------------ ----------- -----------
Loss from operations.............. (1,787,000) (3,768,000) (1,574,000) (5,658,000)
Interest income (expense), net.... 6,000 (111,000) (24,000) (122,000)
-------------- ------------ ----------- -----------
Net loss.......................... $(1,781,000) $(3,879,000) $(1,598,000) $(5,780,000)
-------------- ------------ ----------- -----------
-------------- ------------ ----------- -----------
Basic and diluted net loss per
common share.................... $ (2.03) $ (2.78) $ (1.24) $ (3.05)
-------------- ------------ ----------- -----------
-------------- ------------ ----------- -----------
Shares used to compute basic and
diluted net loss per common
share........................... 878,000 1,393,000 1,286,000 1,892,000
-------------- ------------ ----------- -----------
-------------- ------------ ----------- -----------
Pro forma basic and diluted net
loss per common share
(unaudited)..................... $ (1.67) $ (0.77) $ (2.03)
------------ ----------- -----------
------------ ----------- -----------
Shares used to compute pro forma
basic and diluted net loss per
common share (unaudited)........ 2,319,000 2,077,000 2,842,000
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE>
NETRATINGS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- ---------------------- PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
--------- ------ ---------- ---------- ------------ ------------ --------------
<S> <C> <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)............... -- -- -- -- -- -- (1,781,000)
--------- ------ ---------- ---------- ------------ ------------ --------------
Balances at December 31,
1997...................... -- -- 3,875,000 4,000 2,249,000 -- (1,781,000)
Repurchase of common stock
from founders and
employees at $0.002 per
share..................... -- -- (762,000) (1,000) (1,000) -- --
Issuance of Series A
convertible preferred
stock at $0.36 per share
in January 1998 for cash,
net of issuance costs of
$21,000................... 1,900,000 1,000 -- -- 328,000 -- --
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 (254,000) --
Amortization of deferred
compensation.............. -- -- -- -- -- 25,000 --
Net loss.................... -- -- -- -- -- -- (3,879,000)
--------- ------ ---------- ---------- ------------ ------------ --------------
Balances at December 31,
1998...................... 1,900,000 1,000 3,113,000 3,000 3,437,000 (229,000) (5,660,000)
Exercises of common stock
options (unaudited)....... -- -- 57,000 -- 6,000 -- --
Compensation related to
stock options granted to
consultants (unaudited)... -- -- -- -- 699,000 -- --
Issuance of warrant in
conjunction with financing
agreement (unaudited)..... -- -- -- -- 177,000 -- --
Deferred compensation
related to grant of stock
options (unaudited)....... -- -- -- -- 3,337,000 (3,337,000) --
Amortization of deferred
compensation (unaudited).. -- -- -- -- -- 438,000 --
Net loss (unaudited)........ -- -- -- -- -- -- (5,780,000)
--------- ------ ---------- ---------- ------------ ------------ --------------
Balances at June 30, 1999
(unaudited)............... 1,900,000 $1,000 3,170,000 $ 3,000 $ 7,656,000 $(3,128,000) $ (11,440,000)
--------- ------ ---------- ---------- ------------ ------------ --------------
--------- ------ ---------- ---------- ------------ ------------ --------------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <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)
-------------
Balances at December 31,
1997...................... 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 $0.36 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................... --
Amortization of deferred
compensation.............. 25,000
Net loss.................... (3,879,000)
-------------
Balances at December 31,
1998...................... (2,448,000)
Exercises of common stock
options (unaudited)....... 6,000
Compensation related to
stock options granted to
consultants (unaudited)... 699,000
Issuance of warrant in
conjunction with financing
agreement (unaudited)..... 177,000
Deferred compensation
related to grant of stock
options (unaudited)....... --
Amortization of deferred
compensation (unaudited).. 438,000
Net loss (unaudited)........ (5,780,000)
-------------
Balances at June 30, 1999
(unaudited)............... $(6,908,000)
-------------
-------------
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
NETRATINGS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 2, 1997 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ------------------------
1997 1998 1998 1999
-------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.............................. $(1,781,000) $(3,879,000) $(1,598,000) $(5,780,000)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 24,000 200,000 109,000 176,000
Provision for doubtful accounts..... -- 25,000 15,000 162,000
Stock-based compensation............ -- 25,000 -- 1,139,000
Amortization of discount associated
with warrants issued on
convertible notes payable......... -- 35,000 9,000 26,000
Changes in operating assets and
liabilities:
Accounts receivable............... -- (158,000) (76,000) (809,000)
Other current assets.............. (35,000) 19,000 23,000 (184,000)
Other assets...................... (27,000) (85,000) (78,000) 51,000
Accounts payable.................. 93,000 261,000 (39,000) (27,000)
Accrued liabilities............... 415,000 (206,000) (334,000) 355,000
Amounts due to Nielsen Media
Research........................ -- 539,000 -- 2,144,000
Deferred revenue.................. -- 280,000 188,000 1,112,000
-------------- ------------ ----------- -----------
Net cash used in operating activities... (1,311,000) (2,944,000) (1,781,000) (1,635,000)
-------------- ------------ ----------- -----------
INVESTING ACTIVITIES
Acquisition of property and
equipment........................... (391,000) (173,000) (8,000) --
FINANCING ACTIVITIES
Proceeds from issuance of (repurchase
of) common stock.................... 8,000 (2,000) (1,000) 6,000
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..... -- 221,000 221,000 --
Principal payments on capital lease
obligations......................... -- (35,000) (13,000) (36,000)
Proceeds from issuance of preferred
stock............................... -- 329,000 329,000 --
Contribution to capital............... 2,245,000 501,000 501,000 --
-------------- ------------ ----------- -----------
Net cash provided by financing
activities............................ 2,253,000 3,909,000 1,912,000 970,000
-------------- ------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents.................... 551,000 792,000 123,000 (665,000)
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 $ 674,000 $ 678,000
-------------- ------------ ----------- -----------
-------------- ------------ ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest.................. $ -- $ 85,000 $ 11,000 $ 88,000
-------------- ------------ ----------- -----------
-------------- ------------ ----------- -----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS
Property and equipment acquired
under capital lease obligations..... $ -- $ 21,000 $ 21,000 $ 258,000
-------------- ------------ ----------- -----------
-------------- ------------ ----------- -----------
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 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, $7,000 and
$8,000 for the period July 2, 1997 (inception) to December 31, 1997, the year
ended December 31, 1998, and the six months ended June 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 June 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 ratably over the period for which
services are performed. Barter expenses are expensed as incurred.
F-7
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $8,000 and $55,000 and $23,000 and
$75,000 for the six month periods ended June 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 $239,000 for the six months ended June 30, 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.
CONCENTRATION OF CREDIT RISK
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 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 June 30, 1999, the allowance for doubtful
accounts totalled $25,000 and $187,000, 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
F-8
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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) have been excluded from the calculation of net loss per share as their
effect is antidilutive.
INTERIM FINANCIAL INFORMATION
The interim financial information at June 30, 1999 and for the six month
periods ended June 30, 1998 and 1999 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 six months ended June 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.
RECENT PRONOUNCEMENTS
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.
F-9
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
NOTE 2: BALANCE SHEET DETAILS
Details of balance sheet items are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1997 1998 1999
---------- ------------ ------------
<S> <C> <C> <C>
Computer equipment and software....................... $ 360,000 $ 547,000 $ 847,000
Office equipment, furniture, and fixtures............. 17,000 19,000 75,000
Leasehold improvements................................ 14,000 19,000 19,000
---------- ------------ ------------
391,000 585,000 941,000
Less accumulated depreciation and amortization........ (24,000) (191,000) (345,000)
---------- ------------ ------------
Property and equipment, net........................... $ 367,000 $ 394,000 $ 596,000
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
As of December 31, 1998, property and equipment includes amounts held under
capital leases of $242,000 and related accumulated amortization of $74,000.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1997 1998 1999
--------- ------------ ------------
<S> <C> <C> <C>
Purchased technology, net.............................. $ -- $ 66,000 $ 50,000
Other non-current assets............................... 27,000 13,000 135,000
--------- ------------ ------------
Other assets....................................... $ 27,000 $ 79,000 $ 185,000
--------- ------------ ------------
--------- ------------ ------------
</TABLE>
Amortization of purchased technology for the year ended December 31, 1998
was $33,000 and for the six months ended June 30, 1999 was $17,000.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1997 1998 1999
---------- ------------ ------------
<S> <C> <C> <C>
Accrued compensation.................................. $ 31,000 $ 88,000 $ 98,000
Other accrued liabilities............................. 384,000 122,000 490,000
---------- ------------ ------------
Accrued liabilities............................... $ 415,000 $ 210,000 $ 588,000
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1997 1998 1999
---------- ------------ ------------
<S> <C> <C> <C>
Accrued amounts payable to Nielsen Media Research..... $ -- $ 539,000 $ 2,683,000
Convertible notes payable--Nielsen Media Research..... -- 2,000,000 3,000,000
---------- ------------ ------------
Amounts due to Nielson Media Research................. $ -- $ 2,539,000 $ 5,683,000
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
F-10
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
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 had been utilized as of
December 31, 1998. 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. As of December 31, 1998, there
was $207,000 due under the agreement. 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 December 31, 1998.
In March 1999, NetRatings borrowed an additional $258,000 to fully utilize
the above facility. As of June 30, 1999, there was $424,000 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.............................................................. $ 21,000
2000.............................................................. 88,000
2001.............................................................. 92,000
2002.............................................................. 22,000
---------
$ 223,000
---------
---------
</TABLE>
NOTE 4: STOCKHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE PREFERRED STOCK
Each share of Series A convertible preferred stock ("Series A") is, at the
option of the holder, convertible into shares of common stock using the
conversion ratio of one-to-two, subject to certain adjustments for dilution, if
any, resulting from future stock issuances. The outstanding shares of
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.
F-11
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
NOTE 4: STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Series A stockholders are entitled to noncumulative dividends of $0.056 per
share. Dividends will be paid only when declared by the board of directors out
of legally available funds. No dividends have been declared as of June 30, 1999.
The Series A stockholders are entitled to receive, upon liquidation, an
amount per share equal to the issuance price, plus all declared but unpaid
dividends. Thereafter, the remaining assets and funds, if any, shall be
distributed pro rata among the common stockholders.
Series A stockholders have voting rights equal to the common shares issuable
upon conversion of their preferred shares.
CONVERTIBLE NOTES PAYABLE
In May and November 1998, NetRatings issued convertible notes payable for
total cash proceeds of $895,000. The notes are due in May 2000 and bear interest
at 9% per annum. 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 $0.64 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 is being amortized as additional interest expense
over the term of the convertible notes payable. Accordingly, NetRatings recorded
additional interest expense of $35,000 in the year ended December 31, 1998. The
effective interest rate on the convertible notes, as adjusted for the ascribed
value of the convertible note warrants, is approximately 14.9% per annum. None
of the above warrants had been exercised as of December 31, 1998.
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 is due December 31, 1999 and bears interest at
6%, which is to be paid semiannually in arrears. The note is convertible into
shares of NetRatings' next issuance of preferred stock at the per share price of
that financing.
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 become exercisable upon the issuance of the
Series B preferred stock and expire one year following such date. 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 June 30, 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,
F-12
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
NOTE 4: STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
all of the remaining outstanding shares are subject to repurchase rights which
expire ratably over the 48 months following September 1, 1996. At December 31,
1998, 1,142,000 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 and
269,000 at December 31, 1998. In July 1998, NetRatings repurchased at cost
172,000 shares of common stock from employees upon their termination.
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.
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 June 30, 1999, an additional
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.
Information with respect to stock option activity is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OPTIONS OUTSTANDING
AVAILABLE ------------------------- WEIGHTED-
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.................................. 750,000 -- -- --
Granted..................................... (944,000) 944,000 $0.10-$0.50 $ 0.48
Exercised................................... -- (57,000) $0.10 $ 0.10
Canceled.................................... 48,000 (48,000) $0.10 $ 0.10
------------ ---------- -------------
Balance at June 30, 1999.................. 201,000 1,707,000 $0.10-$0.50 $ 0.30
------------ ---------- -------------
------------ ---------- -------------
</TABLE>
As of December 31, 1998, options to purchase 222,000 shares were exercisable
at a weighted-average exercise price of $0.10 per share. The weighted-average
remaining contractual life of all outstanding options is 9.5 years. The
weighted-average fair value of options granted during the year ended December
31, 1998 was $.02.
F-13
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
NOTE 4: 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, JUNE 30,
1998 1999
------------ ----------
<S> <C> <C>
Convertible preferred stock, including effect of preferred stock
warrants......................................................... 1,303,000 1,303,000
Stock options outstanding.......................................... 868,000 1,707,000
Stock options, available for grant................................. 347,000 201,000
Warrants to purchase common stock.................................. 273,000 308,000
</TABLE>
DEFERRED COMPENSATION
NetRatings has recorded deferred stock compensation charges of $0, $254,000,
$0, and $3,337,000 during the period from July 2, 1997 (inception) to December
31, 1997, for the year ended December 31, 1998 and for the six months ended June
30, 1998 and 1999, respectively, representing the difference between the
exercise price of the option and the deemed 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, NetRatings granted options to purchase 135,000 shares of
common stock to consultants at an exercise price of $0.50 per share. These
options were granted in exchange for consulting services performed and were
fully vested upon grant. NetRatings valued these options at their deemed fair
value and recorded a charge to operations of $701,000 for the six months ended
June 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; a risk-free interest rate of 6% and 6% for the
period from July 2, 1997 (inception) to December 31, 1997 and the year ended
December 31, 1998; a dividend yield of 0%; and a weighted-average expected life
of the option of five years.
F-14
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
NOTE 4: 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
(INCEPTION)
TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------- -------------
<S> <C> <C>
Pro forma net loss applicable to common
stockholders........................................ $ (1,781,000) $ (3,885,000)
------------- -------------
------------- -------------
Pro forma net loss per common share................... $ (2.03) $ (2.79)
------------- -------------
------------- -------------
</TABLE>
The pro forma impact of options on the net loss for the year ended December
31, 1998 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-15
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
NOTE 5: 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 SIX MONTHS ENDED
(INCEPTION) YEAR ENDED JUNE 30,
TO DECEMBER DECEMBER 31, ----------------------------
31, 1997 1998 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
HISTORICAL:
Net loss............................................ $ (1,781,000) $ (3,879,000) $ (1,598,000) $ (5,780,000)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted-average shares of common stock
outstanding....................................... 3,777,000 3,395,000 3,679,000 3,139,000
Less: weighted-average shares subject to
repurchase........................................ 2,899,000 2,002,000 2,393,000 1,247,000
------------- ------------- ------------- -------------
Weighted-average shares of common stock outstanding
used in computing basic and diluted net loss per
share............................................. 878,000 1,393,000 1,286,000 1,892,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic and diluted net loss per common share......... $ (2.03) $ (2.78) $ (1.24) $ (3.05)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
PRO FORMA:
Net loss............................................ $ (3,879,000) $ (1,598,000) $ (5,780,000)
------------- ------------- -------------
------------- ------------- -------------
Weighted-average shares used in computing basic and
diluted net loss per common share................. 1,393,000 1,286,000 1,892,000
Adjustment to reflect the effect of the assumed
conversion of preferred stock from the date of
issuance.......................................... 926,000 791,000 950,000
------------- ------------- -------------
Weighted-average shares used in computing pro forma
basic and diluted net loss per common share
(unaudited)....................................... 2,319,000 2,077,000 2,842,000
------------- ------------- -------------
------------- ------------- -------------
Pro forma basic and diluted net loss per common
share (unaudited)................................. $ (1.67) $ (0.77) $ (2.03)
------------- ------------- -------------
------------- ------------- -------------
</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, 380,000 and 1,346,000 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 six months ended
June 30, 1998 and 1999.
NOTE 6: 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-16
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
NOTE 6: 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.
NOTE 7: COMMITMENTS AND CONTINGENCIES
As of December 31, 1998, minimum payments under all noncancelable lease
agreements were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
Years ending December 31:
1999................................................................ $ 90,000 $ 66,000
2000................................................................ 90,000 46,000
2001................................................................ 83,000 --
---------- ----------
Total minimum lease payments.......................................... 263,000 $ 112,000
----------
----------
Less amount representing interest................................. (56,000)
----------
Present value of minimum lease payments............................... 207,000
Less current portion.............................................. (77,000)
----------
Long-term capital lease obligations................................... $ 130,000
----------
----------
</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 $135,000
for the period from July 2, 1997 (inception) to December 31, 1998, and was
$49,000 and $84,000 for the six months ended June 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 annum. This facility expires on April 30,
2000. As of June 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.
NetRatings is a party to claims and assessments arising from the normal
course of business activities. In management's opinion, resolution of these
matters is not expected to have a material adverse impact on NetRatings' results
of operations or its financial position. However, depending on
F-17
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
NOTE 7: COMMITMENTS AND CONTINGENCIES (CONTINUED)
the amount and timing, an unfavorable resolution of a matter could materially
affect NetRatings' future results of operations or cash flows in a particular
period.
NOTE 8: 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 9: 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 six
months ended June 30, 1999 due to net operating losses.
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
(INCEPTION) SIX MONTHS
TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1997 1998 1999
------------ ------------- -------------
<S> <C> <C> <C>
Income tax (benefit) at federal statutory rate... $ (606,000) $ (1,326,000) $ (1,965,000)
Unutilized net operating losses.................. 606,000 1,326,000 1,965,000
------------ ------------- -------------
Total............................................ $ -- $ -- $ --
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
Significant components of NetRatings' deferred tax assets are as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------------------ JUNE 30,
1997 1998 1999
--------- ------------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 8,000 $ 1,500,000 $ 3,400,000
Tax credit carryforwards........................... -- 100,000 150,000
Other.............................................. -- 40,000 320,000
--------- ------------- -------------
Total deferred tax assets............................ 8,000 1,640,000 3,870,000
Valuation allowance.................................. (8,000) (1,640,000) (3,870,000)
--------- ------------- -------------
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
F-18
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
NOTE 9: INCOME TAXES (CONTINUED)
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 $2,230,000 for the six months ended June 30, 1999.
As of December 31, 1998, NetRatings had net operating loss carryforwards for
federal and state income tax purposes each of approximately $3,700,000.
NetRatings also had federal and state research and development tax credit
carryforwards of approximately $70,000 and $50,000. 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.
NOTE 10: 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 minority 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 11: SUBSEQUENT EVENTS
SERIES B CONVERTIBLE PREFERRED STOCK
In July 1999, the holders of $895,000 in convertible notes payable converted
their promissory notes to 1,478,000 shares of Series B convertible preferred
stock ("Series B") at approximately $0.64 per share. The 1,478,000 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 and using the conversion ratio of one-to-two. Series B
shall automatically be converted into shares of common stock in effect
immediately prior to the closing of the sale of NetRatings common stock at a
public offering price equal to or exceeding $4.00 per share. Series B
stockholders are entitled to receive noncumulative dividends of $0.06 per share.
Dividends are to be paid when declared by the board of directors out of legally
available funds. Upon liquidation, the amount of $0.64 per share of Series B
plus all declared but unpaid dividends shall be paid on each share. The Series B
stockholders shall be entitled to the number of votes equal to the number of
shares of common stock into which such shares
F-19
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
NOTE 11: SUBSEQUENT EVENTS (CONTINUED)
of Series B could be converted and have the voting rights and powers of the
common stock, voting together as a single class. At any time after the fifth
anniversary of the original issuance of the Series B, upon the affirmative vote
or written consent of the holders of at least two-thirds of the outstanding
shares of Series A, B, or C, NetRatings shall redeem all issued, outstanding,
and unconverted shares at the redemption price. The Series B redemption price
for each share shall be equal to the sum of $0.64 and any declared but unpaid
dividends.
SERIES C PREFERRED STOCK
In August 1999, NetRatings issued 6,414,000 shares of Series C convertible
preferred stock ("Series C") at a price of $3.12 per share for cash 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 estimated at $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 and using the conversion ratio of one-to-two. Series C shall
automatically be converted into shares of common stock in effect immediately
prior to the closing of the sale of NetRatings common stock at a public offering
price equal to or exceeding $9.36 per share. Series C stockholders are entitled
to receive noncumulative dividends of $0.20 per share. Dividends are to be paid
when declared by the board of directors out of legally available funds. Upon
liquidation, the amount of $3.12 per share of Series C plus all declared but
unpaid dividends shall be paid on each share. The Series C stockholders shall be
entitled to the number of votes equal to the number of shares of common stock
into which such shares of Series C could be converted and have the voting rights
and powers of the common stock, voting together as a single class. At any time
after the fifth anniversary of the original issuance of the Series C, upon the
affirmative vote or written consent of the holders of at least two-thirds of the
outstanding shares of Series A, B, or C, NetRatings shall redeem all issued,
outstanding, and unconverted shares at the redemption price. The Series A
preferred stock did not previously have this redemption provision and in
addition, the Series A conversion ratio was changed to one-to-eight. The Series
C redemption price for each share shall be equal to the sum of $3.12 and any
declared but unpaid dividends.
In connection with the Series C offering, 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
expects to record a deferred charge in the quarter ended December 31, 1999
totaling approximately $22,600,000 representing the value of these warrants
based on a Black-Scholes valuation model. The deferred charge will be amortized
to operating expense, over
F-20
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
NOTE 11: SUBSEQUENT EVENTS (CONTINUED)
the period from the effectiveness of NetRatings' initial public offering through
December 31, 2004, the final expiration date of the second warrant.
In connection with the Series C financing transaction, NetRatings also
granted Nielsen 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 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.
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 preferred stock
will automatically convert to common stock. The unaudited pro forma
stockholders' equity at June 30, 1999 gives effect to the conversion of all
outstanding shares of convertible preferred stock at that date into 950,000
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. All common share prices and amounts in the
accompanying financial statements have been retroactively adjusted to reflect
the stock split. In connection with the Series D preferred stock, the Company
restated its certificate of incorporation to increase the number of authorized
shares of common stock to 86,851,000 shares and increase the number of
authorized shares of preferred stock to 15,571,000 shares.
NOTE 12: EVENTS SUBSEQUENT TO THE DATE OF AUDITOR'S REPORT (UNAUDITED)
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
F-21
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
NOTE 12: EVENTS SUBSEQUENT TO THE DATE OF AUDITOR'S REPORT (UNAUDITED)
(CONTINUED)
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.
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.
- 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.
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.
SERIES D PREFERRED STOCK
In September 1999 and in connection with the joint venture described above,
NetRatings issued 4,887,000 shares of Series D convertible preferred stock
("Series D") to ACNielsen and Series C
F-22
<PAGE>
NETRATINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1999 IS UNAUDITED)
NOTE 12: EVENTS SUBSEQUENT TO THE DATE OF AUDITOR'S REPORT (UNAUDITED)
(CONTINUED)
stockholders at a price of $3.14 per share for cash for a purchase price of
$15,100,000 (net of estimated issuance costs of $200,000). 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-to-two. Series D stock shall automatically be
converted into shares of common stock in effect immediately prior to the closing
of the sale of NetRatings common stock at a public offering price equal to or
exceeding $8.00 per share. Series D stockholders are entitled to receive
noncumulative dividends of $0.19 per share. Dividends are to be paid when
declared by the board of directors out of legally available funds. Upon
liquidation, the amount of $3.14 per share of Series D plus all declared but
unpaid dividends shall be paid on each share. The Series D stockholders shall be
entitled to the number of votes equal to the number of shares of common stock
into which such shares of Series D could be converted and have the voting rights
and powers of the common stock, voting together as a single class. At any time
after the fifth anniversary of the original issuance of the Series D preferred,
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, the Corporation
shall redeem all issued, outstanding, and unconverted shares at the redemption
price. The Series D redemption price for each share shall be equal to the sum of
$3.14 and any declared but unpaid dividends.
F-23
<PAGE>
SHARES
[NETRATINGS LOGO]
COMMON STOCK
----------------
PROSPECTUS
, 1999
---------------------
LEHMAN BROTHERS
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
C. E. UNTERBERG, TOWBIN
<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.............................
Blue sky qualification fees and expenses...........................
Printing and engraving expenses....................................
Legal fees and expenses............................................
Accounting fees and expenses.......................................
Transfer agent and registrar fees..................................
Miscellaneous expenses.............................................
---------
Total.......................................................... $
---------
---------
</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 June 30, 1999, NetRatings issued options to
purchase an aggregate of 1,182,100 shares of common stock under its 1998
Stock Plan, of which 57,000 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.
3. In July 1999 NetRatings, sold 1,477,151 shares of its Series B
Preferred Stock to certain investors at a purchase price of $0.63 per share,
for an aggregate purchase price of $935,037.
II-1
<PAGE>
4. In August 1999, NetRatings sold 6,413,751 shares of its Series C
Preferred Stock to certain investors at purchase price of $3.12 per share,
for an aggregate purchase price of $20,000,000.
5. In September 1999, NetRatings sold 4,887,050 shares of its Series D
Preferred Stock to certain investors 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.
Certain issuances described in Item 15(a)(1) were deemed exempt from
registration under the Securities Act in reliance on Section 4(2) or Rule 701
promulgated thereunder as transactions pursuant to compensatory benefit plans
and contracts relating to compensation. 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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<S> <C>
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
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
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
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
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>
- ------------------------
* To be filed by amendment.
(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
II-3
<PAGE>
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 this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Santa Clara, State of California, on
September 24, 1999
NETRATINGS INC.
By: /s/ DAVID J. TOTH
-----------------------------------------
David J. Toth
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints David J. Toth and Jack Lazar, and each of
them acting individually, as his true and lawful attorneys-in-fact and agents,
each with full power of substitution, for him in any and all capacities, to sign
any and all amendments to this Registration Statement (including post-effective
amendments or any abbreviated registration statement and any amendments thereto
filed pursuant to Rule 462(b) increasing the number of securities for which
registration is sought), and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, with full power of
each to act alone, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection therewith, as fully
for all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
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>
President and Chief
/s/ DAVID J. TOTH Executive Officer
- ------------------------------ (Principal Executive September 24, 1999
David J. Toth Officer)
/s/ DAVID A. NORMAN Chairman of the Board
- ------------------------------ September 24, 1999
David A. Norman
Vice President, Chief
/s/ JACK R. LAZAR Financial Officer and
- ------------------------------ Secretary (Principal September 24, 1999
Jack R. Lazar Financial and Accounting
Officer)
/s/ JACK SERFASS Director
- ------------------------------ September 24, 1999
Jack Serfass
/s/ JAMES J. GEDDES, JR. Director
- ------------------------------ September 24, 1999
James J. Geddes, Jr.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ DAVID H. HARKNESS Director
- ------------------------------ September 24, 1999
David H. Harkness
/s/ MICHAEL P. CONNORS Director
- ------------------------------ September 24, 1999
Michael P. Connors
</TABLE>
II-6
<PAGE>
EXHIBIT 3.1
FOURTH 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
1
<PAGE>
be Common Stock, and Fifteen 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 4,887,051 shares shall be designated
"Series D Preferred."
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 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
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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 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.
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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 $0.184211 per share of Common Stock. The Series B Conversion
Price shall initially be $0.633 per share of Common Stock. The Series C
Conversion Price shall initially be $3.1183 per share of Common Stock. The
Series D Conversion Price shall initially be $3.1395 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 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, $2.00 per share of Common Stock, in
the case of the Series C Preferred, $4.00 per share of Common Stock and in the
case of the Series D Preferred, $4.00 per share of Common Stock (in each case,
as adjusted
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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 Rate 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 Rate 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 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,
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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 shares of stock or the
securities or property (including cash) thereafter deliverable upon the
conversion of the shares of such Preferred Stock.
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(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.
(i) ADJUSTMENT OF CONVERSION PRICE FOR SUBSEQUENT SALES BELOW
CONVERSION PRICE. If the Corporation shall issue any Additional Stock (as
defined below) without
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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 the
minimum purchase price provided in such options or rights for the Common Stock
covered thereby.
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(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 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).
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(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 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.
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(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.
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
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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 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
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<PAGE>
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;
(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,
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<PAGE>
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;
(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
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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:
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.
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<PAGE>
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.
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
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<PAGE>
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.
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 September, 1999.
NETRATINGS, INC.
By:
----------------------------
David J. Toth, President
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CERTIFICATE OF CORRECTION FILED TO
CORRECT A CERTAIN ERROR IN
THE FOURTH RESTATED CERTIFICATE OF INCORPORATION
OF NETRATINGS, INC.
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON SEPTEMBER 21, 1999
Jack R. Lazar certifies and acknowledges that:
1. He is a Vice President and the Chief Financial Officer of
NetRatings, Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware.
2. A Fourth Restated Certificate of Incorporation was filed by the
Secretary of State of Delaware on September 21, 1999 and forwarded for recording
in the office of the Recorder of Deeds of Kent County on September 21, 1999, and
said Fourth Restated Certificate of Incorporation requires correction as
permitted by subsection (f) of Section 103 of the General Corporation Law of the
State of Delaware.
3. The inaccuracy or defect of the Fourth Restated Certificate of
Incorporation to be corrected is as follows:
Article IV, Section A of the Fourth Restated Certificate of
Incorporation as is set forth below:
"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 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
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"Series B Preferred," Six Million Six Hundred Thousand (6,600,000) shares
shall be designated "Series C Preferred," and 4,887,051 shares shall be
designated "Series D Preferred."
4. Article IV, Section A of the Fourth Restated Certificate of
Incorporation is corrected to read as follows:
"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 Million (100,000,000). Eighty-Four Million Four Hundred
Twenty-Eight Thousand Eight Hundred Thirty-Eight (84,428,838) shares with a
par value of $0.001 each shall be Common Stock, and Fifteen 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
4,887,051 shares shall be designated "Series D Preferred."
IN WITNESS WHEREOF, the undersigned authorized officer of NetRatings,
Inc., has hereunto set his hand this 21st day of September, 1999.
NETRATINGS, INC.
------------------------------------------
Jack R. Lazar
Vice President and Chief Financial Officer
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EXHIBIT 3.4
BYLAWS
OF
NETRATING, INC.,
a Delaware Corporation
<PAGE>
BYLAWS
OF
NETRATINGS, INC.
ARTICLE I
CORPORATE OFFICES
1.1. REGISTERED OFFICE
The registered office of the Corporation shall be 1209 Orange Street, in
the City of Wilmington, County of New Castle, State of Delaware, 19801. The
name of the registered agent of the Corporation at such location is The
Corporation Trust Company.
1.2. OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1. PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the Corporation.
2.2. ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors. At the meeting, directors shall
be elected and any other proper business may be transacted.
2.3. SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
(i) board of directors, (ii) the chairman of the board, (iii) the president,
(iv) the chief executive officer or (v) one or more stockholders holding shares
in the aggregate entitled to cast not less than ten percent (10%) of the votes
at that meeting.
If a special meeting is called by any person other than the board of
directors, the request shall be in writing, specifying the time of such meeting
and the general nature of the business
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proposed to be transacted, and shall be delivered personally or sent by
registered mail or by telegraphic or other facsimile transmission to the
chairman of the board, the president, any vice president, or the secretary of
the Corporation. No business may be transacted at such special meeting
otherwise than specified in such notice. The officer receiving the request
shall cause notice to be promptly given to the stockholders entitled to vote,
in accordance with the provisions of Sections 2.4 and 2.5 of this Article II,
that a meeting will be held at the time requested by the person or persons
who called the meeting, not less than thirty-five (35) nor more than sixty
(60) days after the receipt of the request. If the notice is not given
within twenty (20) days after the receipt of the request, the person or
persons requesting the meeting may give the notice. Nothing contained in
this paragraph of this Section 2.3 shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the
board of directors may be held.
2.4. NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.6 of these Bylaws not
less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting. The notice shall specify the
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5. ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
To be properly brought before an annual meeting or special meeting,
nominations for the election of director or other business must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors, (b) otherwise properly brought before the
meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a stockholder. For such nominations or
other business to be considered properly brought before the meeting by a
stockholder, such stockholder must have given timely notice and in proper form
of his intent to bring such business before such meeting. To be timely, such
stockholder's notice must be delivered to or mailed and received by the
secretary of the Corporation not less than 90 days prior to the meeting;
provided, however, that in the event that less than 100 days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. To be in
proper form, a stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who intends
to make the nominations, propose the business, and,
as the case may be, the name and address of the
person or persons to be nominated or the nature of
the business to be proposed;
(ii) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote
at such meeting and, if
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<PAGE>
applicable, intends to appear in person or by proxy
at the meeting to nominate the person or persons
specified in the notice or introduce the business
specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each
nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination
or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or
each matter of business to be proposed by such
stockholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of
the Securities and Exchange Commission had the
nominee been nominated, or intended to be nominated,
or the matter been proposed, or intended to be
proposed by the board of directors; and
(v) if applicable, the consent of each nominee to serve
as director of the Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the Corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.7. QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the chairman of the meeting, or
(ii) the stockholders entitled to vote thereat, present in person or represented
by proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
When a quorum is present or represented at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express
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<PAGE>
provisions of the statutes or of the certificate of incorporation, a
different vote is required, in which case such express provision shall govern
and control the decision of the question.
2.8. ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these Bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
2.9. VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Sections 2.12 and 2.14 of these
Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
2.10. WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these Bylaws.
2.11. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Except as otherwise provided in this Section 2.11, any action required by
this chapter to be taken at any annual or special meeting of stockholders of a
Corporation, or any action that may be taken at any annual or special meeting of
such stockholders, may be taken without a meeting, without prior notice, and
without a vote if a consent in writing, setting forth the action so taken, is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
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<PAGE>
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
Notwithstanding the foregoing, effective upon the listing of the Common
Stock of the Corporation on the Nasdaq Stock Market and the registration of any
class of securities of the Corporation pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, the stockholders of the Corporation
may not take action by written consent without a meeting but must take any such
actions at a duly called annual or special meeting.
2.12. RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action.
If the board of directors does not so fix a record date, the fixing of
such record date shall be governed by the provisions of Section 213 of the
General Corporation Law of Delaware.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.13. PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the Corporation, but no such
proxy shall be voted or acted upon after 3 years from its date, unless the proxy
provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of
Section 212(c) of the General Corporation Law of Delaware.
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2.14. LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a Corporation shall
prepare and make, at least 10 days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The stock ledger shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders and
of the number of shares held by each such stockholder.
2.15. CONDUCT OF BUSINESS
Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his absence by the president, or in his absence by a vice
president, or in the absence of the foregoing persons by a chairman designated
by the board of directors, or in the absence of such designation by a chairman
chosen at the meeting. The secretary shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting. The chairman of any meeting of stockholders shall
determine the order of business and the procedures at the meeting, including
such matters as the regulation of the manner of voting and conduct of business.
ARTICLE III
DIRECTORS
3.1. POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these Bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2. NUMBER
The authorized number of directors of the Corporation shall be three (3)
or more, the number thereof to be determined from time to time by resolution of
the board of directors. No reduction of the authorized number of directors
shall have the effect of removing any director before that director's term of
office expires.
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3.3. ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these Bylaws, at each annual meeting
of stockholders, directors of the Corporation shall be elected to hold office
until the expiration of the term for which they are elected, and until their
successors have been duly elected and qualified; except that if any such
election shall not be so held, such election shall take place at a stockholders'
meeting called and held in accordance with the Delaware General Corporation Law.
Directors need not be stockholders unless so required by the certificate
of incorporation or these Bylaws, wherein other qualifications for directors may
be prescribed.
Elections of directors need not be by written ballot.
3.4. RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
Corporation. Stockholders may remove directors with or without cause. Any
vacancy occurring in the board of directors with or without cause may be filled
by a majority of the remaining members of the board of directors, although such
majority is less than a quorum, or by a plurality of the votes cast at a meeting
of stockholders, and each director so elected shall hold office until the
expiration of the term of office of the director whom he has replaced.
Unless otherwise provided in the certificate of incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting
from any increase in the authorized number of
directors elected by all of the stockholders having
the right to vote as a single class may be filled by
a majority of the directors then in office, although
less than a quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of
stock or series thereof are entitled to elect one or
more directors by the provisions of the certificate
of incorporation, vacancies and newly created
directorships of such class or classes or series may
be filled by a majority of the directors elected by
such class or classes or series thereof then in
office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may apply to the Court of Chancery for a decree summarily
ordering an election as provided in Section 211 of the General Corporation Law
of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to
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any such increase), then the Court of Chancery may, upon application of any
stockholder or stockholders holding at least 10% of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors
then in office as aforesaid, which election shall be governed by the
provisions of Section 211 of the General Corporation Law of Delaware as far
as applicable.
3.5. PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the Corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6. REGULAR MEETING
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.7. SPECIAL MEETINGS: NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least 4 days before the time of
the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telecopy at least 24 hours before the time of the holding of the meeting.
Any oral notice given personally or by telephone may be communicated either to
the director or to a person at the office of the director who the person giving
the notice has reason to believe will promptly communicate it to the director.
The notice need not specify the purpose or the place of the meeting, if the
meeting is to be held at the principal executive office of the Corporation.
3.8. QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors
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present at any meeting at which there is a quorum shall be the act of the
board of directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation.
3.9. WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
3.10. ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.11. CONDUCT OF BUSINESS
Meetings of the board of directors shall be presided over by the chairman
of the board, if any, or in his absence by the chief executive officer, or in
their absence by a chairman chosen at the meeting. The secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting. The chairman of any
meeting shall determine the order of business and the procedures at the meeting.
3.12. BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13. FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, the board of directors shall have the authority to fix the compensation
of directors. The directors may be paid their expenses, if any, of attendance
at each meeting of the board of directors and may be paid a fixed sum for
attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other
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capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
3.14. REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors. If at any time a
class or series of shares is entitled to elect one or more directors, the
provisions of this Article 3.14 shall apply to the vote of that class or series
and not to the vote of the outstanding shares as a whole.
ARTICLE IV
COMMITTEES
4.1. COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the Corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the Bylaws of the Corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers that may require it, but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets,
(iv) recommend to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or (v) amend the Bylaws of the Corporation; and,
unless the board resolution establishing the committee, the Bylaws or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware.
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4.2. COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3. MEETINGS AND ACTIONS OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these Bylaws,
Section 3.5 (place of meetings and meetings by telephone), Section 3.6
(regular meetings), Section 3.7 (special meetings and notice), Section 3.8
(quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment and
notice of adjournment), Section 3.11 (conduct of business) and 3.12 (action
without a meeting), with such changes in the context of those Bylaws as are
necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular
meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be
given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
Bylaws.
ARTICLE V
OFFICERS
5.1. OFFICERS
The officers of the Corporation shall be a chief executive officer, one
or more vice presidents, a secretary and a chief financial officer. The
Corporation may also have, at the discretion of the board of directors, a
chairman of the board, a president, a chief operating officer, one or more
executive, senior or assistant vice presidents, assistant secretaries and any
such other officers as may be appointed in accordance with the provisions of
Section 5.2 of these Bylaws. Any number of offices may be held by the same
person.
5.2. APPOINTMENT OF OFFICERS
Except as otherwise provided in this Section 5.2, the officers of the
Corporation shall be appointed by the board of directors, subject to the rights,
if any, of an officer under any contract of employment. The board of directors
may appoint, or empower an officer to appoint, such officers and agents of the
business as the Corporation may require (whether or not such officer or agent is
described in this Article V), each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in these Bylaws or
as the board of directors may from time to time determine. Any vacancy
occurring in any office of the Corporation shall be filled by the board of
directors or may be filled by the officer, if any, who appointed such officer.
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5.3. REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors or, in the case of an officer appointed by
another officer, by such other officer.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without prejudice
to the rights, if any, of the Corporation under any contract to which the
officer is a party.
5.4. CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these Bylaws. If there is no
chief executive officer, then the chairman of the board shall also be the chief
executive officer of the Corporation and shall have the powers and duties
prescribed in Section 5.5 of these Bylaws.
5.5. CHIEF EXECUTIVE OFFICER
The chief executive officer of the Corporation shall, subject to the
control of the board of directors, have general supervision, direction and
control of the business and the officers of the Corporation. He or she shall
preside at all meetings of the stockholders and, in the absence or nonexistence
of a chairman of the board at all meetings of the board of directors. He or she
shall have the general powers and duties of management usually vested in the
chief executive officer of a Corporation, including general supervision,
direction and control of the business and supervision of other officers of the
Corporation, and shall have such other powers and duties as may be prescribed by
the board of directors or these Bylaws.
The chief executive officer shall, without limitation, have the authority
to execute bonds, mortgages and other contracts requiring a seal, under the seal
of the Corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the Corporation.
5.6. PRESIDENT
Subject to such supervisory powers as may be given by these Bylaws or the
board of directors to the chairman of the board or the chief executive officer,
if there be such officers, the president shall have general supervision,
direction and control of the business and supervision of
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other officers of the Corporation, and shall have such other powers and
duties as may be prescribed by the board of directors or these Bylaws. In
the event a chief executive officer shall not be appointed, the President
shall have the duties of such office.
5.7. VICE PRESIDENT
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform
all the duties of the chief executive officer and when so acting shall have
all the powers of, and be subject to all the restrictions upon, the chief
executive officer. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the board of directors, these Bylaws, the chief executive
officer or the chairman of the board.
5.8. SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, whether regular or special (and, if
special, how authorized and the notice given), the names of those present at
directors' meetings or committee meetings, the number of shares present or
represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the Corporation or at the office of the Corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these Bylaws. He shall keep the seal of the Corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these Bylaws.
5.9. CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of
the properties and business transactions of the Corporation, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
capital, retained earnings and shares. The books of account shall at all
reasonable times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the Corporation with such depositories as may
be designated by the board of
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directors. He shall disburse the funds of the Corporation as may be ordered
by the board of directors, shall render to the chief executive officer and
directors, whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the Corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
board of directors or these Bylaws.
5.10. ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of
the secretary and shall perform such other duties and have such other powers
as the board of directors or the stockholders may from time to time prescribe.
5.11. AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
Corporation shall respectively have such authority and perform such duties in
the management of the business of the Corporation as may be designated from
time to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1. THIRD PARTY ACTIONS
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture trust or other enterprise),
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
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6.2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in manner he reasonably believed to be in or not opposed to
the best interests of the Corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the Corporation unless and
only to the extent that the Delaware Court of Chancery or the court in which
such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
6.3. SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense
of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection therewith.
6.4. DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific
case upon a determination that the indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 6.1 and 6.2. Such
determination shall be made (1) by the board of directors or the Executive
Committee by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) or if such quorum is not
obtainable or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
6.5. PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of the director, officer, employee or agent 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 Article VI.
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6.6. INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided or granted
pursuant to the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another while holding such office.
6.7. INSURANCE INDEMNIFICATION
The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation, as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such, whether or not the Corporation would
have the power to indemnify him against such liability under the provisions
of this Article VI.
6.8. THE CORPORATION
For purposes of this Article VI, references to "the Corporation" shall
include, in addition to the resulting Corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under and subject to the
provisions of this Article VI (including, without limitation the provisions
of Section 6.4) with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
6.9. EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan;
and references to "serving at the request of the Corporation" shall include
any service as a director, officer, employee or agent of the Corporation
which imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably deemed to have acted in a manner "not opposed to the
best interests of the Corporation" as referred to in this Article VI.
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6.10. CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advances of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1. MAINTENANCE AND INSPECTION OF RECORDS
The Corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose
the Corporation's stock ledger, a list of its stockholders, and its other
books and records and to make copies or extracts therefrom. A proper purpose
shall mean a purpose reasonably related to such person's interest as a
stockholder. In every instance where an attorney or other agent is the
person who seeks the right to inspection, the demand under oath shall be
accompanied by a power of attorney or such other writing that authorizes the
attorney or other agent to so act on behalf of the stockholder. The demand
under oath shall be directed to the Corporation at its registered office in
Delaware or at its principal place of business.
7.2. INSPECTION BY DIRECTORS
Any director shall have the right to examine the Corporation's stock
ledger, a list of its stockholders and its other books and records for a
purpose reasonably related to his position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine
whether a director is entitled to the inspection sought. The Court may
summarily order the Corporation to permit the director to inspect any and all
books and records, the stock ledger, and the stock list and to make copies or
extracts therefrom. The Court may, in its discretion, prescribe any
limitations or conditions with reference to the inspection, or award such
other and further relief as the Court may deem just and proper.
7.3. REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the chief executive officer, any vice
president, the chief financial officer, the secretary or assistant secretary
of this Corporation, or any other person authorized by the board of directors
or the chief executive officer or a vice president, is authorized to vote,
represent, and exercise on behalf of this Corporation all rights incident to
any
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and all shares of any other corporation or corporations standing in the name
of this Corporation. The authority granted herein may be exercised either by
such person directly or by any other person authorized to do so by proxy or
power of attorney duly executed by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1. CHECKS
From time to time, the board of directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts,
other orders for payment of money, notes or other evidences of indebtedness
that are issued in the name of or payable to the Corporation, and only the
persons so authorized shall sign or endorse those instruments.
8.2. EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the
agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the Corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
8.3. STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the Corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not
apply to shares represented by a certificate until such certificate is
surrendered to the Corporation. Notwithstanding the adoption of such a
resolution by the board of directors, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the Corporation
by the chairman or vice-chairman of the board of directors, or the president
or vice-president, and by the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of such Corporation representing the
number of shares registered in certificate form. Any or all of the signatures
on the certificate may be a facsimile. In case any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon
a certificate has to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
The Corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of
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the Corporation in the case of uncertificated partly paid shares, the total
amount of the consideration to be paid therefor and the amount paid thereon
shall be stated. Upon the declaration of any dividend on fully paid shares,
the Corporation shall declare a dividend upon partly paid shares of the same
class, but only upon the basis of the percentage of the consideration
actually paid thereon.
8.4. SPECIAL DESIGNATION ON CERTIFICATES
If the Corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the 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 shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the Corporation shall issue to represent
such class or series of stock a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the 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.
8.5. LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and cancelled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6. CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a Corporation and a
natural person.
8.7. DIVIDENDS
The directors of the Corporation, subject to any restrictions
contained in the certificate of incorporation, may declare and pay dividends
upon the shares of its capital stock pursuant to the General Corporation Law
of Delaware. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
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The directors of the Corporation may set apart out of any of the funds of
the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
8.8. FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9. SEAL
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
8.10. TRANSFER OF STOCK
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11. STOCK TRANSFER AGREEMENT
The Corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock
of the Corporation to restrict the transfer of shares of stock of the
Corporation of any one or more classes owned by such stockholders in any
manner not prohibited by the General Corporation Law of Delaware.
8.12. REGISTERED STOCKHOLDERS
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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ARTICLE IX
AMENDMENTS
The original or other Bylaws of the Corporation may be adopted,
amended or repealed by the stockholders entitled to vote; provided, however,
that the Corporation may, in its certificate of incorporation, confer the
power to adopt, amend or repeal Bylaws upon the directors. The fact that
such power has been so conferred upon the directors shall not divest the
stockholders of the power, nor limit their power to adopt, amend or repeal
Bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the Corporation that the Corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the
resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the Corporation
entitled to vote thereon votes for the proposed dissolution, then a
certificate stating that the dissolution has been authorized in accordance
with the provisions of Section 275 of the General Corporation Law of Delaware
and setting forth the names and residences of the directors and officers
shall be executed, acknowledged, and filed and shall become effective in
accordance with Section 103 of the General Corporation Law of Delaware. Upon
such certificate's becoming effective in accordance with Section 103 of the
General Corporation Law of Delaware, the Corporation shall be dissolved.
ARTICLE XI
CUSTODIAN
11.1. APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may
appoint one or more persons to be custodians and, if the Corporation is
insolvent, to be receivers, of and for the Corporation when: at any meeting
held for the election of directors the stockholders are so divided that they
have failed to elect successors to directors whose terms have expired or
would have expired upon qualification of their successors; or
the business of the Corporation is suffering or is threatened with irreparable
injury because the directors are so divided respecting the management of the
affairs of the Corporation that the required vote for action by the board of
directors cannot be obtained and the stockholders are unable to terminate this
division; or
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the Corporation has abandoned its business and has failed within a reasonable
time to take steps to dissolve, liquidate or distribute its assets.
11.2. DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the Corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
ARTICLE XII
LOANS TO OFFICERS
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiaries, including any officer or employee who is a director of the
Corporation or its subsidiaries, whenever, in the judgment of the board of
directors, such loan, guarantee or assistance may reasonably be expected to
benefit the Corporation. The loan, guarantee or other assistance may be with
or without interest and may be unsecured, or secured in such manner as the
board of directors shall approve, including, without limitation, a pledge of
shares of stock of the Corporation. Nothing in this Bylaw shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the Corporation
at common law or under any statute.
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EXHIBIT 4.1
NETRATINGS, INC.
-----------------------------------
SECOND RESTATED RIGHTS AGREEMENT
-----------------------------------
SEPTEMBER __, 1999
<PAGE>
SECOND RESTATED RIGHTS AGREEMENT
THIS SECOND RESTATED RIGHTS AGREEMENT (the "Agreement") dated as of
September __, 1999 is entered into by and among NetRatings, Inc., a Delaware
corporation (the "Company"), and each of the persons and entities who have
purchased shares of the Company's Series A, Series B, Series C and Series D
Preferred Stock (the "Series A Investor," the "Series B Investors," "the
Series C Investors" and "Series D Investors" respectively), and/or who
propose to purchase shares of any other series of Preferred Stock of the
Company, pursuant to stock purchase agreements between such purchasers and
the Company (collectively, the "Investors").
RECITALS
The Series A Investor and Series B Investors are parties to that
certain Rights Agreement dated November 15, 1998 (the "Prior Agreement").
The Series A Investor, Series B Investors and Series C Investors are
parties to that certain Restated Rights Agreement dated August 5, 1999 (the
"Restated Agreement").
The Series D Investors and the Company are entering into that certain
Series D Preferred Stock Purchase Agreement dated as of the date hereof (the
"Series D Agreement") pursuant to which the Series D Investors are purchasing
from the Company shares of Series D Preferred Stock.
The execution of this Agreement is a condition to the closing of the
transactions contemplated by the Series D Agreement.
As an inducement to the Series D Investors to purchase shares of the
Company's Series D Preferred Stock, the Series A Investor, the Series B
Investors, the Series C Investors and the Company desire to amend and restate
the Prior Agreement to grant the Series D Investors the rights set forth
herein.
SECTION 1
RESTRICTIONS ON TRANSFERABILITY;
REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
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"COMMON STOCK" means the shares of Common Stock, $0.001 par value per
share, of the Company.
"CONVERSION SHARES" means the Common Stock issued or issuable upon
conversion of the Preferred Shares as defined herein.
"HOLDER" shall mean any Series A Investor, Series B Investor , Series
C Investor, Series D Investor or owner of the Hitachi Warrant holding
Registrable Securities and any person holding Registrable Securities to whom
the rights under this Agreement have been transferred in accordance with
Section 1.14 hereof
"INITIATING HOLDERS" shall mean Holders in the aggregate of not less
than fifty percent (50%) of the Registrable Securities as defined for
purposes of that particular section.
"MAJOR PURCHASER" shall mean any Investor holding more than 350,000
shares of Registrable Securities at the time in question. For the purposes
of this Agreement, the number of Registrable Securities held by an Investor
shall be deemed to include any Registrable Securities held by the Investor's
affiliates and such holdings shall be aggregated together.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"PREFERRED SHARES" means outstanding shares of the Company's Series A
Preferred Stock, Series B Preferred, Series C Preferred, Series D Preferred
held by a Holder and/or shares of any series of the Company's Preferred Stock
held by a Holder granted registration rights hereunder.
"PURCHASER" shall mean any of the Investors.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Sections 1.5, 1.6 and 1.7 of this Agreement,
including, without limitation, all registration, qualification and filing
fees, printing expenses, escrow fees, fees and disbursements of counsel for
the Company, blue sky fees and expenses, and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company).
"REGISTRABLE SECURITIES" means (i) the Conversion Shares; (ii) any Common
Stock or other securities of the Company issued or issuable in respect of the
Preferred Shares or Conversion Shares or other securities issued or issuable
with respect to the Preferred Shares or Conversion Shares upon any stock split,
stock dividend, recapitalization, or similar event; (iii) any capital stock or
other securities otherwise issued or issuable with respect to the Conversion
Shares or Preferred Shares; and (iv) Common Stock issued or issuable pursuant to
the warrant to purchase Common Stock issued to Hitachi Ltd., dated December 24,
1997 ("Hitachi Warrant"), PROVIDED, HOWEVER, that shares of Common Stock or
other securities shall only be treated as Registrable Securities if and so long
as they have not been (A) sold to or through a broker or dealer or underwriter
in a public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities
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Act under Section 4(l) thereof so that all transfer restrictions and
restrictive legends with respect thereto are removed upon the consummation of
such sale. For the avoidance of doubt, "Registrable Securities" does not
include any unexercised option(s) or warrant(s) for the purchase of any
capital stock of the Company, except for the Hitachi Warrant.
"RESTRICTED SECURITIES" shall mean the securities of the Company
required to bear the legend set forth in Section 1.3 of this Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered
by the Holders and all fees and disbursements of counsel for the Holders
(except as provided by Section 1.9).
1.2 RESTRICTIONS. The Preferred Shares and the Conversion Shares
shall not be sold, assigned, transferred or pledged except upon the
conditions specified in this Agreement, which conditions are intended to
ensure compliance with the provisions of the Securities Act. The Purchasers
will cause any proposed purchaser, assignee, transferee or pledgee of the
Preferred Shares or the Conversion Shares to agree to take and hold such
securities subject to the provisions and upon the conditions specified in
this Agreement.
1.3 RESTRICTIVE LEGEND. Each certificate representing (i) the
Preferred Shares, (ii) the Conversion Shares, and (iii) any other securities
issued in respect of the securities referenced in clauses (i) and (ii) upon
any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless otherwise permitted by the provisions of Section
1.4 below) be stamped or otherwise imprinted with legends in the following
form (in addition to any legend required under applicable state securities
laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN
THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY)
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SAID ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY."
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Each Purchaser and Holder consents to the Company making a notation on
its records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in
this Section 1.
1.4 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities, by acceptance thereof, agrees to comply
in all respects with the provisions of this Section 1. Prior to any proposed
sale, assignment, transfer or pledge of any Restricted Securities, unless
there is in effect a registration statement under the Securities Act covering
the proposed transfer, the holder thereof shall give written notice to the
Company of such holder's intention to effect such transfer, sale, assignment
or pledge. Each such notice shall describe the manner and circumstances of
the proposed transfer, sale, assignment or pledge in sufficient detail, and
shall be accompanied at such holder's expense by either (i) an unqualified
written opinion of legal counsel who shall, and whose legal opinion shall be,
reasonably satisfactory to the Company, addressed to the Company, to the
effect that the proposed transfer of the Restricted Securities may be
effected without registration under the Securities Act, or (ii) a "no action"
letter from the Commission to the effect that the transfer of such securities
without registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, whereupon the holder of
such Restricted Securities shall be entitled to transfer such Restricted
Securities in accordance with the terms of the notice delivered by the holder
to the Company. The Company will not require such a legal opinion or "no
action" letter (a) in any transaction in compliance with Rule 144 under the
Securities Act (or any successor rule), (b) in any transaction in which a
Purchaser which is a corporation distributes Restricted Securities solely to
its majority-owned subsidiaries or affiliates for no consideration, or (c) in
any transaction in which a Purchaser which is a partnership distributes
Restricted Securities solely to partners thereof for no consideration,
provided that each transferee agrees in writing to be subject to the terms of
this Section 1.4. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear, except if such transfer is made
pursuant to Rule 144 under the Securities Act (or any successor rule), the
appropriate restrictive legend set forth in Section 1.3 above, except that
such certificate shall not bear such restrictive legend if, in the opinion of
counsel for such holder and the Company, such legend is not required in order
to establish compliance with any provisions of the Securities Act.
1.5 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall
receive from Initiating Holders a written request that the Company effect any
qualification, compliance or registration of at least 20% of the outstanding
Registrable Securities then held by them, the Company shall:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) use its best efforts to effect such registration,
qualification or compliance (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any
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other governmental requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all or such portion
of such Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request
received by the Company within twenty (20) days after receipt of such written
notice from the Company; PROVIDED, HOWEVER, that the Company shall not be
obligated to take any action to effect any such registration, qualification
or compliance pursuant to this Section 1.5:
(1) In any particular jurisdiction in which
the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance unless
the Company is already subject to service in such jurisdiction and except as
may be required by the Securities Act;
(2) Prior to the earlier of (i) six (6) months
following the Company's initial public offering or (ii) January 1, 2002.
(3) During the period ending on the date three
(3) months immediately following the effective date of, any registration
statement pertaining to securities of the Company (other than a registration
of securities in a transaction covered by Rule 145 under the Securities Act
(a "Rule 145 Transaction") or a registration of securities on Form S-8 (or
any successor form) relating solely to an employee benefit plan);
(4) After the Company has effected two (2)
such registrations pursuant to this subparagraph 1.5(a), such registrations
have been declared or ordered effective and the securities offered pursuant
to such registrations have been sold; or
(5) If the Company shall furnish to such
Holders a certificate, signed by the President of the Company, stating that
in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its stockholders for a registration statement
to be filed in the near future, then the Company's obligation to use its best
efforts to register, qualify or comply under this Section 1.5 shall be
deferred for a single period not to exceed one hundred and eighty (180) days
from the date of receipt of written request from the Initiating Holders.
Subject to the foregoing clauses (1) through (5), the Company shall
file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable after receipt of the
request or requests of the Initiating Holders, and in no event, later than
ninety (90) days therefrom.
(b) UNDERWRITING. In the event that a registration pursuant
to Section 1.5 is for a registered public offering involving an underwriting,
the Company shall so advise the Holders as part of the notice given pursuant
to Section 1.5(a)(i). The right of any Holder to registration pursuant to
Section 1.5 shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 1.5 and the inclusion of
such Holder's Registrable Securities in the underwriting, to the extent
requested, to the extent provided in this Agreement.
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The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting
agreement in customary form with the managing underwriter selected for such
underwriting by a majority in interest of the Initiating Holders (which
managing underwriter shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 1.5, if the managing
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Company shall so advise all Holders of Registrable Securities and the number
of shares of Registrable Securities that may be included in the registration
and underwriting shall be allocated among all Holders thereof in proportion,
as nearly as practicable, to the respective amounts of Registrable Securities
held by all Holders who have requested that Registrable Securities be
included in such registration at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by
reason of the underwriter's marketing limitation shall be included in such
registration. To facilitate the allocation of shares in accordance with the
above provisions, the Company or the underwriters may round the number of
shares allocated to any Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of
the underwriting, such person may elect to withdraw therefrom by written
notice to the Company, the managing underwriter and the Initiating Holders.
1.6 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time to
time, the Company shall determine to register any of its securities, either
for its own account or the account of a security holder or holders other than
(i) an initial public offering by the Company of shares for its own account,
(ii) a registration of securities on Form S-8 (or any successor form)
relating solely to employee benefit plans, or (iii) a registration of
securities in a Rule 145 Transaction, the Company will:
(i) promptly give to each Holder written notice
thereof, and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved in such registration, all the Registrable Securities
specified in a written request or requests received within twenty (20) days
after receipt of such written notice from the Company by any Holder.
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting,
the Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.6(a)(i). In such event, the right of any Holder to
registration pursuant to Section 1.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting
by the Company (or by the holders who have demanded such registration).
Notwithstanding any other provision of this Section 1.6, if the
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managing underwriter determines that marketing factors require a limitation
of the number of shares to be underwritten, the managing underwriter may
limit the Registrable Securities to be included in such registration to a
minimum of 20% of the total shares to be included in such underwriting. The
Company shall advise all Holders who have requested that Registrable
Securities be included in such registration of any limitations imposed
pursuant to this Section 1.6(b). The number of shares of Registrable
Securities that may be included in such registration and underwriting for
each Holder who has requested that Registrable Securities be included in such
registration shall be determined in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by all Holders who have
requested that Registrable Securities be included in such registration at the
time of filing the registration statement. To facilitate the allocation of
shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Holder to the
nearest 100 shares. If any Holder disapproves of the terms of any such
underwriting, he or she may elect to withdraw therefrom by written notice to
the Company and the managing underwriter.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have
the right to terminate or withdraw any registration initiated by it under
this Section 1.6 prior to the effectiveness of such registration, whether or
not any Holder has elected to include securities in such registration.
1.7 REGISTRATION ON FORM S-3.
(a) If Holders representing at least 50% of the Registrable
Securities request in writing that the Company file a registration statement
on Form S-3 (or any successor form to Form S-3) for a public offering of
shares of the Registrable Securities, the reasonably anticipated aggregate
price to the public of which, net of underwriting discounts and commissions,
would exceed $500,000, and the Company is a registrant entitled to use Form
S-3 to register the Registrable Securities for such an offering, the Company
shall use its best efforts to cause such Registrable Securities to be
registered for the offering on such form; PROVIDED, HOWEVER, that the Company
shall not be required to effect more than two registrations pursuant to this
Section 1.7 in any twelve (12) month period. The Company will (i) promptly
give written notice of the proposed registration to all other Holders and
(ii) as soon as practicable, use its best efforts to effect such registration
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining
in such request as are specified in a written request received by the Company
within twenty (20) days after receipt of such written notice from the
Company. The substantive provisions of Section 1.5(b) shall be applicable to
each registration initiated under this Section 1.7.
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(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 1.7 (i) in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service
in such jurisdiction and except as may be required by the Securities Act,
(ii) during the period ending on a date three (3) months following the
effective date of, a registration statement (other than with respect to a
registration of securities in a Rule 145 Transaction, or a registration on
Form S-8 (or any successor form) relating to an offering solely to employees
or any other registration which is not appropriate for the registration of
Registrable Securities), or (iii) if the Company shall furnish to such Holder
a certificate signed by the President of the Company stating that, in the
good faith judgment of the Board of Directors, it would be seriously
detrimental to the Company or its stockholders for registration statements to
be filed in the near future, then the Company's obligation to use its best
efforts to file a registration statement shall be deferred for a single
period not to exceed ninety (90) days from the receipt of the request to file
such registration by such Holder or Holders.
1.8 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the date of this Agreement, the Company shall not enter into any agreement
granting any holder or prospective holder of any securities of the Company
registration rights with respect to such securities without the prior written
consent of a majority of the Registrable Securities then outstanding (on a
Common Stock equivalent basis) unless (1) such new registration rights,
including standoff obligations, are on a PARI PASSU basis with those rights
of the Holders hereunder, or (2) such new registration rights, including
standoff obligations, are subordinate to the registration rights granted the
Holders hereunder, provided that the inclusion of such holder's securities
shall not reduce the amount of Registrable Securities which are included in
any registration for which the Holders hold registration rights pursuant to
this Agreement.
1.9 EXPENSES OF REGISTRATION. All Registration Expenses incurred
in connection with any registration pursuant to Sections 1.5, 1.6 or 1.7 and
the reasonable cost of one special legal counsel to represent all of the
Holders together in any such registration shall be borne by the Company;
provided that the Holders participating in any registration pursuant to
Sections 1.5 or 1.6 shall bear their pro rata share (calculated on the basis
of the ratio that the number of the Holder's Registrable Securities included
in the registration bears to the total number of Registrable Securities
included in the registration) of the Selling Expenses incurred in connection
with such registration; provided further that the Company shall not be
required to pay the Registration Expenses of any registration proceeding
begun pursuant to Section 1.5, the request of which has been subsequently
withdrawn by the Initiating Holders unless such withdrawal is as a result of
such Holders learning of a material adverse change in the condition, business
or prospects of the Company from that known at the time of such Holders'
request for registration (whether or not such change occurs before or after
such request). If such withdrawal is for reasons other than those set forth
in the preceding sentence, the Holders of Registrable Securities to have been
registered shall bear all such Registration Expenses pro rata on the basis of
the number of shares to have been registered unless the Holders of a majority
of the Registrable Securities agree to forfeit their right to one demand
registration pursuant to Section 1.5.
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1.10 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section
1, the Company will keep each Holder advised in writing as to the initiation
of each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) The Company shall keep effective any registration or
qualification contemplated by this Section 1.10 and shall from time to time
amend or supplement each applicable registration statement, preliminary
prospectus, final prospectus, application, document, and communication for
such period of time as shall be required to permit the Holders participating
in such registration to complete the offer and sale of such Holders'
securities covered thereby. The Company shall in no event be required to
keep any such registration or qualification in effect for a period in excess
of 90 days from the date on which such Holders are first free to sell such
Holders' securities; provided, however, that, if the Company is required to
keep any such registration or qualification in effect with respect to
securities other than such Holders' securities beyond such period, the
Company shall keep such registration or qualification in effect as it relates
to such Holders' securities for so long as such registration or qualification
remains or is required to remain in effect in respect of such other
securities.
(b) Furnish to the Holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters
may reasonably request in order to facilitate the public offering of such
securities.
1.11 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its
officers, directors stockholders, employees, agents and representatives, and
each person controlling such Holder within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, against any and all expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, as and
when incurred, arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or
supplement thereto, incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in witch they were made,
not misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act or the laws of any jurisdiction
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each of its officers, directors, stockholders, employees, agents and
representatives, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action, as
and
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when such expenses are incurred, provided that the Company will not be liable
in any such case to the extent that any such claim, loss, damage, liability
or expense arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in conformity
with written information furnished to the Company by an instrument duly
executed by such Holder or underwriter and stated to be specifically for
inclusion in such registration statement, prospectus, offering circular or
other document; and provided, further, that the Company will not be liable to
any such person or entity withrespect to any such untrue statement or
omission or alleged untrue statement or omission made in any preliminary
prospectus that is corrected in the final prospectus filed with the
Commission pursuant to Rule 424(b) promulgated under the Securities Act (or
any amendment or supplement to such prospectus) if the person asserting any
such loss, claim, damage or liability purchased securities but was not sent
or given a copy of the prospectus (as amended or supplemented) at or prior to
the written confirmation of the sale of such securities to such person in any
case where such delivery of the prospectus (as amended or supplemented) is
required by the Securities Act, unless such failure to deliver the prospectus
(as amended or supplemented) was a result of the Company's failure to timely
provide such prospectus (as amended or supplemented).
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when such expenses are incurred, provided that the Company will not be liable
in any such case to the extent that any such claim, loss, damage, liability
or expense arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in conformity
with written information furnished to the Company by an instrument duly
executed by such Holder or underwriter and stated to be specifically for
inclusion in such registration statement, prospectus, offering circular or
other document; and provided, further, that the Company will not be liable to
any such person or entity withrespect to any such untrue statement or
omission or alleged untrue statement or omission made in any preliminary
prospectus that is corrected in the final prospectus filed with the
Commission pursuant to Rule 424(b) promulgated under the Securities Act (or
any amendment or supplement to such prospectus) if the person asserting any
such loss, claim, damage or liability purchased securities but was not sent
or given a copy of the prospectus (as amended or supplemented) at or prior to
the written confirmation of the sale of such securities to such person in any
case where such delivery of the prospectus (as amended or supplemented) is
required by the Securities Act, unless such failure to deliver the prospectus
(as amended or supplemented) was a result of the Company's failure to timely
provide such prospectus (as amended or supplemented).
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, and each other such
Holder, each of its officers, directors, stockholders, employees, agents and
representatives and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such Holders, such
directors, officers, persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use therein; provided, however, that the liability of a
Holder for indemnification under this Section 1.11(b) shall not exceed the
gross proceeds from the offering received by such Holder.
(c) Each party entitled to indemnification under this
Section 1.11 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of
such claim or litigation, shall be approved
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by the Indemnified Party (whose approval shall not unreasonably be withheld),
and provided further that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 1 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such
action. Any such Indemnified Party shall have the right to employ its own
counsel in any such case, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Party unless the employment of such
counsel shall have been authorized in writing by the Indemnifying Party in
connection with the defense of such action or the Indemnifying Party shall
not have promptly employed counsel reasonably satisfactory to such
Indemnified Party to have charge of the defense of such action or such
Indemnified Party shall have reasonably concluded that there may be one or
more legal defenses available to it which are different from or additional to
those available to the Indemnifying Party, in any of which events such fees
and expenses shall be borne by the Indemnifying Party and the Indemnifying
Party shall not have the right to direct the defense of such action on behalf
of the Indemnified Party. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant
or plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation.
(d) To provide for just and equitable contribution, if (i)
an indemnified party makes a claim for indemnification pursuant to Section
1.11(a) or 1.11(b) (subject to the limitations thereof) but it is found in a
final judicial determination, not subject to further appeal, that such
indemnification may not be enforced in such case, even though this Agreement
expressly provides for indemnification in such case, or (ii) any Indemnified
or Indemnifying Party seeks contribution under the Act, the Exchange Act or
otherwise, then the Company (including for this purpose any contribution made
by or on behalf of any director of the Company, any officer of the Company
who signed any such registration statement, or any controlling person of the
Company), as one entity, and the Holders of the securities included in such
registration in the aggregate (including for this purpose any contribution by
or on behalf of any officer, director, shareholder, employee, agent or
representative of any Holder or any controlling person thereof), as a second
entity, shall contribute to the losses, liabilities, claims, damages, and
expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such as the relative fault of the Company
and such Holders in connection with the facts which resulted in such losses,
liabilities, claims, damages, and expenses. The relative fault, in the case
of an untrue statement, alleged untrue statement, omission, or alleged
omission, shall be determined by, among other things, whether such statement,
alleged statement, omission, or alleged omission relates to information
supplied by the Company or by such Holders, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission. The Company and
the Holders agree that it would be unjust and inequitable if the respective
obligations of the Company and the Holders for contribution were determined
by a pro rata or per capita allocation of the aggregate losses, liabilities,
claims, damages, and expenses (even if the Holders and the other Indemnified
Parties were treated as one entity for such purpose) or by any other method
of allocation that does not reflect the equitable considerations referred to
in this Section 1.11(d). In no case shall any Holder be responsible for a
portion of the contribution obligation imposed on all Holders in excess of
the lesser of (i) its pro rata share
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based on the number of shares of Common Stock owned by it and included in
such registration as compared to the number of shares of Common Stock owned
by all Holders which are included in such registration, and (ii) the gross
proceeds received by such Holder from the sale of such Holder's securities
pursuant to such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 1.11(d), each person, if
any, who controls any Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, employee,
agent, and representative of each such Holder or control person shall have
the same rights to contribution as such Holder or control person and each
person, if any, who controls the Company within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, each officer of the Company who
shall have signed any such registration statement and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to the provisions of this Section 1.11(d). Anything in this
Section 1.11(d) to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 1.11(d) is intended to supersede
any right to contribution under the Act, the Exchange Act or otherwise.
1.12 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held
by them and the distribution proposed by such Holder or Holders as the
Company may reasonably request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Section 1.
1.13 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock
of the Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date that the Company becomes subject to the
reporting requirements of the Securities Act or the Securities Exchange Act;
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as a Purchaser owns any Registrable Securities,
to furnish to the Purchaser forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company for an offering of its securities
to the general public), and of the Securities Act and the Exchange Act (at
any time after it has become subject to such reporting requirements), a copy
of the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the possession
of or reasonably obtainable by the Company as a Purchaser may reasonably
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request in availing itself of any rule or regulation of the Commission
allowing a Purchaser to sell any such securities without registration.
1.14 TRANSFER OF REGISTRATION. The rights to cause the Company to
register securities granted Purchasers under Sections 1.5, 1.6 and 1.7 may be
assigned to a transferee or assignee reasonably acceptable to the Company in
connection with any transfer or assignment of Registrable Securities by a
Purchaser (together with any affiliate); provided that (a) such transfer or
assignment may otherwise be effected in accordance with applicable securities
laws, (b) notice of such assignment is given to the Company, (c) such
transferee or assignee (i) is a wholly-owned subsidiary or constituent
partner (including limited partners) of such Purchaser, or (ii) acquires from
such Purchaser the lesser of (A) 100,000 or more shares of Registrable
Securities (as appropriately adjusted for stock splits and the like) or (B)
all of the Registrable Securities then owned by such Purchaser, and (d) such
transferee or assignee agrees in writing to be bound by this Agreement.
1.15 STANDOFF AGREEMENT. Each Holder agrees in connection with the
initial registration of the Company's securities that, upon request of the
Company or the underwriters managing any underwritten initial public offering
of the Company's securities, not to sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise dispose of any Registrable
Securities (other than those included in the registration) without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed one hundred eighty (180) days from the
effective date of such registration) as may be requested by the Company or
such managing underwriters; provided, however, that the officers and
directors of the Company who own stock of the Company also agree to such
restrictions.
1.16 TERMINATION OF RIGHTS. No Holder shall be entitled to exercise
any right provided for in this Section 1:
(a) after three (3) years following the consummation of the
sale of securities pursuant to a registration statement filed by the Company
under the Act in connection with the initial firm commitment underwritten
offering of its securities to the general public, or
(b) on or after the closing of a public offering of the
Common Stock of the Company, initiated by the Company, during any time when
all shares of the Holder's Registrable Securities may be sold under Rule
144 (k) or any successor rule.
SECTION 2
RIGHT OF PARTICIPATION
2.1 PURCHASER'S RIGHT OF PARTICIPATION.
(a) RIGHT OF PARTICIPATION. Subject to the terms contained
in this Section 2.1, the Company hereby grants to each Major Purchaser the
right to purchase its Pro Rata Portion of any New Securities which the
Company may, from time to time, propose to sell and issue, which right may be
exercised pursuant to the Notice of Right provisions set out in subsection
2.1(c). A Major Purchaser's "Pro Rata Portion" for purposes of this Section
2.1 is the ratio that (x) the sum
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of the number of shares of the Company's Common Stock then held by such Major
Purchaser and the number of shares of the Company's Common Stock issuable
upon conversion of the Preferred Stock then held by such Major Purchaser,
bears to (y) the sum of the total number of shares of the Company's Common
Stock then outstanding, the number of shares of the Company's Common Stock
issuable upon the exercise of any issued and outstanding rights, options or
warrants, and the number of shares of the Company's Common Stock issuable
upon conversion of the then outstanding Preferred Stock.
(b) DEFINITION OF NEW SECURITIES. Except as set forth
below, "New Securities" shall mean any shares of capital stock of the
Company, including Common Stock and Preferred Stock, whether authorized or
not, and rights, options or warrants to purchase said shares of Common Stock
or Preferred Stock, and securities of any type whatsoever that are, or may
become, convertible into said shares of Common Stock or Preferred Stock.
Notwithstanding the foregoing, "New Securities" does not include (i) the
Preferred Shares, Common Stock issuable upon the exercise of the Hitachi
Warrant or the Conversion Shares, (ii) securities offered to the public
generally pursuant to a registration statement under the Securities Act,
(iii) securities issued pursuant to the acquisition of another corporation by
the Company by merger, purchase of substantially all of the assets or shares
or other reorganization whereby the Company or its stockholders own not less
than a majority of the voting power of the surviving or successor
corporation, where any such transaction is approved by a majority of the then
outstanding Preferred Shares, (iv) shares of the Company's Common Stock or
related options or warrants convertible into or exercisable for such Common
Stock issued to employees, officers and directors of, and consultants to, the
Company, pursuant to any arrangement approved by the Board of Directors of
the Company, (v) shares of the Company's Common Stock or related options or
warrants convertible into or exercisable for such Common Stock issued to
vendors of the Company pursuant to such terms and conditions as may be
approved by the Board of Directors of the Company, (vi) shares of the
Company's Common Stock or related options convertible into or exercisable for
such Common Stock issued to banks, commercial lenders, lessors and other
financial institutions in connection with the borrowing of money or the
leasing of equipment by the Company, pursuant to any arrangement approved by
the Board of Directors of the Company, (vii) stock issued pursuant to any
rights or agreements, including, without limitation, convertible securities,
options and warrants, provided that the Company shall have complied with the
rights of participation established by this Section 2.1 with respect to the
initial sale or grant by the Company of such rights or agreements, or (viii)
stock issued in connection with any stock split, stock dividend or
recapitalization by the Company in which the percentage beneficial ownership
of the Major Purchaser remains unchanged.
(c) NOTICE OF RIGHT. In the event the Company proposes to
undertake an issuance of New Securities, it shall give each Major Purchaser
written notice of its intention, describing the type of New Securities and
the price and terms upon which the Company proposes to issue the same. Each
Major Purchaser shall have fifteen (15) days from the date of receipt of any
such notice to agree to purchase shares of such New Securities (up to the
amount referred to in subsection 2.1(a)), for the price and upon the terms
specified in the notice, by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased. The Company shall
promptly provide each Major Purchaser with such information concerning the
Company, its subsidiaries and their respective businesses, properties,
assets, liabilities
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and prospects and the New Securities as such Major Purchaser may reasonably
request for such purpose.
(d) CLOSING OF RIGHT. If any Major Purchaser exercises its
right of participation under this Agreement, the closing of the purchase of
the New Securities with respect to which such right has been exercised shall
take place within thirty (30) calendar days after the Major Purchaser gives
notice of such exercise, which period of time shall be extended in order to
comply with applicable laws and regulations. Upon exercise of such right of
participation, the Company and the Major Purchaser shall be legally obligated
to consummate the purchase contemplated thereby and shall use their best
efforts to secure any approvals required in connection therewith.
(e) LAPSE AND REINSTATEMENT OF RIGHT. In the event a Major
Purchaser fails to exercise the right of participation provided in this
Section 2.1 within said ten (10) day period, the Company shall have ninety
(90) days thereafter to sell or enter into an agreement (pursuant to which
the sale of New Securities covered thereby shall be closed, if at all, within
sixty (60) days from the date of said agreement) to sell the New Securities
not elected to be purchased by such Major Purchaser at the price and upon the
terms no more favorable to the purchasers of such securities than specified
in the Company's notice to the Major Purchasers. In the event the Company
has not sold the New Securities or entered into an agreement to sell the New
Securities within said ninety (90) day period (or sold and issued New
Securities in accordance with the foregoing within sixty (60) days from the
date of said agreement) or in the event that the Corporation changes the
terms of such securities in a manner which is more favorable than the terms
specified in the Company's notice to the Major Purchasers, the Company shall
not thereafter issue or sell any New Securities without first offering such
securities to the Major Purchasers in the manner provided above.
(f) ASSIGNMENT. The right of the Major Purchasers to
purchase any part of the New Securities may be assigned in whole or in part
to any partner, subsidiary, affiliate or shareholder of a Major Purchaser, or
other persons or organizations who acquire the lesser of (i) 100,000 or more
shares of Registrable Securities (as adjusted for stock splits and the like)
or (ii) all of the Restricted Securities then owned by such Major Purchaser.
2.2 TERMINATION OF PARTICIPATION RIGHT. The rights of
participation granted under Section 2.1 of this Agreement shall terminate on
and be of no further force or effect upon the consummation of the Company's
sale of its Common Stock in an underwritten public offering pursuant to an
effective registration statement filed under the Securities Act immediately
subsequent to which the Company shall be obligated to file annual and
quarterly reports with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act.
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SECTION 3
MISCELLANEOUS
3.1 ASSIGNMENT. Except as otherwise provided in this Agreement,
the terms and conditions of this Agreement shall inure to the benefit of and
be binding upon the respective successors and permitted assigns of the
parties to this Agreement.
3.2 THIRD PARTIES. Nothing in this Agreement is intended to confer
upon any party, other than the parties to this Agreement, the Indemnified
Parties and their respective successors and permitted assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California without giving effect to
the conflicts of laws principles thereof.
3.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
3.5 NOTICES. All notices and other communications required or
permitted under this Agreement shall be transmitted via facsimile, mailed by
registered or certified mail, postage prepaid, or otherwise delivered by hand
or by messenger, addressed (a) if to a Holder or Purchaser, at such Holder or
Purchaser's facsimile number or address set forth on EXHIBIT A or, at such
other facsimile number or address as such Holder or Purchaser shall have
furnished to the Company in writing, or (b) if to any other holder of any
Shares, at such facsimile number or address as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes a
facsimile number or address to the Company, then to and at the facsimile
number or address of the last holder of such Shares who has so furnished a
facsimile number or address to the Company, or (c) if to the Company, at the
facsimile number or address set forth on EXHIBIT A (addressed to the
attention of the President) or at such other facsimile number or address as
the Company shall have furnished to the Holders and Purchasers in writing,
and (d) to any such party's counsel at the facsimile number or address set
forth on EXHIBIT A, or, at such other facsimile number or address as such
party's counsel shall have furnished in writing.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally; upon confirmation of successful transmission if sent
via facsimile; or, if sent by mail, at the earlier of its receipt or five (5)
days after the same has been deposited in a regularly maintained receptacle
for the deposit of the United States mail, addressed and postage prepaid as
aforesaid.
3.6 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, portions of such provisions,
or such provisions in their entirety, to the extent necessary, shall be
severed from this Agreement, and the balance of this Agreement shall be
enforceable in accordance with its terms.
16
<PAGE>
3.7 AMENDMENT AND WAIVER. Any provision of this Agreement may be
amended or waived with the written consent of the Company and the Holders of
at least a majority of the outstanding shares of the Registrable Securities,
so long as the effect is to treat all Holders equally. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
Holder of Registrable Securities and the Company. In addition, the Company
may waive performance of any obligation owing to it, as to some or all of the
Holders of Registrable Securities, or agree to accept alternatives to such
performance, without obtaining the consent of any Holder of Registrable
Securities. In the event that an underwriting agreement is entered into
between the Company and any Holder, and such underwriting agreement contains
terms differing from this Agreement, as to any such Holder the terms of such
underwriting agreement shall govern.
3.8 EFFECT OF AMENDMENT OR WAIVER. The Purchasers and their
successors and assigns acknowledge that by the operation of Section 3.7 of
this Agreement the holders of a majority of the outstanding Registrable
Securities, acting in conjunction with the Company, will have the right and
power to diminish or eliminate any or all rights or increase any or all
obligations pursuant to this Agreement.
3.9 RIGHTS OF HOLDERS. Each holder of Registrable Securities shall
have the absolute right to exercise or refrain from exercising any right or
rights that such holder may have by reason of this Agreement, including,
without limitation, the right to consent to the waiver or modification of any
obligation under this Agreement, and such holder shall not incur any
liability to the Company or to any other holder of any securities of the
Company as a result of exercising or refraining from exercising any such
right or rights.
3.10 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any party to this Agreement, upon any
breach or default of any other party, shall impair any such right, power or
remedy of such non-breaching party nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval
of any kind or character on the part of any party of any breach or default
under this Agreement, or any waiver on the part of any party of any
provisions or conditions of this Agreement, must be made in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
17
<PAGE>
[SECOND RESTATED RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Second Restated
Rights Agreement as of the day and year first above written.
"COMPANY"
NETRATINGS, INC.,
a Delaware corporation
By:
----------------------------------
David Toth, President & CEO
"INVESTORS"
HITACHI, LTD.
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
TRANS COSMOS U.S.A. INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ACNIELSEN CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
NEILSEN MEDIA RESEARCH, INC.
By:
----------------------------------
Name:
-------------------------------
Title:
-------------------------------
18
<PAGE>
[SECOND RESTATED RIGHTS AGREEMENT]
"INVESTORS" (CONT'D)
Simon Chen: SWISS FAMILY KLEIN LIMITED
By:
- --------------------------------- --------------------------------------
Title:
-----------------------------------
Ling Chow: Susan L. Kurze:
- ------------------------------- -------------------------------------
John D. Dunning: Charles L. Meadows:
- ------------------------------- -------------------------------------
Liangfu Fan: Daniel Norman:
- ------------------------------- -------------------------------------
Robert L. Hooven: David A. Norman:
- ------------------------------- -------------------------------------
Wilbur T. Hooven III: David G. Norman:
- ------------------------------- -------------------------------------
Robert W. Peters:
--------------------------------------
KINENTECH, INC.
David J. Toth
By:
----------------------------
Title:
------------------------- -------------------------
Stephen D. Klein Robb W. Wilmot
- ------------------------------- -------------------------------------
<PAGE>
NETRATINGS, INC.
----------------------------
ADDENDUM NO. 1 TO SECOND RESTATED RIGHTS AGREEMENT
----------------------------
SEPTEMBER _____, 1999
<PAGE>
NETRATINGS, INC.
ADDENDUM NO. 1 TO SECOND RESTATED
RIGHTS AGREEMENT
THIS ADDENDUM NO. 1 TO SECOND RESTATED RIGHTS AGREEMENT (the
"Addendum") is made and entered into as of the _____ day of September, 1999 by
and among NetRatings, Inc., a Delaware corporation (the "Company"), and each of
the persons and entities who have purchased shares of the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and the original purchasers of any future series of Preferred
Stock of the Company. The term "Investors" as used herein means original
purchasers of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock (consisting of Nielsen Media Research, Inc. ("NMR") and
Trans Cosmos U.S.A. Inc. ("TCI")), the Series D Preferred Stock (consisting of
ACNielsen Corporation ("ACN"), NMR and TCI) and the original purchasers of any
future series of Preferred Stock of the Company. The term "Series Preferred" as
used herein means the Series A Preferred Stock, the Series B Preferred Stock,
the Series C Preferred Stock, the Series D Preferred Stock and any future series
of Preferred Stock. The holders of Series Preferred who are parties to this
Agreement are referred to herein as the "Stockholders."
WHEREAS, the parties have previously entered into a Second Restated
Rights Agreement dated as of September _____, 1999 (the "Restated Rights
Agreement") and now wish to enter into this Addendum to set forth their
agreement with respect to the matters described below;
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:
ARTICLE I
DEFINITIONS
The following terms used in this Addendum, unless otherwise expressly
provided herein, shall have the following meanings. Capitalized terms not
otherwise defined herein shall have the meaning set forth in the Restated Rights
Agreement.
1.1 "AFFILIATE" shall mean a person or entity that controls, is
controlled by or is under common control with another person. For purposes of
this Agreement, "control" shall mean direct or indirect ownership of more than
50% of the voting interest or income interest in a person or entity, or such
other relationship as, in fact, constitutes actual control.
1.2 "BYLAWS" shall mean the Bylaws of the Company as in effect on the
date hereof and as the same may be amended from time to time as permitted by
this Addendum.
1
<PAGE>
1.3 "COMMON STOCK" shall mean the common stock, par value $0.001 per
share, of the Company or any successor class of common stock of the Company.
1.4 "COMPANY-IPO" shall mean the initial registration by the Company of
shares of Common Stock pursuant to a registration statement filed under the
Securities Act for purposes of effecting an initial public offering of such
shares of Common Stock.
1.5 "COMPANY SECURITIES" shall mean the Common Stock, the Series
Preferred and all other existing and future classes of equity securities of the
Company, together with all options, warrants, rights, notes or other instruments
convertible into, exchangeable for or exercisable for such Common Stock, Series
Preferred or other equity securities of the Company.
1.6 "FIRST WARRANT" shall mean the Common Stock Purchase Warrant dated
August 15, 1999 herewith pursuant to which NMR has the right, under certain
circumstances, to purchase 1,106,109 shares of Common Stock, in the form
attached as EXHIBIT A hereto.
1.7 "NMR WARRANTS" shall mean the First Warrant and the Second Warrant.
1.8 "RESTATED CERTIFICATE" shall mean the Fourth Restated Certificate
of Incorporation of the Company, as filed with the Secretary of State of
Delaware on September _, 1999.
1.9 "SECOND WARRANT" shall mean the Common Stock Purchase Warrant dated
August 15, 1999 herewith pursuant to which NMR has the right, under certain
circumstances, to purchase 12,000,000 shares of the Common Stock, in the form
attached as EXHIBIT B hereto.
1.10 "THIRD PARTY" shall mean, with respect to a party, any person that
is not an Affiliate of such party.
ARTICLE II
PARTICIPATION RIGHTS IN COMPANY-IPO
2.1 COMPANY-IPO PARTICIPATION RIGHTS Notwithstanding anything to the
contrary in the Restated Rights Agreement, in connection with any Company-IPO,
NMR shall have the right, but not the obligation, for so long as NMR and its
Affiliates beneficially own at least 5.0% of the issued and outstanding shares
of Common Stock on a fully-diluted basis (as defined below), to purchase from
the Company, either as registered securities in connection with such offering 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 NMR Warrants, whether or not exercisable or exercised by NMR) to
increase to an amount which is equal to, but not greater than, 54.0% of the
issued and outstanding shares of Common Stock on a fully-diluted basis (i.e.,
based on 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
2
<PAGE>
convertible in accordance with their terms). The Company shall give written
notice to NMR of its intention to file a Company-IPO promptly after approval by
its Board of Directors and the establishment of the estimated range of the sale
price of the Company-IPO for inclusion in the registration statement for such
offering. NMR shall give written notice to the Company within 30 days of its
receipt of such notice if it intends to exercise its purchase rights under this
Section 4.1(a) and if so, the number of shares it wishes to purchase. The date
of such notice from NMR is referred to as the "SE Notice Date". All shares
elected to be purchased by NMR shall be issued to NMR at the final offering
price of the Company-IPO.
2.2 CERTAIN COVENANTS The Company shall take all steps necessary to
permit NMR to exercise its rights under Section 2.1(a) above, including, without
limitation, by increasing its authorized share capital and obtaining all
necessary consents and approvals (including, without limitation, satisfaction of
all filing requirements under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976). Each of the Stockholders agrees to vote its shares in favor of an
amendment to the Restated Certificate increasing the authorized share capital of
the Company to permit the exercise of NMR's rights under Section 2.1(a) above.
2.3 RIGHTS OF EXISTING STOCKHOLDERS. Each beneficial owner of Series
Preferred or Common Stock on the SE Notice Date ("Existing Stockholders") shall
have the right to request that shares of Common Stock owned (or to be owned upon
conversion of the Series Preferred) by such Existing Stockholder be sold to NMR
in lieu of shares that would be issued by the Company to NMR pursuant to Section
2.1(a) above. The Company, in consultation with the underwriters for such
Company-IPO, shall determine the maximum number of shares that the Stockholders
as a group may sell to NMR without adversely affecting such offering. The
Company shall give notice to each of the Existing Stockholders of the number of
shares of Common Stock which such Existing Stockholder may sell to NMR within 30
days of receipt of such notice, the Existing Stockholders must give notice to
the Company of the number of shares up to the maximum allocation which he/she
wishes to sell. Each of the Existing Stockholders shall have the right to sell
to NMR his/her pro rata portion of such aggregate number of shares at the final
offering price in the Company-IPO. All such Existing Stockholders will make
appropriate representations and warranties to NMR as to their ownership of, and
the absence of any liens or encumbrances on, the shares of Common Stock sold by
them to NMR.
ARTICLE III
CERTAIN AMENDMENTS
3.1 RESTATED RIGHTS AGREEMENT. The following provisions of the Restated
Rights Agreement are hereby amended as follows:
SECTION 1.16: The reference in Section 1.16(a) to "three (3)
------------ years" shall be replaced by a reference to "seven
(7) years."
SECTION 1.1: The definition of "Registrable Securities" shall be
----------- amended by adding the following sentence at the end
thereof:
3
<PAGE>
"Notwithstanding the foregoing, NMR shall
have the right to treat as "Registrable
Securities", for all purposes under the
Registration Rights Agreement other than
Section 1.5 thereof, all shares of Common
Stock issued to NMR upon any partial or full
exercise of the Common Stock Purchase
Warrants (the "NMR Warrants") which have
been issued to NMR pursuant to the Series C
Agreement."
SECTION 2.1: For purposes of determining NMR's "Pro Rata
Portion," all shares of Common Stock issued to NMR
upon any partial or full exercise of the NMR
Warrants shall be included in such computation.
ARTICLE IV
GENERAL PROVISIONS
4.1 ASSIGNMENT. Except as otherwise provided in this Addendum, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties to
this Addendum.
4.2 THIRD PARTIES. Nothing in this Addendum is intended to confer upon
any party, other than the parties to this Addendum, the Indemnified Parties and
their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Addendum, except as
expressly provided in this Addendum.
4.3 GOVERNING LAW. This Addendum shall be governed by and construed
under the laws of the State of California without giving effect to the conflicts
of laws principles thereof.
4.4 COUNTERPARTS. This Addendum may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
4.5 NOTICES. All notices and other communications required or permitted
under this Addendum shall be transmitted via facsimile, mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to a Holder or Purchaser, at such Holder or Purchaser's
facsimile number or address set forth on EXHIBIT A or, at such other facsimile
number or address as such Holder or Purchaser shall have furnished to the
Company in writing, or (b) if to any other holder of any Shares, at such
facsimile number or address as such holder shall have furnished the Company in
writing, or, until any such holder so furnishes a facsimile number or address to
the Company, then to and at the facsimile number or address of the last holder
of such Shares who has so furnished a facsimile number or address to the
Company, or (c) if to the Company, at the facsimile number or address set forth
on EXHIBIT A (addressed to the attention of the President) or at such other
facsimile number or address as the Company shall have furnished to the Holders
and Purchasers in writing, and (d) to any such
4
<PAGE>
party's counsel at the facsimile number or address set forth on EXHIBIT A, or,
at such other facsimile number or address as such party's counsel shall have
furnished in writing.
Each such notice or other communication shall for all purposes of this
Addendum be treated as effective or having been given when delivered if
delivered personally, upon confirmation of successful transmission if sent via
facsimile; or, if sent by mail, at the earlier of its receipt or five (5) days
after the same has been deposited in a regularly maintained receptacle for the
deposit of the United States mail, addressed and postage prepaid as aforesaid.
4.6 SEVERABILITY. If one or more provisions of this Addendum are held
to be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Addendum, and the balance of this Addendum shall be enforceable in
accordance with its terms.
4.7 AMENDMENT AND WAIVER. Any provision of this Addendum may be amended
or waived with the written consent of the Company and the Holders of at least a
majority of the outstanding shares of the Registrable Securities, so long as the
effect is to treat all Holders equally. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of Registrable
Securities and the Company. In addition, the Company may waive performance of
any obligation owing to it, as to some or all of the holders of Registrable
Securities, or agree to accept alternatives to such performance, without
obtaining the consent of any Holder of Registrable Securities. In the event that
an underwriting agreement is entered into between the Company and any Holder,
and such underwriting agreement contains terms differing from this Addendum, as
to any such Holder the terms of such underwriting agreement shall govern.
4.8 EFFECT OF AMENDMENT OR WAIVER. The Purchasers and their successors
and assigns acknowledge that by the operation of Section 3.7 of the Restated
Rights Agreement the holders of a majority of the outstanding Registrable
Securities, acting in conjunction with the Company, will have the right and
power to diminish or eliminate any or all rights or increase any or all
obligations pursuant to this Addendum.
4.9 RIGHTS OF HOLDERS. Each holder of Registrable Securities shall have
the absolute right to exercise or refrain from exercising any right or rights
that such holder may have by reason of this Addendum, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Addendum, and such holder shall not incur any liability to the
Company or to any other holder of any securities of the Company as a result of
exercising or refraining from exercising any such right or rights.
4.10 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any part of this Addendum, upon any breach or
default of any other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or in acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any
5
<PAGE>
breach or default under this Addendum, or any waiver on the part of any party of
any provisions or conditions of this Addendum, must be made in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Addendum, or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
6
<PAGE>
[RESTATED RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the foregoing Addendum No. 1 to Second Restated
Rights Agreement is hereby executed as of the day and year first written above.
"COMPANY" NETRATINGS, INC.,
a Delaware corporation
By:
------------------------------------------
David J. Toth, President
"INVESTORS" HITACHI, LTD.
By:
------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
TRANS COSMOS U.S.A. INC.
By:
------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
NIELSEN MEDIA RESEARCH INC.
By:
------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
AC NIELSEN CORPORATION
By:
------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
7
<PAGE>
[RESTATED RIGHTS AGREEMENT]
"INVESTORS" (CON'T)
SWISS FAMILY KLEIN LIMITED
- ------------------------------- By:
Simon Chen -----------------------------
Title:
--------------------------
- ------------------------------- --------------------------------
Ling Chow Susan L. Kurze
- ------------------------------- --------------------------------
John D. Dunning Charles L. Meadows
- ------------------------------- --------------------------------
Liangfu Fan Daniel Norman
- ------------------------------- --------------------------------
Robert L. Hooven David A. Norman
- ------------------------------- --------------------------------
Wilbur T. Hooven, III David G. Norman
--------------------------------
David J. Toth
KINETECH, INC.
By:
----------------------------
Title:
-------------------------
- ------------------------------- --------------------------------
Stephen D. Klein Robb W. Wilmot
8
<PAGE>
EXHIBIT 4.2
NETRATINGS, INC.
---------------------------------------
SECOND RESTATED STOCKHOLDERS AGREEMENT
---------------------------------------
SEPTEMBER __, 1999
<PAGE>
NETRATINGS, INC.
SECOND RESTATED STOCKHOLDERS AGREEMENT
THIS SECOND RESTATED STOCKHOLDERS AGREEMENT is made as of the ___ day
of September, 1999 by and among NetRatings, Inc., a Delaware corporation (the
"Company"), Hitachi, Ltd. ("Hitachi"), Nielsen Media Research, Inc. ("NMR"),
Trans Cosmos U.S.A. Inc. ("TCI"), ACNielsen Corporation ("ACN") and any other
persons or entities that own 100,000 or more shares (including options to
purchase shares, whether or not exercisable) of the Company's Common Stock
received in their capacity as employees or consultants of the Company (the
"Stockholders"), and the original purchasers of the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock and the original
purchasers of any future series of Preferred Stock of the Company on terms
approved by the Company's Board of Directors. The term "Stockholders" as
used herein means the Common Stockholders. The term "Investors" as used
herein means original purchasers of the Series A Preferred Stock, the Series
B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock
and the original purchasers of any future series of Preferred Stock of the
Company. The term "Preferred" as used herein means the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series
D Preferred Stock and any future series of Preferred Stock.
WHEREAS, certain Investors and the Stockholders have previously
purchased shares of the Company's Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Common Stock.
WHEREAS, certain new Investors are purchasing from the Company shares
of the Company's Series D Preferred Stock pursuant to that certain Series D
Preferred Stock Purchase Agreement of even date herewith.
WHEREAS, to induce the new Investors to purchase the Series D
Preferred Stock, the parties have agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
terms hereof, the receipt and sufficiency of which is hereby acknowledged,
the parties agree as follows:
ARTICLE I
RIGHT OF FIRST REFUSAL ON STOCKHOLDER TRANSFER
1.1 COMPANY RIGHT. If at any time a Stockholder desires (or is
required) to sell or transfer in any manner any Shares (as hereinafter
defined) pursuant to the terms of a bona fide offer received from a third
party (a "Buyer"), such Stockholder shall submit a written offer to sell such
Shares (the "Offered Shares") to the Company on terms and conditions,
including price, not less favorable to the Company than those on which such
Stockholder proposes to sell such Offered Shares to such third party (the
"Offer"). The Offer shall disclose the identity of the proposed purchaser or
transferee, the number of Offered Shares, the terms of the proposed sale or
transfer and any other material facts relating to the sale or transfer.
Within ten (10) days after receipt of the Offer, the Company shall give
notice to such Stockholder of its intent to purchase
1
<PAGE>
all or some of the Offered Shares from the Stockholder on the terms and
conditions set forth in the Offer.
1.2 MAJOR INVESTORS' RIGHT. If, for any reason whatsoever, the
Company shall not exercise its right to purchase all of the Offered Shares as
provided herein, the Company shall promptly provide each Investor who then
holds not less than an aggregate of 350,000 shares of Preferred, including
any Common Stock issued upon conversion of Preferred (a "Major Investor"),
written notice (the "Notice") of same (which shall include a copy of the
written offer provided to the Company pursuant to Section 1.1 hereof), and
then each Major Investor shall have the right to purchase, on the same terms
and conditions set forth in the Offer, any or all of that portion of the
Offered Shares which the Company shall not have agreed to purchase from the
Stockholder (all such remaining shares being referred to as the "Remaining
Offered Shares"). Each Major Investor shall have the right to purchase that
number of the Remaining Offered Shares as shall be equal to the aggregate
Remaining Offered Shares multiplied by a fraction, the numerator of which is
the number of shares of Preferred (on an as-converted into Common Stock
basis), and Common Stock (which shall include unexercised warrants of NMR on
an as converted into Common Stock basis) then owned by such Major Investor
and the denominator of which is the aggregate number of shares of Preferred
(on an as-converted into Common Stock basis) and Common Stock (which shall
include unexercised warrants of NMR on an as converted into Common Stock
basis) owned by Major Investors. (Such amount of shares shall be referred to
as a Major Investor's "Right of First Refusal Pro Rata Share.") In the event
a Major Investor does not wish to purchase its Right of First Refusal Pro
Rata Share, then any Major Investor who has elected to purchase its full
Right of First Refusal Pro Rata Share shall have the right to purchase, on a
pro rata basis with any other Major Investors who so elect, any Right of
First Refusal Pro Rata Share not purchased. Each Major Investor shall act
upon the Offer as soon as practicable after receipt from the Company of the
Notice and in all events within fifteen (15) days after receipt thereof.
Each Major Investor shall have the right to accept the Offer as to all or
part of the Remaining Offered Shares offered thereby. If, as a result, the
number of Shares accepted by the Major Investors shall exceed the number of
Remaining Offered Shares so offered, the oversubscribing Major Investors
shall be cut back with respect to their oversubscriptions on a pro rata basis
in accordance with their respective Right of First Refusal Pro Rata Shares or
as they may otherwise agree among themselves.
1.3 AGGREGATION. For the purposes of this Article I and Article II
below, the number of shares of Preferred and/or Common Stock issued upon
conversion of Preferred shall include the holdings of affiliates and
transferees and assignees of a partnership (who are partners or retired
partners of such partnership) and of a corporation (who are subsidiaries or
parents or shareholders of such corporation or which have the same parent
corporation as a Major Investor) and such holdings shall be aggregated
together and with the partnership or corporation, as the case may be.
1.4 ALL OR NONE. If the Company and the Major Investors, taken
together, do not elect to purchase all of the Offered Shares, then there
shall be no right to purchase shares pursuant to this Section.
1.5 FAILURE TO EXERCISE RIGHTS. In the event that the Company and
Major Investors, taken together, do not purchase all of the Offered Shares
pursuant to and within time periods set
2
<PAGE>
forth above, the Offered Shares may be sold or transferred by such
Stockholder at any time within 90 days thereafter, subject to the
requirements of Article II below. Such 90-day period shall not commence
until the rights of the Major Investors under Article II have been resolved
in accordance with the terms thereof. Any sale or transfer of Offered Shares
under this Article I shall be at not less than the price nor upon other terms
and conditions, if any, more favorable to the purchaser or transferee than
those specified in the Offer. Any Offered Shares not sold within such 90-day
period shall thereafter again be subject to the requirements of this Article
I. In the event that Shares are sold or transferred to any Investor pursuant
to this subsection, said Offered Shares shall no longer be subject to this
Agreement.
1.6 TRANSFER OF RIGHTS. The right of a Major Investor to purchase
Offered Shares hereunder may not be assigned except to a transferee or
assignee who qualifies as a "Major Investor" as defined herein.
1.7 PROHIBITED TRANSFERS. The Stockholders shall not sell, assign,
transfer, pledge, hypothecate, mortgage or dispose of, by gift or otherwise,
or in any way encumber, all or any part of the Shares owned by them during
the term of this Agreement other than in compliance with the terms of this
Article I.
1.8 DEFINITION OF "SHARES". For purposes of this Article I, the
term "Shares" shall mean and include all shares of Common Stock of the
Company owned by the Stockholders, whether presently held or hereafter
acquired.
1.9 PERMITTED TRANSFERS. The right of first refusal contained in
this Agreement shall not apply to: (a) any transfer of Shares by a
Stockholder by gift or bequest or through inheritance to, or for the benefit
of, any ancestor, descendant or spouse; (b) any transfer of Shares by a
Stockholder to its partners in the case that the Stockholder is itself a
partnership; (c) any transfer of Shares by a Stockholder to a trust for the
benefit of any ancestor, descendant or spouse; (d) any sale or transfer of
Shares to the Company (or any assignee of the Company) pursuant to the terms
of a stock restriction or stock repurchase agreement (which provides for such
sale upon the Stockholder's termination of employment); (e) any transfer to
the Company or a Major Investor pursuant hereto; (f) any sale of Common Stock
in a public offering pursuant to a registration statement filed by the
Company with the Securities and Exchange Commission; (g) any transfer of
Shares between Hitachi and a subsidiary of Hitachi; or (h) any transfer of
Shares by a Stockholder to an "Affiliate" (as such term is defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended). In the event
of any transfer pursuant to (a), (b), (g) or (h), the transferee of the
Shares shall hold the Shares so acquired with all the rights conferred by,
and subject to all the restrictions imposed by, this Agreement.
ARTICLE II
RIGHT OF CO-SALE REFUSAL ON STOCKHOLDER TRANSFER
2.1 RIGHT OF CO-SALE. In the event that any Stockholder desires
(or is required) to sell or transfer in any manner any Shares (as hereinafter
defined) pursuant to the terms of a bona fide offer received from a Buyer,
and the Company and each of the Major Investors do not exercise their right
of first refusal in full as set forth in Article I hereof, the Major
Investors shall have the
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right (the "Right of Co-Sale") to require, as a condition to such sale or
transfer, that the Buyer purchase from such Major Investors at the same price
per share and on the same terms and conditions as involved in such sale or
disposition by the Stockholder that percentage of the Offered Shares
expressed by a fraction, the numerator of which is the number of shares of
Preferred (on an as-converted into Common Stock basis) and Common Stock
(which shall include unexercised warrants of NMR on an as converted into
Common Stock basis) then owned by such Major Investor and the denominator of
which is the aggregate number of shares of Preferred (on an as-converted into
Common Stock basis) and Common Stock then outstanding (which shall include
unexercised warrants of NMR on an as converted into Common Stock basis) (such
percentage shall be referred to as a Major Investor's "Co-Sale Pro Rata
Percentage"). Each Major Investor shall act upon the Buyer's offer to buy as
soon as practicable after receipt from the Company of the Notice and in all
events within fifteen (15) days after receipt of the Notice. In the event
that one or more Major Investors shall elect to exercise its Right of
Co-Sale, each such Major Investor shall communicate in writing such election
to the selling Stockholder.
2.2 PROHIBITED TRANSFERS. The Stockholders shall not sell, assign,
transfer, pledge, hypothecate, mortgage or dispose of, by gift or otherwise,
or in any way encumber, all or any part of the Shares (as hereinafter
defined) owned by them during the term of this Agreement other than in
compliance with the terms of this Agreement.
2.3 DEFINITION OF "SHARES". For purposes of this Article II, the
term "Shares" shall mean and include all shares of Common Stock of the
Company owned by the Stockholders, whether presently held or hereafter
acquired.
2.4 PERMITTED TRANSFERS. The Right of Co-Sale contained in this
Agreement shall not apply to: (a) any transfer of Shares by a Stockholder by
gift or bequest or through inheritance to, or for the benefit of, any spouse,
ancestor or descendant; (b) any transfer of Shares by a Stockholder to a
trust for the benefit of any spouse, ancestor or descendant; (c) any sale or
transfer of Shares to the Company pursuant to the terms of a stock
restriction or stock repurchase agreement (which provides for such sale upon
the Stockholder's termination of employment); (d) any transfer of Shares to
the Company or any Major Investor pursuant to the provisions of Article I
hereof; (e) any sale of Common Stock in a public offering pursuant to a
registration statement filed by the Company with the Securities and Exchange
Commission; (f) any transfer of Shares between Hitachi and a subsidiary of
Hitachi or subsequent transfer among the Hitachi group companies; or (g) any
transfer of Shares by a Stockholder to an "Affiliate" (as such term is
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended).
In the event of any transfer pursuant to (a), (b), (f) or (g), the
transferee of the Shares shall hold the Shares so acquired with all the
rights conferred by, and subject to all the restrictions imposed by, this
Agreement.
ARTICLE III
TERMINATION OF STOCKHOLDER RIGHTS
The Right of First Refusal and Co-Sale Rights created under Articles I
and II of this Agreement respectively, shall expire upon the first to occur of
the following: (i) the closing of
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the first public offering of the Common Stock of the Company to the general
public which is effected pursuant to a registration statement filed with, and
declared effective by, the Securities and Exchange Commission under the
Securities Act of 1933, as amended, pursuant to which the Preferred would be
converted into Common Stock under the terms of the Company's Certificate of
Incorporation (the "IPO Closing Date"); (ii) as to any Major Investor, at
such time as such Major Investor no longer holds 350,000 shares of Preferred
and/or Common Stock issued upon conversion of Preferred (appropriately
adjusted for stock splits, stock dividends, recapitalizations and the like);
and (iii) September 30, 2013.
ARTICLE IV
SPECIFIC PERFORMANCE
The rights of the parties under this Agreement are unique and,
accordingly, the parties shall, in addition to such other remedies as may be
available to any of them at law or in equity, have the right to enforce their
rights hereunder by actions for specific performance to the extent permitted
by law.
ARTICLE V
LEGENDS
The certificates representing the Shares shall bear on their face a
legend indicating the existence of the restrictions imposed by this
Agreement. Nothing in this Agreement should be construed as a modification or
amendment of any restrictions on transfer under applicable federal or state
securities laws.
ARTICLE VI
ELECTION OF DIRECTORS
As long as Trans Cosmos U.S.A. Inc. ("TCI") or any "Affiliate"
(as such term is defined in Rule 12b 2 under the Securities Exchange Act of
1934, as amended) of TCI holds at least 1,764,000 shares of Series C
Preferred Stock, the parties under this Agreement agree to cast their votes
in favor of one (1) candidate for director nominated by TCI or, if the
required number of shares is held by an Affiliate of TCI, such Affiliate.
ARTICLE VII
GENERAL PROVISIONS
7.1 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of California without regard to choice of law provisions thereof,
and by the General Corporation Law of the State of Delaware to the extent
applicable to any corporate action related to the Company.
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7.2 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings between
them or any of them as to such subject matter.
7.3 AMENDMENT. Except as otherwise expressly provided herein, this
Agreement may be amended only upon the written consent of the Stockholder
against whom this Agreement is sought to be enforced, the Company, and
Investors representing not less than a majority-in-interest of each series of
Preferred then held by the Investors.
7.4 SUCCESSORS. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, legal representatives, successors, and permitted transferees,
except as may be expressly provided otherwise herein.
7.5 INVALIDITY OF PROVISIONS. In the case any one or more of the
provisions contained in this Agreement shall for any reason to be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision of this Agreement
and such invalid, illegal and unenforceable provision shall be reformed and
construed so that it will be valid, legal, and enforceable to the maximum
extent permitted by law.
7.6 NOTICE. All notices and other communications required or
permitted under this Agreement shall be mailed by registered or certified
mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to a Stockholder or Investor, at such Stockholder's or
Investor's address as such Stockholder or Investor shall have furnished to
the Company in writing, or (b) if to the Company, one copy should be sent to
its offices and addressed to the attention of the President, or at such other
address as the Company shall have furnished to the Investor.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or
72 hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and postage
prepaid as aforesaid.
7.7 NO WAIVER. Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, nor prevent that party thereafter from
enforcing each and every other provision of this Agreement. The rights
granted to the parties herein are cumulative and shall not constitute a
waiver of any party's right to assert all other legal remedies available to
it under the circumstances.
7.8 CONSIDERATION. The Stockholders agree upon request to execute
any further documents or instruments necessary or desirable to carry out the
purposes or intent of this Agreement.
7.9 ADDITION OF PARTIES. The Company agrees that until the
termination of this Agreement, it will cause each person employed by it or by
any subsidiary of the Company who holds 100,000 or more shares of the Common
Stock of the Company, to enter into this Agreement and thereby to be bound by
the terms hereof, all by execution of an instrument of
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accession in appropriate form. Any such person so entering into this
Agreement shall be deemed to be a Stockholder for purposes of this Agreement.
7.10 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 all of which together shall constitute one
instrument.
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[SECOND RESTATED STOCKHOLDERS AGREEMENT]
The foregoing Stockholders Agreement is hereby executed as of the day
and year first written above.
"COMPANY" NETRATINGS, INC.,
a Delaware corporation
By:
-----------------------------------
David J. Toth, President
"INVESTORS" HITACHI, LTD.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
TRANS COSMOS U.S.A. INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
---------------------------------
ACNIELSEN CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
---------------------------------
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NIELSEN MEDIA RESEARCH, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
---------------------------------
SIGNATURE PAGE OF THE STOCKHOLDERS AGREEMENT
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"INVESTORS" (con't)
SWISS FAMILY KLEIN LIMITED
By:
- ---------------------------------- -----------------------------------
Simon Chen
Title:
-------------------------------
- -------------------------------- -----------------------------------
Ling Chow Susan L. Kurze
- -------------------------------- -----------------------------------
John D. Dunning Charles L. Meadows
- -------------------------------- -----------------------------------
Liangfu Fan Daniel Norman
- -------------------------------- -----------------------------------
Robert L. Hooven David A. Norman
- -------------------------------- -----------------------------------
Wilbur T. Hooven III David G. Norman
KINETECH, INC. ------------------------------------
David J. Toth
By:
----------------------------
Title:
--------------------------
- -------------------------------- -----------------------------------
Stephen D. Klein Robb W. Wilmot
SIGNATURE PAGE OF THE STOCKHOLDERS AGREEMENT
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By:
"STOCKHOLDERS" ---------------------------------
Name:
---------------------------------
By:
----------------------------------
Name:
---------------------------------
By:
----------------------------------
Name:
---------------------------------
By:
----------------------------------
Name:
---------------------------------
By:
----------------------------------
Name:
---------------------------------
By:
----------------------------------
Name:
---------------------------------
By:
----------------------------------
Name:
---------------------------------
By:
----------------------------------
Name:
---------------------------------
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NETRATINGS, INC.
----------------------------
ADDENDUM NO. 1 TO SECOND RESTATED STOCKHOLDERS AGREEMENT
----------------------------
SEPTEMBER _____, 1999
<PAGE>
NETRATINGS, INC.
ADDENDUM NO. 1 TO SECOND RESTATED
STOCKHOLDERS AGREEMENT
THIS ADDENDUM NO. 1 TO SECOND RESTATED STOCKHOLDERS AGREEMENT (the
"Addendum") is made and entered into as of the _____ day of September, 1999 by
and among NetRatings, Inc., a Delaware corporation (the "Company"), Hitachi,
Ltd. ("Hitachi"), and any other persons or entities that own 100,000 or more
shares (including options to purchase shares, whether or not exercisable) of the
Company's Common Stock received in their capacity as employees or consultants of
the Company, and the original purchasers of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock and the original purchasers of any future series of Preferred Stock of the
Company on terms approved by the Company's Board of Directors. The term
"Investors" as used herein means original purchasers of the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock (consisting of
Nielsen Media Research, Inc. ("NMR") and Trans Cosmos U.S.A. Inc. ("TCI")), the
Series D Preferred Stock (consisting of ACNielsen Corporation ("ACN"), NMR and
TCI) and the original purchasers of any future series of Preferred Stock of the
Company. The term "Series Preferred" as used herein means the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and any future series of Preferred Stock. The holders of Common
Stock and Series Preferred who are parties to this Agreement are referred to
herein as the "Stockholders."
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:
ARTICLE I
DEFINITIONS
The following terms used in this Addendum, unless otherwise expressly
provided herein, shall have the following meanings. Capitalized terms not
otherwise defined herein shall have the meaning set forth in the Second Restated
Stockholders Agreement.
1.1 "AFFILIATE" shall mean a person or entity that controls, is controlled
by or is under common control with another person. For purposes of this
Agreement, "control" shall mean direct or indirect ownership of more than 50% of
the voting interest or income interest in a person or entity, or such other
relationship as, in fact, constitutes actual control.
1.2 "APPRAISED VALUE OF THE COMPANY" shall mean the fair market value of
the Company as of any relevant measurement date hereunder, as determined (i) by
two investment banking firms of national reputation, one selected by the Company
and the other selected by NMR, or (ii) if a value cannot be agreed upon by such
two investment banking firms or by mutual agreement of the Company and NMR, by a
third investment banking firm selected by the other two investment banking firms
and acceptable to both NMR and the Company, provided
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that, if the value determined by such third investment banking firm does not
fall between the values determined by the initial two investment banking firms,
then the "Appraised Value of the Company" shall be the average of the values
determined by the initial two investment banking firms.
1.3 "BUYOUT DECISION DATE" shall have the meaning set forth in Section
6.1(c)(ii).
1.4 "BUYOUT DECISION NOTICE" shall have the meaning set forth in Section
3.3.
1.5 "BUYOUT NOTICE" shall have the meaning set forth in Section 3.3.
1.6 "BYLAWS" shall mean the Bylaws of the Company as in effect on the date
hereof and as the same may be amended from time to time as permitted by this
Addendum.
1.7 "COMMON STOCK" shall mean the common stock, par value $0.001 per share,
of the Company or any successor class of common stock of the Company.
1.8 "COMPANY-IPO" shall mean the initial registration by the Company of
shares of Common Stock pursuant to a registration statement filed under the
Securities Act for purposes of effecting an initial public offering of such
shares of Common Stock.
1.9 "COMPANY PROPRIETARY SOFTWARE" shall mean all computer software
programs owned by the Company as of the date hereof or at any time during the
term of this Agreement, and all Updates (as defined in the Operating Agreement)
thereto, for providing the Approved Internet Service (as defined in the
Operating Agreement). Company Proprietary Software excludes any Software that
the Company licenses from Third Parties for use with the Company Proprietary
Software.
1.10 "COMPANY SALE EVENT" shall mean any of the following: (i) any
dissolution or liquidation of the Company or any sale or transfer of all or
substantially all of the consolidated assets of the Company and its Affiliates
to any Third Party or any other transaction having a similar effect, whether in
a single transaction or a series of transactions, it being the agreement of the
Parties that, without limiting the foregoing, any sale or transfer of any
material portion of the Company Proprietary Software to any Third Party (other
than sales or transfers in the ordinary course, which may include exclusive
licenses granted to one or more third parties in one or more jurisdictions)
shall be deemed to constitute a sale of substantially all of the consolidated
assets of the Company and its Affiliates for purposes of this Addendum; or (ii)
any merger, consolidation, reorganization, recapitalization or liquidation
between any Third Party and the Company or an Affiliate which owns all or
substantially all of the assets of the Company, whether or not the Company or
such Affiliate is the surviving or disappearing corporation in any such
transaction.
1.11 "COMPANY SECURITIES" shall mean the Common Stock, the Series Preferred
and all other existing and future classes of equity securities of the Company,
together with all options, warrants, rights, notes or other instruments
convertible into, exchangeable for or exercisable for such Common Stock, Series
Preferred or other equity securities of the Company.
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1.12 "FIRST WARRANT" shall mean the Common Stock Purchase Warrant dated
August 15, 1999 herewith pursuant to which NMR has the right, under certain
circumstances, to purchase 1,106,109 shares of Common Stock, in the form
attached as EXHIBIT A hereto.
1.13 "INTELLECTUAL PROPERTY RIGHTS" shall mean all worldwide right, title
and interest of a Person in, to and under any and all: (i) United States and
foreign patents and pending patent applications therefor, including the right to
file new and additional patent applications based thereon, including
provisionals, divisionals, continuations, continuations-in-part, reissues and
reexaminations; (ii) copyrights; and (iii) trade secrets, know-how, processes,
methods, engineering data and technical information.
1.14 "LOOKBACK PERIOD" shall have the meaning set forth in Section 3.3.
1.15 "NMR BUYOUT EVENT" shall mean any transaction or series of
transactions pursuant to which NMR acquires, for cash or securities, whether by
means of an acquisition of shares of capital stock or a merger, consolidation or
similar business combination or an acquisition of assets, 100% of all equity
interests in the Company not then owned by NMR or all or substantially all of
the assets, business and operations of the Company, as applicable. In the
absence of mutual written agreement of NMR and the Company to the contrary, "NMR
Buyout Event" shall mean an acquisition by NMR of 100% of all equity interests
in the Company.
1.16 "NMR WARRANTS" shall mean the First Warrant and the Second Warrant.
1.17 "RESTATED CERTIFICATE" shall mean the Fourth Restated Certificate of
Incorporation of the Company, as filed with the Secretary of State of Delaware
on September _____, 1999.
1.18 "SECOND WARRANT" shall mean the Common Stock Purchase Warrant dated
August 15, 1999 herewith pursuant to which NMR has the right, under certain
circumstances, to purchase 12,000,000 shares of the Common Stock, in the form
attached as EXHIBIT B hereto.
1.19 "THIRD PARTY" shall mean, with respect to a party, any person that is
not an Affiliate of such party.
ARTICLE II
BOARD REPRESENTATION
2.1 BOARD REPRESENTATION.
(a) The rights granted to NMR and ACN under this Article II with
respect to representation on the Board shall apply for so long as NMR and its
Affiliates, and ACN and its Affiliates, beneficially own at least 5.0% and 10%,
respectively, of the issued and outstanding shares of Common Stock on a
fully-diluted basis (as defined in Section 4.1(a) below).
(b) The Company and NMR have agreed that, effective as of August 15,
1999 hereof, the Company shall increase the size of the Board from four to five
members and NMR
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shall have the right to nominate one representative to the Board. Immediately
upon NMR's exercise in full of the Second Warrant, the Company agrees to
increase the size of the Board by one member and NMR shall have the right to
nominate an aggregate of two representatives to the Board (such individual(s),
together with all future NMR appointees to the Board, being referred to herein
as the "NMR Director(s)"). After the effectiveness of the registration statement
relating to a Company-IPO, the Company shall use its best efforts to appoint
such additional nominee to the Board of Directors pending the next meeting of
stockholders, subject, however, to any fiduciary duties of the Board and
compliance with the Restated Certificate and the Bylaws.
The Company and ACN have agreed that, effective as of September _____,
1999 hereof, the Company shall increase the size of the Board from five members
to six members and ACN shall have the right to nominate one representative to
the Board.
(c) The Company has duly and validly taken all corporate actions
necessary to increase the size of the Board from four to five members and, upon
notice from NMR, shall appoint an individual to be designated by NMR to such
vacancy in the Board. The Company has duly and validly taken all corporate
actions necessary to increase the size of the Board from five to six members
and, upon notice from ACN, shall appoint an individual to be designated by ACN
to such vacancy in the Board.
(d) Each of the Stockholders hereby irrevocably agrees to vote all
Company Securities now or hereafter owned by such Stockholder in favor of
electing (or re-electing, as the case may be) the NMR Directors and/or NMR's
nominees, and ACN Director or ACN nominee, to the Board, as the case may be, and
to take all such action as may be necessary to enable NMR and ACN to exercise
its rights to Board representation as provided in this Article II, including,
without limitation, voting in favor of any amendment of the Bylaws to increase
the size of the Board. Each of the Stockholders hereby further agrees to use all
reasonable efforts to cause any Director nominated by such Stockholder to vote
at any meeting of the Board in favor of NMR's nominees or ACN nominee to the
Board or otherwise and to take all such action as may be necessary to enable NMR
and ACN to exercise its rights to Board representation as provided in this
Article II, including, without limitation, to permit the election or designation
to the Board of such number of NMR Directors and an ACN Director to which NMR
and ACN, respectively, are entitled under this Addendum. The provisions of this
Section 2.1(d) shall expire upon the effectiveness of the registration statement
relating to a Company-IPO.
(e) After the effectiveness of the registration statement relating to
a Company-IPO, NMR shall continue to have the right to designate the number of
nominees to the Board specified under Section 2.1(b) above. The Company agrees
to nominate such individual(s) as management's nominees at each regularly
scheduled annual stockholders meeting or any special meeting of stockholders at
which the election of directors shall take place, to recommend to the
stockholders at such meeting such individual's election to the Board and
otherwise to use all reasonable efforts to cause the election of such nominee(s)
to the Board.
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2.2 INCREASE IN NUMBER OF DIRECTORS; VACANCIES.
(a) The Company and NMR have agreed that, except for the increases in
the size of the Board provided for in Section 2.1(b) above, until the
effectiveness of the registration statement relating to a Company-IPO, no
further changes in the size of the Board shall be made without the consent of
NMR.
(b) If any NMR Director resigns after his/her election to the Board,
is removed or is otherwise unable to serve for any reason prior to the
expiration of his term as a Director, NMR or the remaining NMR Director, if any,
shall notify the Board thereof. NMR shall have the right to designate the
individual who will fill such vacancy as an NMR Director. After the
effectiveness of the registration statement relating to a Company-IPO, the
Company shall use its best efforts to appoint such replacement director to the
Board pending the next meeting of stockholders, subject to any fiduciary duties
of the Board and compliance with the Restated Certificate and the Bylaws.
ARTICLE III
COMPANY-IPO; NO-SALE PERIOD
3.1 COMPANY-IPO. The parties hereby agree that the Company shall have the
right to engage in a Company-IPO at any time from and after the date hereof and
that any such Company-IPO shall not constitute a Company Sale Event for purposes
of this Addendum.
3.2 NO-SALE PERIOD. The Company agrees that it will not (whether
through the Board, executive management or otherwise), during the period from
the date hereof until the fifth anniversary of the date hereof (the "No-Sale
Period"), engage in, solicit proposals for or otherwise seek to engage in or
make any proposals with respect to any Company Sale Event without the prior
written consent of NMR. Notwithstanding the foregoing, the parties agree that
the No-Sale Period shall terminate upon the effectiveness of the registration
statement relating to a Company-IPO or at such time as NMR and its Affiliates
cease to beneficially own at least 5.0% of the issued and outstanding shares of
Common Stock on a fully-diluted basis (as defined in Section 4.1(a) below),
whichever occurs earlier. Subject to NMR's rights under Section 4.4, none of the
Stockholders shall have the right to make any proposal to the Company (or to any
of the stockholders, officers or directors of the Company) with respect to any
Company Sale Event during the No-Sale Period.
3.3 POST-NO-SALE PERIOD.
(a) At any time from and after the termination or expiration of the
No-Sale Period, the Company shall have the right to seek to engage in a Company
Sale Event, subject to the first refusal rights granted to NMR under provisions
of this Section 3.3.
(b) If the Company wishes to pursue a Company Sale Event, it shall
first submit an Initial Valuation to NMR for its consideration. Such "Initial
Valuation" may consist of any valuation of the estimated fair market value of
the Company as may be acceptable to the Board, including, without limitation,
any valuation prepared by or with the assistance of an
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investment banking firm retained by the Company at its expense. Within 30 days
of its receipt of such Initial Valuation, NMR shall have the right (in the
absence of mutual agreement with NMR with respect to valuation) to request that
a valuation of the fair market value of the Company be determined by an
investment banking firm selected by NMR at its expense. Such valuation shall, to
the extent practicable, be prepared within 45 days of the appointment of such
firm. If NMR and the Company cannot agree on the fair market value of the
Company after preparation of such valuation, either party shall have the right
to request that such value be determined by a second investment banking firm
selected by the initial investment banking firm and acceptable to both of the
parties. The value determined by such second investment banking firm shall be
referred to as the "Stipulated Buyout Value," provided that, if the value
determined by such second investment banking firm does not fall between the
values determined by the Company and the first investment banking firm, then the
"Stipulated Buyout Value" shall be the average of the values determined by the
Company and NMR's investment banking firm. The Company shall provide such
documents, data and assistance as may be reasonably requested by such investment
banking firms. The fees and expenses of such second investment banking firm
shall be shared equally by the Company and NMR.
(c) Upon final determination of the Stipulated Buyout Value (or mutual
agreement of the Company and NMR on valuation), the Company shall have the right
to propose in writing (the "Notification") that NMR complete an NMR Buyout Event
at the Stipulated Buyout Value within 30 days of the date of such Notification
(the "Notification Period"). If the Company elects not to submit a Notification
as aforesaid (or if the Company abandons the foregoing appraisal process at any
time), then the Company shall not thereafter propose a Company Sale Event
without again complying with the requirements of this Section 3.3. If the
Company submits a Notification as aforesaid, NMR shall have the right, but not
the obligation, to complete an NMR Buyout Event at the Stipulated Buyout Value
by submitting a written notice (a "Buyout Decision Notice") to the Company prior
to the expiration of the Notification Period. If NMR elects not to proceed with
an NMR Buyout Event, it shall deliver a negative Buyout Decision Notice to the
Company prior to the expiration of the Notification Period. The date on which
any positive or negative Buyout Decision Notice is delivered by NMR is referred
to as the "Buyout Decision Date". If NMR elects to proceed with such NMR Buyout
Event, the closing of the NMR Buyout Event will occur within 30 days of the
positive Buyout Decision Date or as soon as practicable thereafter to the extent
necessary in order to comply with all regulatory filings and clearances.
(d) If NMR elects not to proceed with such NMR Buyout Event, the
Company shall then have the right to complete a Company Sale Event with any
person other than NMR during the Lookback Period for a purchase price equal to
or greater than the Stipulated Buyout Value; provided, however, that if the
Company does not complete such Company Sale Event within the Lookback Period,
then any Company Sale Event that the Company may thereafter wish to propose
shall be subject to the requirements of this Section 3.3. For purposes hereof,
the "Lookback Period" shall mean the six-month period following any negative
Buyout Decision Date.
(e) If the Company wishes to engage in a Company Sale Event with a
person other than NMR during the Lookback Period at a purchase price less than
the Stipulated Buyout Value, the Company shall give written notice to NMR. NMR
shall have the right for a period of
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<PAGE>
30 days after its receipt of such notice to elect, by written notice to the
Company, to effect an NMR Buyout Event at such lower purchase price. If NMR
elects to proceed with such NMR Buyout Event, the closing of the NMR Buyout
Event will occur within 30 days of the delivery of such written notice to the
Company or as soon as practicable thereafter to the extent necessary in order to
comply with all regulatory filings and clearances. If NMR elects not to proceed
with such NMR Buyout Event, then the Company shall have the right to complete
the relevant Company Sale Event on any terms in its discretion; provided,
however, that if the Company does not complete such Company Sale Event within
six months from the date of NMR's election not to proceed, then the provisions
of this Section 3.3 shall apply DE NOVO with respect to any other Company Sale
Event that the Company proposes to undertake thereafter.
(f) Each of the Stockholders agrees to vote all shares of Company
Securities owned by them in favor of any NMR Buyout Event proposed to be
effected under and in accordance with the provisions of this Section 3.3. Such
Stockholders further agree to sell all Company Securities owned by each of them
to NMR in connection with any such transaction if requested by NMR as provided
in Section 3.3(c).
(g) If requested by the Company or NMR to accommodate their respective
tax or other planning objectives, the Company and NMR agree to engage in good
faith discussions concerning the possible substitution of shares of NMR for cash
for a portion of the relevant purchase price in an NMR Buyout Event in order to
enable the transaction (or a portion thereof) to qualify as a tax-free
reorganization; provided, however, that neither party shall be under any legally
binding obligation to agree to any such alternative transaction forms.
3.4 NO INCONSISTENT ACTIVITIES. During the No-Sale Period, the Company
will not, and will direct its officers, directors and other representatives (and
their representatives on the Board) not to, solicit, negotiate or accept any
offer from any Third Party concerning any Company Sale Event.
3.5 TERMINATION. The rights and restrictions of the parties under this
Article III shall terminate upon the effectiveness of the registration statement
relating to a Company-IPO or at such time as NMR and its Affiliates cease to own
at least 5.0% of the issued and outstanding shares of Common Stock on a
fully-diluted basis (as defined below).
ARTICLE IV
OTHER RIGHTS AND RESTRICTIONS
4.1 APPROVAL OF CERTAIN TRANSACTIONS. (a) In addition to any favorable
vote of stockholders required under the Restated Certificate and Bylaws or
applicable law, prior to the effectiveness of the registration statement
relating to a Company-IPO, and for so long as NMR and its Affiliates
beneficially own at least 5.0% and ACN and its Affiliates beneficially own at
least 10.0% of the issued and outstanding shares of Common Stock on a
fully-diluted basis (i.e., based on 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,
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<PAGE>
warrants, convertible securities or instruments or other rights are then vested
or exercisable or convertible in accordance with their terms), the following
transactions shall not be deemed to be approved by the Board unless the
affirmative Board votes described below have been obtained:
(i) In the case of any acquisition or purchase by the Company of
another business or entity (whether by means of a purchase of stock,
assets, merger or similar transaction) in which the aggregate consideration
payable by the Company exceeds $5.0 million, such transaction shall require
a majority vote of the Board of Directors which shall include at least two
out of the three independent directors on the Board.
(ii) In the case of any sale or other issuance of securities by
the Company as part of any transaction or series of transactions which
would be required to be integrated under Regulation D under the Securities
Act of 1933, which results in the issuance of securities representing in
excess of 25% of the issued and outstanding shares of Common Stock on a
fully-diluted basis (as defined in this Section 4.1(a)) at such time, such
transaction shall require a majority vote of the Board of Directors which
shall include the NMR and ACN Director(s).
(b) Each of the Stockholders hereby agree to vote his/her shares in
favor of an amendment to the Restated Certificate increasing the authorized
share capital of the Company to permit the exercise of the NMR Warrants by NMR.
4.2 RESTRICTION ON HOLDINGS BY OTHER STOCKHOLDERS.
(a) For so long as NMR and its Affiliates beneficially own at least
5.0% of the issued and outstanding shares of Common Stock on a fully-diluted
basis (as defined in Section 4.1(a) above), the parties agree that no future
holder of any Company Securities shall be permitted at any time to beneficially
own, directly or indirectly, shares of Common Stock on a fully-diluted basis (as
defined in Section 4.1(a) above) which exceed the Relevant NMR Ownership Level
at that time. For purposes hereof, the term "Relevant NMR Ownership Level" shall
mean the number of shares of Common Stock actually issued to and held by NMR as
of a relevant measurement date (which, for the avoidance of doubt, shall include
the shares of Common Stock issuable upon conversion of the Series Preferred held
by NMR but shall not include the shares of Common Stock underlying the NMR
Warrants until such NMR Warrants are actually exercised in whole or in part). As
of the date hereof, the Relevant NMR Ownership Level is 3,288,755 shares.
(b) The Stockholders agree not to transfer any Company Securities
owned by them to any non-Affiliate of such Stockholder if, as a result of such
transfer, the restrictions contained in this Section 4.2 would be violated as a
result thereof. The Company shall not register on the stock transfer books of
the Company, or otherwise recognize or give effect to, any transfer or purported
transfer by any Stockholder in violation of this Section 4.2.
(c) The restrictions contained in this Section 4.2 shall lapse upon
the effectiveness of the registration statement relating to a Company-IPO.
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<PAGE>
4.3 STANDSTILL PROVISIONS. (a) Subject to the remaining provisions of
this Section 4.3, NMR, TCI, ACN and their respective Affiliates (the "Restricted
Parties") shall not, directly or indirectly, acquire beneficial ownership of any
Voting Stock (as hereinafter defined), any securities convertible into or
exchangeable for Voting Stock or any other right to acquire Voting Stock without
the prior written consent of the Company (following the approval thereof by a
majority vote of the Company's Board of Directors), if the effect of such
acquisition would be to increase the Voting Power (as hereinafter defined) of
all Voting Stock then owned by such Restricted Party, or which such Restricted
Party has a right to acquire, to an amount greater than the total Voting Power
of such Restricted Party as of the date hereof (without regard to any decrease
in such Voting Power occurring after the date hereof). The foregoing
restrictions shall lapse (i) with respect to all Restricted Parties, upon the
effectiveness of the registration statement relating to a Company-IPO and (ii)
with respect to NMR, TCI or ACN, at such time as NMR and its Affiliates, TCI and
its Affiliates or ACN and its Affiliates, as applicable, cease to beneficially
own at least 5.0% of the issued and outstanding shares of Common Stock on a
fully-diluted basis (as defined in Section 4.1(a) above).
(b) With respect to each of the Restricted Parties, any increase in
the Voting Power of such Restricted Party as a result of the following events
shall be disregarded for purposes of this Section 4.3:
(i) any stock dividends, stock splits or other distributions of
securities made to holders of any class of Voting Stock;
(ii) any stock repurchases or stock buy backs effected by the
Company, any recapitalization of the Company or any other action
taken by the Company or its Affiliates;
(iii) any purchases of Voting Stock effected by such Restricted
Parties pursuant to the first refusal rights granted to them
under the Restated Stockholders Agreement or pursuant to the
rights to purchase their "Pro Rata Portion" of "New Securities"
(as those terms are defined in the Restated Rights Agreement)
granted under the Restated Rights Agreement; and
(iv) any issuances of Voting Securities to directors, officers and
management personnel pursuant to compensatory plans of the
Company.
(c) Further, with respect to NMR and its Affiliates, any increase
in the Voting Power of such parties as a result of the following events shall be
disregarded for purposes of this Section 4.3:
(i) the exercise by NMR of all or any portion of the First Warrant
and the Second Warrant;
(ii) the exercise by NMR of its right to purchase up to 54% of the
issued and outstanding shares of the Company on a fully-diluted
basis (as defined in Section 4.1(a) above) pursuant to Addendum
No. 1 to Restated Rights
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<PAGE>
Agreement of even date among the Company and certain of the
Stockholders; and
(iii) the exercise by NMR of its rights under Section 4.3(d) below.
(d) Notwithstanding anything to the contrary in the foregoing or any
other provision of this Addendum, NMR shall have the right, from time to time
and without the prior consent of the Company, to make offers to purchase all
Company Securities held by the holders of all classes of Company Securities on
terms and conditions which are the same for all such holders, in each case as
part of an NMR Buyout Event proposed by NMR.
(e) As used in this Agreement, (A) the term "Voting Stock" means the
Common Stock, Preferred Stock and any other securities issued by the Company (or
reserved for issuance pursuant to the Company's employee stock option plan or
plans) having the ordinary power to vote in the election of directors of the
Company (other than securities having such power only upon the happening of a
contingency) and (B) the term "Voting Power" with respect to any Voting Stock
means the number of votes such Voting Stock is entitled to cast for the election
of directors of the Company at any meeting of shareholders of the Company (other
than votes that may be cast only upon the happening of a contingency). For the
avoidance of doubt, the parties acknowledge and agree that the total Voting
Power beneficially owned by NMR as of the date hereof is 3,293,799 shares, the
total Voting Power beneficially owned by TCI as of the date hereof is 4,020,579
shares and the total Voting Power beneficially owned by ACN as of the date
hereof is 3,882,013 shares. For purposes of this Agreement, the Restricted
Parties shall not be deemed to have beneficial ownership of any Voting Stock
held by a pension plan or other employee benefit program of NMR if NMR does not
have the power to control the investment decisions of such plan or program.
4.4 COMPETITIVE TAKEOVER OF NMR.
(a) The following provisions shall apply if a Competitive Takeover
occurs with respect to NMR but shall cease to apply after the effectiveness of
the registration statement relating to a Company-IPO or such time as NMR and its
Affiliates cease to beneficially own at least 5.0% of the issued and outstanding
shares of Common Stock on a fully-diluted basis (as defined in Section 4.1(a)
above). Upon completion of a Competitive Takeover, NMR shall give written notice
of such completion to the Company. For a period of 45 days after its receipt of
such notice, the Company shall have the right, exercisable by written notice
given to NMR within 10 days of its receipt of such notice from NMR, to
repurchase from NMR all, but not less than all, of the Company Securities
(including, without limitation, the NMR Warrants) then beneficially owned by
NMR, provided within 30 days after submitting such written notice to NMR, NRI
shall provide NMR with evidence reasonably satisfactory to NMR (by written
commitment letter from a financing institution subject only to customary
borrower representations, due diligence and documentation, letter of credit or
otherwise) of its ability to finance and complete such purchase.
(b) The purchase price shall be payable in full in cash at the closing
of such repurchase, and shall be determined based upon the Appraised Value of
the Company. NMR and the Company shall each select an investment banking firm of
national reputation to determine the
10
<PAGE>
Appraised Value of the Company and such Appraised Value, to the extent
practicable, shall be determined (A) if two investment banking firms are
appointed pursuant to Section 1.2(i) within 45 days of their appointment, and
(B) if a third investment bank is appointed in accordance with Section 1.2(ii),
within 30 days of the appointment of such third investment banking firm. The
parties shall promptly provide, at their own cost and expense, such documents,
data and other assistance as may be reasonably requested by such investment
banking firms in order to expedite, to the extent reasonably possible, their
determination of the Appraised Value of the Company. The fees and expenses of
all such investment banking firms shall be borne by the Company. The closing of
such repurchase shall occur not more than 110 days after the repurchase notice
submitted by the Company as set forth above or as soon thereafter as practicable
to the extent necessary in order to comply with all regulatory filings and
clearances. If the Company does not submit a repurchase notice to NMR within 45
days after its receipt of a takeover notice from NMR as aforesaid (or if the
Company shall fail to provide evidence of its ability to finance the purchase
within 30 days of its election notice to NMR as aforesaid), the Company shall be
deemed to have irrevocably waived its rights under Section 4.4(a).
(c) If the Company elects to exercise its repurchase rights under this
Section 4.4, the Company shall have the right to specify, after presentation of
evidence of its ability to finance such repurchase as required under Section
4.4(a) above, another person or persons as its designee(s) to purchase the
shares which it has elected to purchase hereunder; provided, however, that the
Company shall be legally obligated to complete any such purchase if any of its
designee(s) fail to do so.
(d) NMR shall make customary representations and warranties as to its
ownership of the shares sold to the Company hereunder and the lack of any liens
or encumbrances created by NMR with respect thereto. NMR shall make no other
representations and warranties to the Company in connection therewith.
(e) As used herein, a "Competitive Takeover" shall be deemed to mean
and include (i) a merger or consolidation to which NMR is a party if Media
Metrix (and any Affiliate or successor) has beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934 (the "Exchange Act") of
more than fifty percent (50%) of the total combined voting power for election of
directors of the surviving corporation following the effective date of such
merger or consolidation; (ii) the acquisition of direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) in the aggregate of
securities of NMR representing fifty percent (50%) or more of the total combined
Voting Power of NMR's then issued and outstanding Voting Stock by Media Metrix
(and any Affiliate or successor) as shown on a Schedule 13D filed with the SEC
pursuant to the Exchange Act; or (iii) the sale of all or substantially all of
the assets of NMR to Media Metrix (and any Affiliate or successor).
4.5 TRANSFER OF RIGHTS.
(a) The rights and restrictions applicable to NMR under this Addendum
shall not be transferable to any purchaser or transferee of any Company
Securities owned by NMR unless such transfer is consented to in advance by the
Company. Notwithstanding the foregoing, the rights and restrictions applicable
to NMR hereunder may be sold or transferred to NMR without the prior consent of
the Company (i) to any Affiliate of NMR or (ii) to any successor or
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<PAGE>
transferee (whether by merger, sale of assets or otherwise) of the operations,
business and assets of NMR.
(b) Notwithstanding the foregoing, NMR shall not have the right to
sell or transfer any Company Securities beneficially owned by it to any of the
persons listed on EXHIBIT C hereto without the prior written consent of the
Company.
(c) The restrictions contained in this Section 4.5 shall cease to
apply upon effectiveness of the registration statement relating to a Company-IPO
or of such time as NMR and its Affiliates cease to beneficially own at least
5.0% of the issued and outstanding shares of Common Stock on a fully-diluted
basis (as defined in Section 4.1(a) above).
4.6 CERTAIN FURTHER RESTRICTIONS. Until the earlier of (i) the
effectiveness of the registration statement relating to a Company-IPO and (ii)
the date on which NMR and its Affiliates cease to beneficially own at least 5.0%
of the issued and outstanding shares of Common Stock on a fully-diluted basis
(as defined in Section 4.1(a) above), NMR hereby undertakes the following
additional restrictions:
(a) Except as consented to by the Company in writing, NMR shall not
deposit any shares of Company Securities beneficially owned by it in a voting
trust or, except as otherwise provided in this Addendum or in any other
agreement between the Company and the Stockholders, subject any such shares to
any arrangement or agreement with respect to the voting of such shares.
(b) Without the prior written consent of the Company, NMR shall not
initiate or participate in the solicitation of proxies with respect to any
Company Securities, nor shall it become a "participant" in any "election
contest" as such terms are used in Rule 14a-11 of Regulation 14A under the
Exchange Act (whether or not the shares of the Company are subject to such
regulations) relating to the election of directors of NMR; provided, however,
that any NMR Director shall not be deemed to be a "participant" solely by reason
of the membership of such designee on the Board of Directors of the Company, and
NMR may exercise its influence on the management, Board of Directors, plans and
policies of the Company in a manner consistent with its share holdings, the
fiduciary duties of its designee or designees on the Board of Directors of the
Company, and any business agreements between NMR and the Company.
(c) Except with regard to permissible purchases of Company Securities
by NMR or permissible sales of Company Securities beneficially owned by NMR, NMR
shall not form or join any group, as defined in Rule 13d-3 under the Exchange
Act, for the purpose of acquiring, holding or disposing of Company Securities or
initiate or pursue, a tender or exchange offer or other change of control of the
Company.
4.7 EXCEPTIONS. Nothing in this Article IV or in any other provision of
this Addendum shall be deemed to restrict NMR's ability to exercise its rights
under the NMR Warrants and to exercise its rights to purchase Company Securities
under the Second Restated Rights Agreement (and Addendum No. 1 thereto) and the
Second Restated Stockholders Agreement (and this Addendum No. 1 thereto,
including, without limitation, its rights granted to NMR under Section 4.3
hereof).
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ARTICLE V
GENERAL PROVISIONS
5.1 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California without regard to choice of law provisions thereof, and by
the General Corporation Law of the State of Delaware to the extent applicable to
any corporate action related to the Company.
5.2 ENTIRE AGREEMENTS. This Agreement and the Second Restated
Stockholders Agreement constitute the entire agreement among the parties with
respect to the subject matter hereof and supersedes all prior oral or written
agreements and understandings between them or any of them as to such subject
matters.
5.3 AMENDMENT. Except as otherwise expressly provided herein, this
Agreement may be amended only upon the written consent of the Stockholder
against whom this Agreement is sought to be enforced, the Company, and Investors
representing not less than a majority-in-interest of each class of Series
Preferred then held by the Investors.
5.4 SUCCESSORS. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, executors, legal
representatives, successors, and permitted transferees, except as may be
expressly provided otherwise herein.
5.5 INVALIDITY OF PROVISIONS. In the case any one or more of the
provisions contained in this Agreement shall for any reason to be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement and such
invalid, illegal and unenforceable provision shall be reformed and construed so
that it will be valid, legal, and enforceable to the maximum extent permitted by
law.
5.6 NOTICE. All notices and other communications required or permitted
under this Agreement shall be mailed by registered or certified mail, postage
prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a
Stockholder or Investor, at such Stockholder's or Investor's address as such
Stockholder or Investor shall have furnished to the Company in writing, or (b)
if to the Company, one copy should be sent to its offices and addressed to the
attention of the President, or at such other address as the Company shall have
furnished to the Investor.
(b) Each such notice or other communication shall for all purposes of
this Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and postage prepaid as
aforesaid.
5.7 NO WAIVER. Any party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, nor prevent that party thereafter from
enforcing each and every other provision of this Agreement. The rights granted
to the parties herein are cumulative and shall not constitute a
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<PAGE>
waiver of any party's right to assert all other legal remedies available to it
under the circumstances.
5.8 CONSIDERATION. The Stockholders agree upon request to execute any
further documents or instruments necessary or desirable to carry out the
purposes or intent of this Agreement.
5.9 ADDITION OF PARTIES. The Company agrees that until the termination
of this Agreement, it will cause each person who acquires or beneficially owns
100,000 or more shares of Common Stock, to enter into this Agreement and thereby
to be bound by the terms hereof, all by execution of an instrument of accession
in appropriate form. Any such person so entering into this Agreement shall be
deemed to be a Stockholder for purposes of this Agreement.
5.10 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 all of which together shall constitute one
instrument.
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(b) The foregoing Addendum No. 1 to Restated Stockholders Agreement is
hereby executed as of the day and year first written above.
"COMPANY" NETRATINGS, INC.,
a Delaware corporation
By:
---------------------------------
David J. Toth, President
"INVESTORS" HITACHI, LTD.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
TRANS COSMOS U.S.A. INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
NIELSEN MEDIA RESEARCH INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
AC NIELSEN CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
"INVESTORS" (CON'T)
SWISS FAMILY KLEIN LIMITED
By:
- ------------------------------- -----------------------------
Simon Chen
Title:
--------------------------
- ------------------------------- --------------------------------
Ling Chow Susan L. Kurze
- ------------------------------- --------------------------------
John D. Dunning Charles L. Meadows
- ------------------------------- --------------------------------
Liangfu Fan Daniel Norman
- ------------------------------- --------------------------------
Robert L. Hooven David A. Norman
- ------------------------------- --------------------------------
Wilbur T. Hooven, III David G. Norman
--------------------------------
David J. Toth
KINETECH, INC.
By:
----------------------------
Title:
-------------------------
- ------------------------------- --------------------------------
Stephen D. Klein Robb W. Wilmot
<PAGE>
"STOCKHOLDERS" By:
-----------------------------
Name:
---------------------------
By:
-----------------------------
Name:
---------------------------
By:
-----------------------------
Name:
---------------------------
By:
-----------------------------
Name:
---------------------------
By:
-----------------------------
Name:
---------------------------
By:
-----------------------------
Name:
---------------------------
By:
-----------------------------
Name:
---------------------------
By:
-----------------------------
Name:
---------------------------
<PAGE>
EXHIBIT 10.2
NETRATINGS, INC.
1998 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as
shall be administering the Plan in accordance with Section 4 hereof.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws
of any other country or jurisdiction where Options or Stock Purchase Rights
are granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the
Board in accordance with Section 4 hereof.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means NetRatings, Inc., a Delaware corporation.
(h) "CONSULTANT" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services to such
entity.
(i) "DIRECTOR" means a member of the Board of Directors of the
Company.
(j) "DISABILITY" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such
<PAGE>
leave may exceed ninety days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract. If reemployment upon expiration
of a leave of absence approved by the Company is not so guaranteed, on the
181st day of such leave any Incentive Stock Option held by the Optionee shall
cease to be treated as an Incentive Stock Option and shall be treated for tax
purposes as a Nonstatutory Stock Option. Neither service as a Director nor
payment of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
for the last market trading day prior to the time of determination, as
reported in THE WALL STREET JOURNAL or such other source as the Administrator
deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common
Stock on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the Plan.
(r) "OPTION AGREEMENT" means a written or electronic agreement
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
(s) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are exchanged for Options with a lower exercise price.
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(t) "OPTIONED STOCK" means the Common Stock subject to an Option
or a Stock Purchase Right.
(u) "OPTIONEE" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(v) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "PLAN" means this 1998 Stock Plan.
(x) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(y) "SECTION 16(b)" means Section 16(b) of the Securities Exchange
Act of 1934, as amended.
(z) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(aa) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(bb) "STOCK PURCHASE RIGHT" means a right to purchase Common Stock
pursuant to Section 11 below.
(cc) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be subject to
option and sold under the Plan is 2,430,000 Shares. The Shares may be
authorized but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered
pursuant to an Option Exchange Program, the unpurchased Shares which were
subject thereto shall become available for future grant or sale under the
Plan (unless the Plan has terminated). However, Shares that have actually
been issued under the Plan, upon exercise of either an Option or Stock
Purchase Right, shall not be returned to the Plan and shall not become
available for future distribution under the Plan, except that if Shares of
Restricted Stock are repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) ADMINISTRATOR. The Plan shall be administered by the Board or
a Committee appointed by the Board, which Committee shall be constituted to
comply with Applicable Laws.
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<PAGE>
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each
such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, of any Option or
Stock Purchase Right granted hereunder. Such terms and conditions include,
but are not limited to, the exercise price, the time or times when Options or
Stock Purchase Rights may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or Stock Purchase Right or
the Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(e) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined. All elections by
Optionees to have Shares withheld for this purpose shall be made in such form
and under such conditions as the Administrator may deem necessary or
advisable; and
(xi) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan.
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<PAGE>
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
(b) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted. The Fair Market Value of the
Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere
in any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 14 of the Plan.
7. TERM OF OPTION. The term of each Option shall be stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant or such shorter term as
may be provided in the Option Agreement.
8. Option EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of
such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.
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<PAGE>
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share
on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a Service Provider who, at the time of
grant of such Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.
(B) granted to any other Service Provider, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share
on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price other than as required above pursuant to a
merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee
for more than six months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which such Option shall be exercised, (5) consideration received
by the Company under a cashless exercise program implemented by the Company
in connection with the Plan, or (6) any combination of the foregoing methods
of payment. In making its determination as to the type of consideration to
accept, the Administrator shall consider if acceptance of such consideration
may be reasonably expected to benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Except in the case of Options granted to
Officers, Directors and Consultants, Options shall become exercisable at a
rate of no less than 20% per year over five (5) years from the date the
Options are granted. Unless the Administrator provides otherwise, vesting of
Options granted hereunder shall be tolled during any unpaid leave of absence.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by
the Administrator and permitted by the Option Agreement and the Plan. Shares
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<PAGE>
issued upon exercise of an Option shall be issued in the name of the Optionee
or, if requested by the Optionee, in the name of the Optionee and his or her
spouse. Until the Shares are issued (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Shares, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
Shares promptly after the Option is exercised. No adjustment will be made for
a dividend or other right for which the record date is prior to the date the
Shares are issued, except as provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares thereafter available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option
is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider, such Optionee may exercise his or
her Option within such period of time as is specified in the Option Agreement
(of at least thirty (30) days) to the extent that the Option is vested on the
date of termination (but in no event later than the expiration of the term of
the Option as set forth in the Option Agreement). In the absence of a
specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the
Plan. If, after termination, the Optionee does not exercise his or her Option
within the time specified by the Administrator, the Option shall terminate,
and the Shares covered by such Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise
his or her Option within such period of time as is specified in the Option
Agreement (of at least six (6) months) to the extent the Option is vested on
the date of termination (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for twelve (12) months following the Optionee's termination. If, on the date
of termination, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall revert to the
Plan. If, after termination, the Optionee does not exercise his or her Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is
specified in the Option Agreement (of at least six (6) months) to the extent
that the Option is vested on the date of death (but in no event later than
the expiration of the term of such Option as set forth in the Option
Agreement) by the Optionee's estate or by a person who acquires the right to
exercise the Option by bequest or inheritance. In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for twelve
(12) months following the Optionee's termination. If, at the time of death,
the Optionee is not vested as to the entire Option, the Shares covered by the
unvested portion of the Option shall immediately revert to the Plan. If the
Option is not so exercised
7
<PAGE>
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. The
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically of the terms, conditions and
restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the price to be paid, and the time
within which such person must accept such offer. The terms of the offer shall
comply in all respects with Section 260.140.42 of Title 10 of the California
Code of Regulations. The offer shall be accepted by execution of a Restricted
Stock purchase agreement in the form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination
of the purchaser's service with the Company for any reason (including death
or disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as
the Administrator may determine. Except with respect to Shares purchased by
Officers, Directors and Consultants, the repurchase option shall in no case
lapse at a rate of less than 20% per year over five (5) years from the date
of purchase.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent
with the Plan as may be determined by the Administrator in its sole
discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a
shareholder and shall be a shareholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment shall be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 12 of the Plan.
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<PAGE>
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option or Stock Purchase Right, and the number of shares
of Common Stock which have been authorized for issuance under the Plan but as
to which no Options or Stock Purchase Rights have yet been granted or which
have been returned to the Plan upon cancellation or expiration of an Option
or Stock Purchase Right, as well as the price per share of Common Stock
covered by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company. The conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify
each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option or Stock Purchase
Right until fifteen (15) days prior to such transaction as to all of the
Optioned Stock covered thereby, including Shares as to which the Option or
Stock Purchase Right would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has
not been previously exercised, an Option or Stock Purchase Right will
terminate immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the
assets of the Company, each outstanding Option and Stock Purchase Right shall
be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right as to all of the
Optioned Stock, including Shares as to which it would not otherwise be vested
or exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully
exercisable for a period of fifteen (15) days from the date of such notice,
and the Option or Stock Purchase Right shall terminate upon the expiration of
such period. For the purposes of this paragraph, the Option or Stock Purchase
Right shall be
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<PAGE>
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned
Stock subject to the Option or Stock Purchase Right immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders
of Common Stock for each Share held on the effective date of the transaction
(and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale
of assets is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option
or Stock Purchase Right, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right, to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the
date on which the Administrator makes the determination granting such Option
or Stock Purchase Right, or such other date as is determined by the
Administrator. Notice of the determination shall be given to each Service
Provider to whom an Option or Stock Purchase Right is so granted within a
reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Board shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to
comply with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to
Options granted under the Plan prior to the date of such termination.
15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to
such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of
an Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without
10
<PAGE>
any present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required.
16. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, 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.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan
is adopted. Such shareholder approval shall be obtained in the degree and
manner required under Applicable Laws.
19. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide
to each Optionee and to each individual who acquires Shares pursuant to the
Plan, not less frequently than annually during the period such Optionee or
purchaser has one or more Options or Stock Purchase Rights outstanding, and,
in the case of an individual who acquires Shares pursuant to the Plan, during
the period such individual owns such Shares, copies of annual financial
statements. The Company shall not be required to provide such statements to
key employees whose duties in connection with the Company assure their access
to equivalent information.
11
<PAGE>
NETRATINGS, INC.
1998 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
---------------------------------
< < Optionee > >
---------------------------------
Name of Optionee
The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:
<TABLE>
<S> <C>
Date of Grant < < GrantDate > >
------------------------------------
Vesting Commencement Date < < VestingCommencementDate > >
------------------------------------
Exercise Price per Share $< < SharePrice > >
------------------------------------
Total Number of Shares Granted < < SharesGranted > >
------------------------------------
Total Exercise Price $< < TotalPrice > >
------------------------------------
Type of Option: < < ISO > > Incentive Stock Option
-----------
< < NSO > > Nonstatutory Stock Option
-----------
Term/Expiration Date: Ten years from date of grant.
</TABLE>
1.1 VESTING SCHEDULE:
This Option shall be exercisable, in whole or in part, according to
the following vesting schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to Optionee's continuing to be a
Service Provider on such dates.
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<PAGE>
1.2 TERMINATION PERIOD:
This Option shall be exercisable for three months after Optionee
ceases to be a Service Provider. Upon Optionee's death or Disability, this
Option may be exercised for one year after Optionee ceases to be a Service
Provider. In no event may Optionee exercise this Option after the
Term/Expiration Date as provided above.
II. AGREEMENT
1.1 GRANT OF OPTION. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant (the "Optionee"), an
option (the "Option") to purchase the number of Shares set forth in the
Notice of Grant, at the exercise price per Share set forth in the Notice of
Grant (the "Exercise Price"), and subject to the terms and conditions of the
Plan, which is incorporated herein by reference. Subject to Section 14(c) of
the Plan, in the event of a conflict between the terms and conditions of the
Plan and this Option Agreement, the terms and conditions of the Plan shall
prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it
exceeds the $100,000 rule of Code Section 422(d), this Option shall be
treated as a Nonstatutory Stock Option ("NSO").
2.2 EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of
Grant and with the applicable provisions of the Plan and this Option
Agreement.
(b) METHOD OF EXERCISE. This Option shall be exercisable by
delivery of an exercise notice in the form attached as EXHIBIT A (the
"Exercise Notice") which shall state the election to exercise the Option, the
number of Shares with respect to which the Option is being exercised, and
such other representations and agreements as may be required by the Company.
The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be exercised
upon receipt by the Company of such fully executed Exercise Notice
accompanied by the aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable laws. Assuming such
compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
1.3 OPTIONEE'S REPRESENTATIONS. In the event the Shares have not
been registered under the Securities Act of 1933, as amended, at the time
this Option is exercised, the Optionee shall, if required by the Company,
concurrently with the exercise of all or any portion of this
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<PAGE>
Option, deliver to the Company his or her Investment Representation Statement
in the form attached hereto as ExhibitB.
1.4 LOCK-UP PERIOD. Optionee hereby agrees that, if so requested by
the Company or any representative of the underwriters (the "Managing
Underwriter") in connection with any registration of the offering of any
securities of the Company under the Securities Act, Optionee shall not sell or
otherwise transfer any Shares or other securities of the Company during the
180-day period (or such other period as may be requested in writing by the
Managing Underwriter and agreed to in writing by the Company) (the "Market
Standoff Period") following the effective date of a registration statement of
the Company filed under the Securities Act. Such restriction shall apply only
to the first registration statement of the Company to become effective under
the Securities Act that includes securities to be sold on behalf of the
Company to the public in an underwritten public offering under the Securities
Act. The Company may impose stop-transfer instructions with respect to
securities subject to the foregoing restrictions until the end of such Market
Standoff Period.
1.5 METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall
be by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash or check;
(b) to the extent permitted by the Administrator, delivery of
a properly executed exercise notice together with such other documentation as
the Administrator and the broker, if applicable, shall require to effect an
exercise of the option, and delivery to the Company of the sale or loan
proceeds required to pay the Exercise Price.
1.6 RESTRICTIONS ON EXERCISE. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment
of consideration for such shares would constitute a violation of any
Applicable Law.
1.7 NON-TRANSFERABILITY OF OPTION. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by
Optionee. The terms of the Plan and this Option Agreement shall be binding
upon the executors, administrators, heirs, successors and assigns of the
Optionee.
1.8 TERM OF OPTION. This Option may be exercised only within the
term set out in the Notice of Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Option.
1.9 TAX CONSEQUENCES. Set forth below is a brief summary as of the
date of this Option of some of the federal tax consequences of exercise of
this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
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<PAGE>
(a) EXERCISE OF ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability upon the exercise of the
Option, although the excess, if any, of the Fair Market Value of the Shares
on the date of exercise over the Exercise Price will be treated as an
adjustment to the alternative minimum tax for federal tax purposes and may
subject the Optionee to the alternative minimum tax in the year of exercise.
(b) EXERCISE OF NONSTATUTORY STOCK OPTION. There may be a
regular federal income tax liability upon the exercise of a Nonstatutory
Stock Option. The Optionee will be treated as having received compensation
income (taxable at ordinary income tax rates) equal to the excess, if any, of
the Fair Market Value of the Shares on the date of exercise over the Exercise
Price. If Optionee is an Employee or a former Employee, the Company will be
required to withhold from Optionee's compensation or collect from Optionee
and pay to the applicable taxing authorities an amount in cash equal to a
percentage of this compensation income at the time of exercise, and may
refuse to honor the exercise and refuse to deliver Shares if such withholding
amounts are not delivered at the time of exercise.
(c) DISPOSITION OF SHARES. In the case of an NSO, if Shares
are held for at least one year, any gain realized on disposition of the
Shares will be treated as long-term capital gain for federal income tax
purposes. In the case of an ISO, if Shares transferred pursuant to the Option
are held for at least one year after exercise and of at least two years after
the Date of Grant, any gain realized on disposition of the Shares will also
be treated as long-term capital gain for federal income tax purposes. If
Shares purchased under an ISO are disposed of within one year after exercise
or two years after the Date of Grant, any gain realized on such disposition
will be treated as compensation income (taxable at ordinary income rates) to
the extent of the difference between the Exercise Price and the lesser of (1)
the Fair Market Value of the Shares on the date of exercise, or (2) the sale
price of the Shares. Any additional gain will be taxed as capital gain,
short-term or long-term depending on the period that the ISO Shares were held.
(d) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or
otherwise disposes of any of the Shares acquired pursuant to the ISO on or
before the later of (1) the date two years after the Date of Grant, or (2) the
date one year after the date of exercise, the Optionee shall immediately
notify the Company in writing of such disposition. Optionee agrees that
Optionee may be subject to income tax withholding by the Company on the
compensation income recognized by the Optionee.
1.10 ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated
herein by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may not
be modified adversely to the Optionee's interest except by means of a writing
signed by the Company and Optionee. This agreement is governed by the
internal substantive laws but not the choice of law rules of California.
4
<PAGE>
1.11 NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY
(NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING
SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR
AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and
represents that he or she is familiar with the terms and provisions thereof,
and hereby accepts this Option subject to all of the terms and provisions
thereof. Optionee has reviewed the Plan and this Option in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing
this Option and fully understands all provisions of the Option. Optionee
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions arising under the
Plan or this Option. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: NETRATINGS, INC.
- ------------------------------------ ------------------------------------
< < Optionee > > (Signature) By
- ------------------------------------ ------------------------------------
< < Optionee > > (Print Name) Title
Residence Address
- ------------------------------------
- ------------------------------------
- ------------------------------------
5
<PAGE>
EXHIBIT A
1998 STOCK PLAN
EXERCISE NOTICE
NetRatings, Inc.
Suite 183
830 Hillview Court
Milpitas, CA 95035
Attention: Corporate Secretary
1. EXERCISE OF OPTION. Effective as of today, ___________,19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to
purchase _________ shares of the Common Stock (the "Shares") of NetRatings,
Inc. (the "Company") under and pursuant to the 1998 Stock Plan (the "Plan")
and the Stock Option Agreement dated ________,19 (the "Option Agreement").
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company
the full purchase price of the Shares, as set forth in the Option Agreement.
3. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee
has received, read and understood the Plan and the Option Agreement and
agrees to abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. Until the issuance of the Shares (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to
the Optioned Stock, notwithstanding the exercise of the Option. The Shares
shall be issued to the Optionee as soon as practicable after the Option is
exercised. No adjustment shall be made for a dividend or other right for
which the record date is prior to the date of issuance except as provided in
Section 12 of the Plan.
5. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by
Optionee or any transferee (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section (the "Right of First Refusal").
(a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares;
(ii) the name of each proposed purchaser or other transferee
2
<PAGE>
("Proposed Transferee"); (iii) the number of Shares to be transferred to each
Proposed Transferee; and (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Shares (the "Offered Price"),
and the Holder shall offer the Shares at the Offered Price to the Company or
its assignee(s).
(b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within
thirty (30) days after receipt of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase
all, but not less than all, of the Shares proposed to be transferred to any
one or more of the Proposed Transferees, at the purchase price determined in
accordance with subsection (c) below.
(c) PURCHASE PRICE. The purchase price ("Purchase Price") for
the Shares purchased by the Company or its assignee(s) under this Section
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(d) PAYMENT. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the
Company (or, in the case of repurchase by an assignee, to the assignee), or
by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(e) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in
the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee
at the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice, that
any such sale or other transfer is effected in accordance with any applicable
securities laws and that the Proposed Transferee agrees in writing that the
provisions of this Section shall continue to apply to the Shares in the hands
of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall
be given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
contrary contained in this Section notwithstanding, the transfer of any or
all of the Shares during the Optionee's lifetime or on the Optionee's death
by will or intestacy to the Optionee's immediate family or a trust for the
benefit of the Optionee's immediate family shall be exempt from the
provisions of this Section. "Immediate Family" as used herein shall mean
spouse, lineal descendant or antecedent, father, mother, brother or sister.
In such case, the transferee or other recipient shall receive and hold the
Shares so transferred subject to the provisions of this Section, and there
shall be no further transfer of such Shares except in accordance with the
terms of this Section.
2
<PAGE>
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal shall terminate as to any Shares upon the first sale of Common Stock
of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
6. TAX CONSULTATION. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
7. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. Optionee understands and agrees that the Company
shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the
Shares together with any other legends that may be required by the Company or
by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY
OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.
SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING
ON TRANSFEREES OF THESE SHARES.
(b) STOP-TRANSFER NOTICES. Optionee agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote
3
<PAGE>
or pay dividends to any purchaser or other transferee to whom such Shares
shall have been so transferred.
8. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement
shall inure to the benefit of the successors and assigns of the Company.
Subject to the restrictions on transfer herein set forth, this Agreement
shall be binding upon Optionee and his or her heirs, executors,
administrators, successors and assigns.
9. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting.
The resolution of such a dispute by the Administrator shall be final and
binding on all parties.
10. GOVERNING LAW; SEVERABILITY. This Agreement is governed by the
internal substantive laws but not the choice of law rules, of California.
11. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated
herein by reference. This Agreement, the Plan, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee
with respect to the subject matter hereof, and may not be modified adversely
to the Optionee's interest except by means of a writing signed by the Company
and Optionee.
Submitted by: Accepted by:
OPTIONEE: NETRATINGS, INC.
- -------------------------------- ----------------------------------
< < Optionee > > (Signature) By
< < Optionee > >
- -------------------------------- ----------------------------------
(Print Name) Title
Residence Address
- ------------------------------------
- ------------------------------------
- ------------------------------------
Date Received
- ------------------------------------
4
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE: < < Optionee > >
--------------------------------------
COMPANY: NETRATINGS, INC.
SECURITY: COMMON STOCK
AMOUNT:
--------------------------------------
DATE:
--------------------------------------
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities.
Optionee is acquiring these Securities for investment for Optionee's own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this
connection, Optionee understands that, in the view of the Securities and
Exchange Commission, the statutory basis for such exemption may be
unavailable if Optionee's representation was predicated solely upon a present
intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase
or decrease in the market price of the Securities, or for a period of one
year or any other fixed period in the future. Optionee further understands
that the Securities must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. Optionee further acknowledges and understands that the Company is
under no obligation to register the Securities. Optionee understands that the
certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel satisfactory to the
Company, a legend prohibiting their transfer without the consent of the
Commissioner of Corporations of the State of California and any other legend
required under applicable state securities laws.
1
<PAGE>
(c) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance,
permit limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the
Optionee, the exercise will be exempt from registration under the Securities
Act. In the event the Company becomes subject to the reporting requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90)
days thereafter (or such longer period as any market stand-off agreement may
require) the Securities exempt under Rule 701 may be resold, subject to the
satisfaction of certain of the conditions specified by Rule 144, including:
(1) the resale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly witha market maker (as said term is
defined under the Securities Exchange Act of 1934); and, in the case of an
affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month
period not exceeding the limitations specified in Rule 144(e), and (4) the
timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at
the time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by
an affiliate of the Company, within the meaning of Rule 144; and, in the case
of acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of
the conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration
under the Securities Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact
that Rules 144 and 701 are not exclusive, the Staff of the Securities and
Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and
otherwise than pursuant to Rules 144 or 701 will have a substantial burden of
proof in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk. Optionee
understands that no assurances can be given that any such other registration
exemption will be available in such event.
Signature of Optionee:
-----------------------------------
< < Optionee > >
Date: _______________________, 19 _______
2
<PAGE>
THE SECURITIES EVIDENCED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO NETRATINGS, INC., SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
LOAN AGREEMENT AND PROMISSORY NOTE
May 12, 1998
____________ ("Holder"), agrees to loan to NetRatings, Inc., a Delaware
corporation (the "Company"), the principal sum of ___________ ( )
on the date first written above.
NOW, THEREFORE, FOR VALUE RECEIVED, the Company hereby promises to pay
to Holder the principal amount of the loan made by Holder to the Company and
outstanding under this Note. The Company promises to pay interest on the
unpaid principal amount of such loan at a rate per annum equal to 9 percent
(and in any event not less than the minimum rate per annum necessary to avoid
imputation of income for federal income tax purposes). The principal and
interest of the loan outstanding under this Note shall be due and payable two
years from the date hereof.
The Company may elect to pay any interest due under this Agreement in
either cash or the Common Stock of the Company. The Fair Market Value of any
Common Stock so transferred shall be determined in accordance with the
determination of Fair Market Value of Common Stock under Paragraph 1(c) of
the Series B Preferred Stock Warrant attached hereto.
1. AUTOMATIC CONVERSION. Upon the occurrence of the Company's sale of
Series B Preferred Stock ("Series B Preferred") for an aggregate purchase
price (exclusive of canceled indebtedness represented by this Note and other
similar notes for bridge funds extended concurrently herewith) of not less
than $2,000,000 (the "Series B Financing"), the principal amount on the Note
will, without further action required on the part of either the Company or
Holder, be automatically canceled and converted into shares of the Company's
Series B Preferred. At the Company's election, any interest accrued on the
Note may, without further action required on the part of Holder, be similarly
automatically canceled and converted into shares of the Company's Series B
Preferred. The conversion price and any related terms and conditions for the
purpose of any such cancellation and conversion shall be the same or those
established for the other investors in the Series B Preferred.
2. WARRANT COVERAGE. Upon the extension of each installment loan
contemplated by this Note, the Company shall execute and deliver to the
Holder a warrant in substantially the form attached hereto (the "Warrant").
The Warrant shall enable the Holder to purchase that number of shares of the
Company's Series B Preferred as is equal to (A) 50% of the principal amount
of the installment loan divided by (B) the per share price of the Series B
Preferred established in the Series B Financing.
<PAGE>
3. PREPAYMENT. Prepayment of this Note is permitted at any time without
penalty or premium, upon five (5) days' prior written notice to Holder.
4. EXPENSES. The Company shall pay to Holder (and any other Holder of
this Note) all fees and expenses incurred by Holder (or such Holder) in
enforcing its rights under this Note, whether or not litigation is commenced,
including without limitation all fees and expenses of attorneys and expert
witnesses.
5. TRANSFER OF NOTE. This Note may be transferred only upon surrender of
the original Note for registration of transfer, duly endorsed, or accompanied
by a duly executed written instrument of transfer in form satisfactory to the
Company. Holder shall provide the Company with prompt notice of any transfer
of this Note; provided, however, that failure to provide such notice shall
not void the transfer. Thereupon, a new Note for like principal amount will
be issued to, and registered in the name of, the transferee. Principal and
interest are payable only to the registered Holder of the Note.
6. WAIVER OF NOTICE, ETC. The undersigned and all endorsers, guarantors
and assignors, if any, of this Note severally waive notice of default,
presentation or demand for payment and protest and notice of nonpayment or
dishonor.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) DUE INCORPORATION, QUALIFICATION, ETC. The Company (i) is a
corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation; (ii) has the power and authority to own,
lease and operate its properties and carry on its business as now conducted;
and (iii) is duly qualified, licensed to do business and in good standing as
a foreign corporation in each jurisdiction where the failure to be so
qualified or licensed could reasonably be expected to have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(b) AUTHORITY. The execution, delivery and performance by the Company
of the Note and the performance of the obligations contemplated hereby (i) are
within the power of the Company and (ii) have been duly authorized by all
necessary actions on the part of the Company.
(c) ENFORCEABILITY. The Note has been duly executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except
as limited by bankruptcy, insolvency or other laws of general application
relating to or affecting the enforcement of creditors' rights generally and
general principles.
(d) NON-CONTRAVENTION. The execution and delivery by the Company of
the Note and the performance of the obligations contemplated hereby do not
and will not (i) violate any law, statute, rule or regulation applicable to
the Company; (ii) violate any provision of, or result in the breach or the
acceleration of, or entitle any other person to accelerate (whether after the
giving of notice or lapse of time or both), the Certificate of Incorporation
or Bylaws of the Company or any contract, agreement or instrument to which
the Company is a party or by which any of its properties may be bound, or any
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<PAGE>
order, decree or judgment binding upon the Company or any of its properties;
or (iii) result in the creation or imposition of any lien or encumbrance upon
any property or asset of the Company.
(e) APPROVALS. No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority or other
person is required in connection with the execution and delivery of the Note
and the performance of the obligations contemplated hereby.
8. COVENANT OF THE COMPANY. The Company shall not take any action or
fail to take any action which would make any of the representations or
warranties of the Company pursuant to Section 6 above untrue or inaccurate in
any material respect or prevent the Company from performing, or cause the
Company not to perform, its obligations hereunder.
9. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with the laws of the State of California without
giving effect to the conflict of laws principles thereof.
-3-
<PAGE>
This Loan Agreement and Promissory Note is executed as of the date first
above written.
"DEBTOR"
NETRATINGS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Acknowledged and Agreed:
"HOLDER"
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-4-
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
THE PRIOR WRITTEN CONSENT OF THE COMPANY OR WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE
HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION.
May 12, 1998
NETRATINGS, INC.
a Delaware corporation
SERIES B PREFERRED STOCK WARRANT
THIS CERTIFIES THAT, for value received, (hereinafter, "Holder"), is
entitled, upon the terms and subject to the conditions hereinafter set forth,
to purchase from NetRatings, Inc., a Delaware corporation (the "Company"),
that number of shares of the Company's Series B Preferred Stock, without par
value (the "Shares"), determined pursuant to the terms of the Loan Agreement
and Promissory note to which this Warrant is attached, at a purchase price
(the "Exercise Price") equal to the per share price established in the
Company's Series B Financing, and otherwise upon and subject to the terms and
conditions hereinafter set forth. This Warrant may be exercised in whole or
in part from time to time and must be exercised, if at all, at any time
following completion of the Series B Financing and on or before the
Expiration Date (as defined in Section 6(b)). Any defined terms not otherwise
defined herein shall have the terms defined for them in the Loan Agreement
and Promissory Note to which this Warrant is attached.
This Warrant is issued in accordance with and subject to all terms and
conditions of the Loan Agreement and Promissory Note, dated , 1998 (the
"Note"), issued by the Company to Holder for an aggregate principal amount of
pursuant to which Holder has the right to obtain this Warrant.
TERMS AND CONDITIONS OF WARRANT
1. EXERCISE OF WARRANT.
(a) This Warrant may be exercised by Holder as to the whole or any
lesser number of the Shares covered hereby, at any time and from time to time
prior to the Expiration Date, upon surrender of this Warrant to the Company
at its principal executive office together with the Notice of Exercise
attached hereto as EXHIBIT A, duly completed and executed by Holder, and the
payment in cash to the Company of the aggregate Exercise Price for the Shares
to be purchased. Certificates for the Shares so purchased shall be delivered
to Holder within a reasonable time not to exceed 21 days after exercise of
the stock purchase rights represented by this Warrant. The exercise of this
Warrant shall be deemed to have been effected on the day on which Holder
surrenders this Warrant to the Company and satisfies all of the requirements
of this Section 1. Upon such exercise, Holder will be deemed a
<PAGE>
stockholder of record of those Shares for which the warrant has been
exercised with all rights of a stockholder (including, without limitation,
all voting rights with respect to such Shares and all rights to receive any
dividends with respect to such Shares). If this Warrant is to be exercised in
respect of less than all of the Shares covered hereby, Holder shall be
entitled to receive a new warrant covering the number of Shares in respect of
which this Warrant shall not have been exercised and for which it remains
subject to exercise. Such new warrant shall be in all other respects
identical to this Warrant.
(b) NET ISSUE EXERCISE. In lieu of exercising this Warrant via
cash payment, Holder may elect to receive shares equal to the value of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant
at the principal office of the Company together with notice of election to
exercise by means of a net issuance exercise, in which event the Company
shall issue to Holder a number of shares of Series B Preferred Stock of the
Company computed using the following formula:
X = Y(A-B)
------
A
Where X = the number of shares of Series B Preferred Stock to be issued
to Holder.
Y = the number of shares of Series B Preferred Stock purchasable
under this Warrant.
A = the Fair Market Value (as defined below) of one share of
Series B Preferred Stock on the date of exercise.
B = the Exercise Price (as adjusted to the date of such
calculation).
If the above calculation results in a negative number, then no
shares of Series B Preferred Stock shall be issued or issuable upon conversion
of this Warrant.
(c) FAIR MARKET VALUE. For purposes of this Section 1, the fair
market value of the Series B Preferred Stock shall mean:
(i) If the Company's Common Stock is traded
Over-The-Counter or on an exchange, the product of (x) the average of the
closing bid and asked prices of the Company's Common Stock quoted in the
Over-The-Counter Market Summary or the closing price quoted on any exchange
on which the Common Stock is listed, whichever is applicable, as published in
the Western Edition of THE WALL STREET JOURNAL for the ten (10) trading days
prior to the date of determination of fair market value, PROVIDED, HOWEVER,
in the event this Warrant is deemed to be exercised in connection with an
IPO, (as such term is defined in Section 6 hereto), the Fair Market Value of
the Common Stock of the Company for purposes of this Section 1 shall be the
per share price of Common Stock sold in such offering and (y) the number of
shares of Common Stock into which each share of the Series B Preferred Stock
is convertible at the time of such exercise.
(ii) If the Company's Common Stock is not traded
Over-The-Counter or on an exchange, the product of (x) the number of shares
of Common Stock into which each share of Series B Preferred Stock is
convertible at the time such exercise and (y) the highest price per share
which the Company could obtain from a willing buyer (not a current employee or
director) for shares sold by
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<PAGE>
the Company from authorized but unissued shares of Common Stock as determined
in good faith by its Board of Directors.
(d) STOCK CERTIFICATES. In the event of any exercise of the
rights represented by this Warrant, certificates for the Series B Preferred
Stock so purchased shall be delivered to Holder within a reasonable time and,
unless this Warrant has been fully exercised or has expired, a new Warrant
representing the shares with respect to which this Warrant shall not have
been exercised shall also be issued to Holder within such time.
2. COVENANTS TO THE COMPANY. The Company covenants and agrees that all
equity securities which may be issued upon the exercise of the rights
represented by this Warrant, upon issuance and payment therefor in accordance
herewith, will be duly authorized, validly issued, fully paid and
nonassessable shares of capital stock of the Company. The Company further
covenants and agrees that, during the period within which the stock purchase
rights represented by this Warrant may be exercised, the Company will at all
times have duly authorized and duly reserved for issuance upon the exercise
of the purchase rights evidenced by this Warrant a number of shares of its
Series B Preferred Stock sufficient for such issuance.
3. TRANSFER, EXCHANGE, OR LOSS OF WARRANT.
(a) This Warrant may not be assigned or transferred except as
provided in this Section 3 and in accordance with and subject to the
provisions of the Securities Act of 1933, as amended, and the Rules and
Regulations promulgated thereunder (collectively, the "Securities Act"). Any
purported transfer or assignment made other than in accordance with this
Section 3 shall be null and void and of no force or effect.
(b) Prior to any transfer of this Warrant, other than in an
offering registered under the Securities Act, Holder shall notify the Company
of its intention to effect such transfer, indicating the circumstances of the
proposed transfer and, upon request, furnish the company with an opinion of
its counsel, in form and substance satisfactory to counsel for the Company,
to the effect that the proposed transfer may be made without registration
under the Securities Act or qualification under any applicable state
securities laws. The Company will promptly notify Holder if the opinion of
counsel furnished to the Company is satisfactory to counsel for the Company.
Unless the Company notifies Holder within ten (10) days after its receipt of
such opinion that such opinion is not satisfactory to counsel for the
Company, Holder may proceed to effect the transfer.
(c) Unless a registration statement under the Securities Act is
effective with respect to the Shares or any other security issued upon
exercise of this Warrant, the certificate representing such Shares or other
securities shall bear the following legend, in addition to any legend imposed
by applicable state securities laws:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMPANY OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF
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<PAGE>
COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF
A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
(d) Upon receipt by the Company of satisfactory evidence of loss,
theft, destruction or mutilation of this Warrant and of indemnity
satisfactory to the Company, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date and any such lost, stolen, or destroyed Warrant shall
thereupon become void. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not the Warrant so lost, stolen, destroyed or mutilated shall be at
any time enforceable by anyone.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which such Holder would
otherwise be entitled, such Holder shall be entitled, at its option, to
receive either (i) a cash payment equal to the excess of the Fair Market
Value for such fractional share above the Exercise Price for such fractional
share (as mutually determined by the Company and Holder) or (ii) a whole
share if Holder tenders the Exercise Price for one whole share.
5. NO RIGHTS AS STOCKHOLDERS. This Warrant does not entitle
Holder hereof to any voting rights, dividend rights or other rights as a
stockholder of the Company prior to the exercise hereof.
6. EXPIRATION.
(a) This Warrant shall become void as to all securities of
the Company in respect of which the stock purchase rights hereunder are not
fully exercised, and payment has not been made for the securities issuable
upon such exercise, on or before the Expiration Date (as defined in
subsection (b) hereto); provided that in the case of the earlier dissolution
of the Company, this Warrant shall become void on the date fixed for such
dissolution.
(b) For purposes of this Warrant, "Expiration Date" shall
mean the first to occur of (i) the fifth anniversary of the completion date
of the Series B Financing or (ii) the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act (a "Registration Statement") covering the offer and
sale of Common Stock for the account of the Company to the public at an
aggregate offering price of not less than $15,000,000 (an "IPO").
7. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday or a Sunday or shall be a legal holiday,
then such action may be taken or such right may be exercised on the next
succeeding day not a Saturday or a Sunday or a legal holiday.
8. ADJUSTMENTS. The Exercise Price per Share and the number of
Shares purchasable hereunder shall be subject to adjustment from time to time
as follows:
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<PAGE>
(a) MERGER. If at any time there shall be a merger or
consolidation of the Company with or into another corporation when the
Company is not the surviving corporation, then, as a part of such merger or
consolidation, lawful provision shall be made so that Holder of this Warrant
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the aggregate Exercise Price
then in effect, the number of shares of stock or other securities or property
of the successor corporation resulting from such merger or consolidation, to
which a holder of the stock deliverable upon exercise of this Warrant would
have been entitled in such merger or consolidation if this Warrant had been
exercised immediately before such merger or consolidation. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Warrant with respect to the rights and interests of Holder after the
merger or consolidation.
(b) RECLASSIFICATION, ETC. If the Company shall, at any
time, by subdivision, combination, or reclassification of securities or
otherwise, change any of the securities as to which purchase rights under
this Warrant exist into the same or a different number of securities of any
other class or classes, the Exercise Price shall be adjusted such that this
Warrant shall thereafter represent the right to acquire such number and kind
of securities as would have been issuable as the result of such change with
respect to the securities which were subject to the purchase rights under
this Warrant immediately prior to such subdivision, combination,
reclassification or other change.
(c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the
Company at any time while this Warrant remains outstanding and unexpired
shall split, subdivide or combine the securities as to which purchase rights
under this Warrant exist, the number of Shares issuable on the exercise of
this Warrant shall forthwith be proportionately increased in the case of a
subdivision or stock dividend, or proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the purchase
price payable per share, but the aggregate purchase price payable for the
total number of Shares purchasable under this Warrant (as adjusted) shall
remain the same. Any adjustment under this Section 8(c) shall become
effective at the close of business on the date the subdivision or combination
becomes effective, or as of the record date of such dividend, or in the event
that no record date is fixed, upon making of such dividend.
9. NOTICES.
(a) NOTICES FOR ADJUSTMENTS. Whenever the Exercise Price or
number of Shares issuable upon exercise hereof shall be adjusted pursuant to
Section 8 hereof, the Company shall issue a written notice setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and the
Exercise Price and number of Shares purchasable hereunder after giving effect
to such adjustment, and shall cause a copy of such notice to be mailed to
Holder of this Warrant.
(b) IPO NOTICE. The Company shall give Holder written notice
of an IPO at least twenty (20) and no more than ninety (90) days prior to the
effectiveness of a Registration Statement and shall deliver a copy of the
preliminary prospectus with respect to any such public offering to Holder
promptly after it becomes available.
10. MISCELLANEOUS.
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<PAGE>
(a) SUCCESSORS AND ASSIGNS. This Warrant shall be binding
upon any successors or assigns of the Company.
(b) GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of California without
giving effect to the conflicts of law principles thereof.
(c) ATTORNEYS' FEES. In any litigation, arbitration, or
court proceeding between the Company and Holder relating hereto, the
prevailing party shall be entitled to reasonable attorneys' fees and expenses
incurred in enforcing this Warrant.
(d) AMENDMENTS. This Warrant may be amended and the
observance of any term of this Warrant may be waived only with the written
consent of the Company and Holders.
(e) NOTICE. Any notice, request, or other communication
required or permitted hereunder shall be in writing and shall be deemed to
have been daily given if personally delivered, sent by facsimile, or mailed
by registered or certified mail, postage prepaid or by recognized overnight
courier or personal delivery at the respective addresses or facsimile number
of the parties as set forth below. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given when received.
If to Holder: At the address set forth by Holder under
Holder's signature to this Warrant, unless the Company is otherwise notified
in writing.
If to the Company: NetRatings, Inc.
830 Hillview Ct., Suite 138
Milpitas, CA 95035
Attn: Chief Financial Officer
Telephone: (408) 957-0699
Facsimile: (408) 957-0487
(f) REGISTRATION RIGHTS. All Shares issuable upon exercise
of this Warrant shall be entitled to registration rights on parity accorded
to the investors in the Series B Financing.
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<PAGE>
IN WITNESS WHEREOF, the Company and Holder have caused this Series B
Preferred Stock Purchase Warrant Agreement to be executed as of the date
first above written.
NETRATINGS, INC.
By:
------------------------------
Print Name:
----------------------
Title:
---------------------------
Acknowledged and Agreed:
Holder:
---------------------------------------------
By:
-------------------------------------------------
Print Name:
-----------------------------------------
(if different from Holder)
Title:
----------------------------------------------
(if applicable)
Address of Holder: --------------------------------
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<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
<PAGE>
NOTICE OF EXERCISE
SERIES B PREFERRED STOCK PURCHASE WARRANT
To: NetRatings, Inc.
1. The undersigned hereby elects to purchase _____ shares of
Series B Preferred Stock ("Stock") of NetRatings, Inc. (the "Company")
pursuant to the terms of the attached Warrant, and (check the applicable box):
/ / Tenders herewith payment of the exercise price in full and any
transfer taxes payable pursuant to the terms of the Warrant in the
form of cash or a certified or official bank check in same-day
funds or by wire transfer in the amount of $________ for _______ Shares
of Series B Preferred Stock.
/ / Elects the Net Issue Exercise option pursuant to Section 1(b) of the
Warrant, and accordingly requests delivery of a net of ________ Shares of
Series ___ Preferred Stock.
2. The shares of Stock to be received by the undersigned upon exercise
of the Warrant are being acquired for its own account, not as a nominee or
agent, and not with a view to resale or distribution of any part thereof, and
the undersigned has no present intention of selling, granting any
participation in, or otherwise distributing the same. The undersigned further
represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person or to any third person, with respect to the Stock. The undersigned is
sufficiently aware of the Company's business affairs and financial condition
to reach and informed and knowledgeable decision to acquire the Stock.
3. The undersigned understands that the shares of Stock are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in transactions not
involving a public offering and that under such laws and applicable
regulations such securities may be resold without registration under the
Securities Act of 1933, as amended (the "Act"), only in certain limited
circumstances. In this connection, the undersigned represents that it is
familiar with Rule 144 promulgated under the Act, as presently in effect,
and understands the resale limitations imposed thereby and by the
Act.
4. The undersigned understands the instruments evidencing the Stock
may bear the following legend, in addition to any legend required by
applicable state securities laws:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT
OF THE COMPANY OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF
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COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF
A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
5. Please issue a certificate or certificates representing said shares
of Stock in the name of the undersigned:
Name: ______________________________________________
Address: ______________________________________________
6. Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned:
Name: ______________________________________________
Address: ______________________________________________
IN WITNESS WHEREOF, the Warrant Holder has executed this Notice of
Exercise effective this ___ day of _________, 199__.
WARRANT HOLDER
________________________________________
By: ____________________________________
Name: __________________________________
Title: _________________________________
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<PAGE>
EXHIBIT 10.6
NETRATINGS, INC.
------------------------
SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
------------------------
NOVEMBER 15, 1998
<PAGE>
NETRATINGS, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Series B Preferred Stock Purchase Agreement (the "Agreement") is
made as of November 15, 1998 by and among NetRatings, Inc., a Delaware
corporation (the "Company") and the investors (the "Purchasers") listed on the
Schedule of Purchasers attached hereto as EXHIBIT A (the "Schedule of
Purchasers").
SECTION 1
AUTHORIZATION AND SALE OF SERIES B PREFERRED STOCK
1.1 AUTHORIZATION. On or before the Closing (as defined in Section
2), the Company will authorize the sale and issuance of up to 1,000,000
shares (the "Shares") of its Series B Preferred Stock (the "Series B
Preferred"), having the respective rights, privileges and preferences as set
forth in the Second Restated Certificate of Incorporation (the "RESTATED
CERTIFICATE") in substantially the form attached to this Agreement as EXHIBIT
B.
1.2 SALE OF SERIES B PREFERRED STOCK. Subject to the terms and
conditions of this Agreement, each Purchaser agrees to purchase at each Closing
(as defined below), and the Company agrees to sell and issue to each Purchaser,
that number of shares of the Company's Series B Preferred Stock set forth
opposite such Purchaser's name in column 2 on the Schedule of Purchasers, at a
purchase price of $0.633 per share, for the aggregate purchase price set forth
in column 3 on the Schedule of Purchasers. The Company's agreements with each
of the Purchasers are separate agreements, and the sales of the Series B
Preferred to each of the Purchasers are separate sales.
SECTION 2
CLOSING DATES, DELIVERY
2.1 CLOSING DATES. The first closing of the purchase and sale of the
Series B Preferred under this Agreement shall be held at the offices of Wilson
Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, California at
3:30 p.m., on November 15, 1998 (the "First Closing") or at such other time and
place upon which the Company and the Purchasers shall agree. The second closing
of the purchase and sale of the Series B Preferred shall be held at Wilson
Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, California (the
"Second Closing") at such time and place upon which the Company and the
Purchasers purchasing Shares at the Second Closing shall agree, provided that
the Second Closing shall take place no more than thirty (30) days following the
First Closing. For purposes of this Agreement, unless the context otherwise
requires, the term "Closing" shall refer, with respect to each Purchaser, to the
specific closing at which such Purchaser purchased the Shares. The date of the
Closing, with respect to each Purchaser, is hereinafter referred to as the
"Closing Date."
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<PAGE>
The Company shall amend the Schedule of Purchasers to reflect the
Purchasers at the Second Closing and shall deliver a copy thereof to each
Purchaser. Subsequent Purchasers shall execute a counterpart signature page to
this Agreement and shall be a Purchaser hereunder subject to all the terms and
conditions hereof, other than with respect to such changes to the Schedule of
Exceptions attached hereto as EXHIBIT C as may be necessary to reflect changes
to the representations and warranties of the Company since the First Closing
Date.
2.2 DELIVERY. At the Closing, the Company will deliver to each
Purchaser a certificate or certificates, registered in the Purchaser's name as
set forth on the Schedule of Purchasers, representing the number of Shares to be
issued to such Purchaser at such Closing. At the Closing, delivery of the
certificates for the Shares will be made against delivery to the Company of the
purchase price, therefore by (i) check payable to the Company, (ii) wire
transfer according to the Company's instructions, or (iii) any combination of
the foregoing.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Schedule of Exceptions set forth in EXHIBIT C
attached to this Agreement, the Company hereby represents and warrants to the
Purchasers as follows:
3.1 CORPORATE ORGANIZATION AND AUTHORITY. The Company is a
corporation duly organized and existing under and is in good standing under the
laws of the State of Delaware. The Company is qualified to do business in the
State of California, has the corporate power and corporate authority to own and
operate its properties and to carry on its business as now conducted and as
proposed to be conducted and is not qualified to do business as a foreign
corporation in any jurisdiction other than California and such qualification is
not presently required in any jurisdiction where a failure to so qualify would
have a material adverse effect on the Company.
3.2 CAPITALIZATION. Immediately prior to the Closing, the authorized
capital stock of the Company shall consist of:
(a) PREFERRED STOCK. A total of 4,400,000 shares of Preferred
Stock, of which 1,900,000 shares are designated Series A Preferred Stock, all of
which shares are issued and outstanding as of the date hereof; and of which
2,500,000 are designated Series B Preferred Stock, none of which shares will be
issued and outstanding immediately prior to the First Closing. Upon the filing
of the Restated Certificate, the rights, preferences, privileges and
restrictions on the Series A Preferred Stock and the Series B Preferred Stock of
the Company will be as set forth in the Restated Certificate as in effect on the
Closing Date. The Company has reserved an aggregate of 1,000,000 shares of its
Series B Preferred Stock for issuance hereunder.
(b) COMMON STOCK. A total of 20,600,000 shares of Common
Stock, of which 6,729,500 shares are duly and validly issued and outstanding,
fully-paid, nonassessable. The Company has reserved 1,900,000 shares of Common
Stock for issuance upon conversion of the outstanding shares of Series A
Preferred Stock. The Company has reserved 2,500,000 shares of
2
<PAGE>
Common Stock for issuance upon conversion of the outstanding shares of Series
B Preferred Stock to be issued hereunder. The Company has reserved 2,430,000
shares of Common Stock under the 1997 Stock Option Plan for issuance to
employees and directors of, and consultants to, the Company (including
1,735,500 shares of Common Stock subject to outstanding options). Except as
contemplated by this Agreement and the Stockholders Agreement, there are no
other outstanding warrants, options, conversion privileges, preemptive
rights, or other rights or agreements to purchase or otherwise acquire or
issue any equity securities of the Company. Other than the Stockholders
Agreement (as defined below), the Company is not a party or subject to any
agreement or understanding, and, to the Company's knowledge, there is no
agreement or understanding between any persons and/or entities, which affects
or relates to the voting or giving of written consents with respect to any
security or by a director of the Company.
3.3 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution, delivery and performance of all obligations under
this Agreement and for the sale, issuance and delivery of the Shares, and of
the Common Stock issuable upon conversion of the Shares has been taken or
will be taken prior to the First Closing. This Agreement and the Restated
Rights Agreement attached hereto as EXHIBIT D (the "Restated Rights
Agreement"), when executed and delivered by the Company, will constitute
legally binding and valid obligations of the Company, enforceable in
accordance with their terms. The Stockholders Agreement attached hereto as
EXHIBIT E (the "Stockholders Agreement"), when executed and delivered by the
Company, will constitute a valid and binding obligation of the Company to the
extent of the Company's obligations thereunder. This Agreement, the Restated
Rights Agreement, and the Stockholders Agreement are referred to collectively
herein as the "Company Agreements."
3.4 VALIDITY OF SHARES. The Shares, when issued, sold and delivered
in accordance with the terms and for the consideration expressed in this
Agreement, shall be duly and validly issued (including, without limitation,
issued in compliance with applicable federal and state securities laws, assuming
the accuracy of the representations and warranties of the Purchaser set forth
herein), fully-paid and non-assessable and free and clear of all liens and
encumbrances (other than those, if any, created or imposed by a Purchaser). The
Common Stock issuable upon conversion of the Shares has been reserved, and
assuming such Common Stock is issued to the Purchasers, upon issuance in
accordance with the Restated Certificate, shall be duly and validly issued
(including, without limitation, issued in compliance with all applicable federal
and state securities laws), fully-paid and non-assessable.
3.5 NO CONFLICT WITH OTHER INSTRUMENTS. The execution, delivery and
performance by the Company of the Company Agreements and the execution and
delivery by the Company of the Stockholders Agreement will not result in any
violation of or constitute a default under, with or without the passage of time
or the giving of notice, (i) any provision of the Restated Certificate or the
Company's Bylaws; (ii) any provision of any judgment, decree or order to which
the Company is a party or by which it is bound; (iii) any material contract,
obligation or commitment to which the Company is a party or by which it is
bound; or (iv) any statute, rule or governmental regulation applicable to the
Company.
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<PAGE>
3.6 NO DEFAULTS OR VIOLATIONS. The Company is not in violation of any
term or provision of its Restated Certificate of Incorporation or Bylaws, each
as currently in effect, or any material term or provision of any indebtedness,
mortgage, indenture, contract, agreement, judgment, statute, rule or regulation,
or to the Company's knowledge, any decree or order.
3.7 PRIVATE OFFERING. The Company agrees that neither the Company nor
anyone acting on its behalf will offer any of the Shares or any similar
securities for issuance or sale to, or solicit any offering to acquire any of
the same from, anyone so as to make the sale and issuance of the Shares subject
to the registration requirements of Section 5 of the Securities Act of 1933, as
amended (the "Securities Act").
3.8 PRIOR REGISTRATION RIGHTS. Except as provided in the Rights
Agreement, the Company is under no contractual obligation to register under the
Securities Act any of its presently outstanding securities or any of its
securities that may subsequently be issued.
3.9 LITIGATION. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement, the Stockholders Agreement or the
Restated Rights Agreement or the right of the Company to enter into any of such
agreements, or which might result, either individually or in the aggregate, in
any material adverse change in the assets, condition, affairs or prospects of
the Company, financially or otherwise, or any change in the current equity
ownership of the Company, nor is the Company aware that there is any basis for
the foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
3.10 AGREEMENTS; ACTION.
(a) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000 (other than obligations of, or payments to, the
Company arising from purchase or sale agreements entered into in the ordinary
course of business), or (ii) the license of any patent, copyright, trade secret
or other proprietary right to or from the Company, or (iii) provisions
restricting or affecting the development, manufacture or distribution of the
Company's products or services, or (iv) indemnification by the Company with
respect to infringements of proprietary rights.
(b) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than with respect to dividend
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<PAGE>
obligations, distributions, indebtedness and other obligations incurred in
the ordinary course of business) individually in excess of $25,000 or, in the
case of indebtedness and/or liabilities individually less than $25,000 in
excess of $50,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than
the sale of its inventory in the ordinary course of business.
3.11 DISTRIBUTIONS. There has been no declaration or payment by the
Company of any dividend, nor any distribution by the Company of any assets of
any kind, to any class or series of its capital stock.
3.12 EMPLOYEE COMPENSATION PLANS. The Company is not party to or bound
by any currently effective employment contracts, deferred compensation
agreements, bonus plans, incentive plans, profit sharing plans, retirement
agreements, employee benefit plan subject to the Employee Retirement Income
Security Act of 1974 or other employee compensation agreements. Subject to
applicable law, the employment of each officer and employee of the Company is
terminable at the will of the Company.
3.13 EMPLOYEES. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. No
employee has any agreement or contract, written or verbal, regarding his
employment. To the Company's knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company has not received any notice alleging that any such violation has
occurred. No employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. The Company is not aware that any officer or
key employee, or that any group of key employees, intends to terminate his
employment with the Company, nor does the Company have a present intention to
terminate the employment of any officer, key employee or group of key employees.
3.14 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS; INTELLECTUAL
PROPERTY.
(a) Each current officer, director and employee of the Company
has executed a customary form of confidential information and inventions
agreement.
(b) Each former and current employee, officer and consultant of
the Company has executed a customary form of confidential information and
inventions agreement.
(c) The Company has not violated and by conducting its business
as proposed, will not violate any of the patents, trademarks, service marks,
trade names, copyrights or trade
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secrets or other proprietary rights of any other person or entity. None of
the Company's officers or key employees, and the Company is not aware that
any of its other employees, is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or
subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the
Company's business by the employees for the Company, nor the conduct of the
Company's business as proposed, will result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any employee is now obligated. It will
not be necessary for the Company to utilize any inventions, trade secrets or
proprietary information of any of its employees made prior to their
employment by the Company, except for inventions, trade secrets or
proprietary information that have been assigned to the Company.
3.15 MINUTE BOOKS. The minute books of the Company contain a complete
summary of all meetings of directors and stockholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
3.16 INSURANCE. The Company currently holds fire and casualty
insurance policies, with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow it to replace any of its properties that might
be damaged or destroyed.
3.17 PERMITS. No governmental orders, permissions, consents, approvals
or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement and the issuance of the Shares or the Conversion
Shares, except such as has been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing, as will be filed in
a timely manner. The Company has all franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted.
3.18 ENVIRONMENTAL AND SAFETY LAWS. To its knowledge, the Company is
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
3.19 FULL DISCLOSURE. The Company has fully provided the Purchasers
with all the information which the Purchasers have requested for deciding
whether to purchase the Shares and all information which the Company believes is
reasonably necessary to enable the Purchasers to make such decision. The
representations and warranties of the Company contained in this Agreement and
the Rights Agreement, certificates and other documents made or delivered in
connection herewith do not contain any untrue statement of a material fact or
omit any
6
<PAGE>
material fact necessary to make the statements contained therein or herein in
view of the circumstances under which they were made not misleading.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby severally represents and warrants to the Company
with respect to the purchase of the Shares as follows:
4.1 EXPERIENCE. Purchaser has substantial experience in evaluating
and investing in private placement transactions so that Purchaser is capable of
evaluating the merits and risks of Purchaser's investment in the Company.
Purchaser, by reason of its business or financial experience or the business or
financial experience of its professional advisors who are unaffiliated with and
who are not compensated by the Company or any affiliate or selling agent of the
Company, directly or indirectly, has the capacity to protect its own interests
in connection with the purchase of the Shares under this Agreement.
4.2 INVESTMENT. Purchaser is acquiring the Shares and the underlying
Common Stock for investment for Purchaser's own account, not as a nominee or
agent, and not with the view to, or for resale in connection with, any
distribution thereof. Purchaser understands that the Shares and the underlying
Common Stock have not been, and will not be, registered under the Securities Act
by reason of a specific exemption therefrom, and that any such exemption would
depend, among other things, upon the bona fide nature of the investment intent
and the accuracy of such Purchaser's representations as expressed in this
Agreement. Purchaser has not been formed for the specific purpose of acquiring
the Shares or the underlying Common Stock.
4.3 RULE 144. Purchaser acknowledges that the Shares and the
underlying Common Stock must be held indefinitely unless subsequently registered
under the Securities Act or an exemption from such registration is available.
Purchaser is aware of the provisions of Rule 144 promulgated under the
Securities Act which permit limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things, the existence of a public market for the shares, the availability
of certain current public information about the Company, the resale occurring
following the period of time prescribed by Rule 144, the sale being effected
through a "broker's transaction" or in transactions directly with a "market
maker" (as provided by Rule 144(f)) and the number of shares being sold during
any three-month period not exceeding specified limitations.
4.4 NO PUBLIC MARKET. Purchaser understands that no public market now
exists for any of the securities issued by the Company, that the Company has
made no assurances that a public market will ever exist for the Shares or the
underlying Common Stock and that, even if such a public market exists at some
future time, the Company may not then be satisfying the current public
information requirements of Rule 144.
4.5 ACCESS TO DATA. Purchaser and its representatives have met with
representatives of the Company and have had the opportunity to ask questions of,
and receive answers from, said
7
<PAGE>
representatives concerning the Company and the terms and conditions of this
transaction as well as to obtain any information requested by Purchaser. Any
questions raised by Purchaser or its representatives concerning the
transaction have been answered to the satisfaction of Purchaser and its
representatives. Purchaser's decision to purchase the Shares is based in
part on the answers to such questions as Purchaser and its representatives
have raised concerning the transaction and on its own evaluation of the risks
and merits of the purchase and the Company's proposed business activities.
4.6 AUTHORIZATION. This Agreement when executed and delivered by the
Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms.
4.7 TAX LIABILITY. Purchaser has reviewed with its own tax advisers
the federal, state, local and foreign tax consequences of this investment and
the transactions contemplated by this Agreement. Purchaser has relied solely on
such advisers and not on any statements or representations of the Company or its
agents. Purchaser understands that it (and not the Company) shall be
responsible for its own tax liability that may arise as a result of this
Agreement.
SECTION 5
CONDITIONS TO CLOSING OF PURCHASERS
Each Purchaser's obligation to purchase the Shares at the Closing is, at
the option of the Purchaser, subject to the fulfillment or waiver as of the
Closing Date of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 of this Agreement shall be true and
correct in all material respects when made, and shall be true and correct in all
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date.
5.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all respects.
5.3 COMPLIANCE CERTIFICATE. The Company shall have delivered to each
Purchaser a certificate of the Company, executed by the President of the
Company, dated the Closing Date, and certifying to the fulfillment of the
conditions specified in Sections 5.1 and 5.2 of this Agreement.
5.4 BLUE SKY. The Company shall have obtained all necessary Blue Sky
law permits and qualifications, or secured exemptions therefrom, required by any
state for the offer and sale of the Shares and the Common Stock issuable upon
conversion of the Shares.
5.5 CERTIFICATE OF INCORPORATION. The Restated Certificate shall have
been filed with the Secretary of State of the State of Delaware.
8
<PAGE>
5.6 RESTATED RIGHTS AGREEMENT. The Company shall have entered into
the Restated Rights Agreement.
5.7 STOCKHOLDERS AGREEMENT. The Company and each of the parties
thereto shall have executed and delivered the Stockholders Agreement.
5.8 LEGAL MATTERS. All material matters of a legal nature which
pertain to this Agreement, the Restated Rights Agreement and the Restated
Stockholders Agreement, and the transactions contemplated hereby and thereby,
shall have been reasonably approved by counsel to the Purchasers.
SECTION 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares at the Closing is,
at the option of the Company, subject to the fulfillment or waiver of the
following conditions:
6.1 REPRESENTATIONS. The representations made by each Purchaser in
Section 4 of this Agreement shall be true and correct when made, and shall be
true and correct on the Closing Date.
6.2 BLUE SKY. The Company shall have obtained all necessary Blue Sky
law permits and qualifications, or secured exemptions therefrom, required by any
state for the offer and sale of the Shares and the Common Stock issuable upon
conversion of the Shares.
6.3 CERTIFICATE OF INCORPORATION. The Restated Certificate shall have
been filed with the Secretary of State of the State of Delaware.
6.4 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Purchasers on or prior to the Closing Date
shall have been performed or complied with in all material respects.
6.5 LEGAL MATTERS. All material matters of a legal nature which
pertain to this Agreement, the Restated Rights Agreement, the Restated
Stockholders Agreement and the transactions contemplated hereby and thereby,
shall have been reasonably approved by counsel to the Company.
SECTION 7
AFFIRMATIVE COVENANTS OF THE COMPANY
As long as a Purchaser (together with any affiliate of such Purchaser)
holds not less than 350,000 Shares (or an equivalent number of shares consisting
of the Shares or Common Stock issued upon conversion of the Shares), as adjusted
for recapitalizations, stock splits, stock dividends and the like, the Company
will provide the information set forth in Sections 7.1 and
9
<PAGE>
7.2 to such Purchaser, and will provide the information set forth in Section
7.1 as long as a Purchaser holds any capital stock of the Company:
7.1 FINANCIAL INFORMATION.
(a) As soon as practicable after the end of each fiscal year,
and in any event within ninety (90) days thereafter, consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of such fiscal year,
and consolidated statements of income and consolidated statements of changes in
financial position of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and audited by the Company's independent public
accountants.
(b) Contemporaneously with delivery to holders of Common Stock,
a copy of each report of the Company delivered to holders of the Company's
Common Stock.
7.2 ADDITIONAL INFORMATION.
(a) As soon as practicable after the end of each fiscal month,
and in any event within thirty (30) days thereafter, an unaudited consolidated
balance sheet of the Company, as at the end of such month, and unaudited
consolidated statements of income and unaudited consolidated statements of cash
flow for such month and for the current fiscal year to date, compared against
the annual budget. Such financial statements shall be prepared in accordance
with generally accepted accounting principles consistently applied (other than
accompanying notes and subject to year-end adjustments), all in reasonable
detail.
(b) As soon as practicable, but in any event within 30 days
prior to the end of each fiscal year, a budget for the next fiscal year,
including balance sheets and sources and applications of funds statements and,
as soon as prepared, any other budgets or revised budgets prepared by the
Company.
(c) For so long as a Purchaser is eligible to receive reports
under this Section 7.2, it shall also have the right, at its expense, to discuss
the affairs, finances and accounts of the Company with the Company's officers,
all at such reasonable times and as often as may be reasonably requested;
provided, however, that the Company shall not be obligated to provide any
information that the Board of Directors reasonably considers to be a trade
secret or to contain confidential information.
7.3 TRANSFER OF INFORMATION RIGHTS. The information rights set forth
in Sections 7.1 and 7.2 may be transferred in any nonpublic transfer of Shares
(or Shares of Common Stock issued upon conversion of the Shares), provided that
the Company is given written notice of such transfer, and provided further that
the right to receive the information set forth in Section 7.2 may only be
transferred to a holder of, or affiliated holders who in the aggregate hold, at
least 350,000 Shares (or an equivalent number of Shares consisting of the Shares
or Common Stock issued upon conversion of the Shares, as appropriately adjusted
for stock splits and the like). In the event that the Company reasonably
determines that provision of information to a transferee
10
<PAGE>
pursuant to this Section 7.3 would materially adversely affect its
proprietary position, such information may be edited in the manner necessary
to avoid such effect.
7.4 TERMINATION OF COVENANTS. The covenants set forth in Sections 7.1
and 7.2 shall terminate on and be of no further force or effect upon the earlier
of (i) the consummation of the Company's sale of its Common Stock in an
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act, immediately subsequent to which the Company
shall be obligated to file annual and quarterly reports with the Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") or (ii) the registration by the Company of a class of its equity
securities under Section 12(b) or 12(g) of the Exchange Act.
7.5 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. The
Company shall require all of its current and future officers and each employee
or consultant with access to confidential information regarding the Company's
operations, to execute and deliver a customers form of confidential information
and invention assignment agreement.
7.6 VESTING OF EMPLOYEE STOCK. Any stock granted to employees of or
consultants to the Company as part of the Common Stock reserved for such purpose
shall be subject to the Company's standard vesting provisions, which provide for
a four year term with 25% of the total shares or options to be granted vesting
on the first anniversary of the date of employment or association with the
Company and the remaining shares vesting at a rate of 1/48th of the total amount
per month ("Standard Vesting"); provided, however, that in the case of any stock
granted to an employee or consultant of the Company who (x) has previously
received a stock grant with Standard Vesting and (y) has at least one year of
continuous service with the Company, the vesting provisions for such follow-on
stock grant may, at the discretion of the Board of Directors (or a committee
thereof), provide for a four year term with vesting at a rate of 1/48th of the
total amount per month.
SECTION 8
BOARD REPRESENTATION
8.1 ELECTION OF DIRECTORS. The Company and each of the Purchasers
covenant and agree to nominate, and to use their diligent best efforts to cause
the Board of Directors to be elected consistent with the provisions of
Section IV.B.3 of the Restated Certificate.
SECTION 9
MISCELLANEOUS
9.1 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, and by the General Corporation Law of the State of
Delaware to the extent applicable to any corporate action related to the Company
hereunder.
11
<PAGE>
9.2 SURVIVAL. The representations, warranties, covenants and
agreements made in this Agreement shall survive the closing of the transactions
contemplated hereby, and shall in no way be affected by any investigation of the
subject matter hereof made by or on behalf of the Purchasers or the Company.
9.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
Agreement, 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; provided, however, that the right of the
Purchasers to purchase the Shares shall not be assignable without the prior
written consent of the Company.
9.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant to this Agreement at the Closing constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof, and supersede all prior agreements and merge
all prior discussions, negotiations, proposals and offers (written or oral)
between them, and no party shall be liable or bound to any other party in any
manner by any warranties, representations or covenants except as specifically
set forth herein or therein. 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 the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
provided, however, that holders of at least a majority of the Shares (or shares
of Common Stock issued upon conversion of the Shares) may, with the written
consent of the Company, waive, modify or amend on behalf of all holders, any
provisions hereof benefiting such holders, so long as the effect thereof will be
that all such holders will be treated equally.
9.5 NOTICES, ETC. All notices and other communications required or
permitted under this Agreement shall be mailed by registered or certified mail,
postage prepaid, or otherwise delivered by hand or by messenger, addressed
(a) if to a Purchaser, at such Purchaser's address set forth on EXHIBIT A, or,
at such other address as such Purchaser shall have furnished to the Company in
writing, or (b) if to any other holder of any Shares, at such address as such
holder shall have furnished the Company in writing, or, until any such holder so
furnishes an address to the Company, then to and at the address of the last
holder of such Shares who has so furnished an address to the Company, or (c) if
to the Company, one copy should be sent to its offices and addressed to the
attention of the President, or at such other address as the Company shall have
furnished to the Purchaser.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or
72 hours after the same has been deposited in a regularly maintained receptacle
for the deposit of the United States mail, addressed and postage prepaid as
aforesaid.
9.6 DELAYS OR OMISSIONS. Except as expressly provided in this
Agreement, no delay or omission to exercise any right, power or remedy accruing
to any holder of any Shares, upon any breach or default of the Company under
this Agreement, shall impair any such right, power
12
<PAGE>
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either
under this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
9.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTIONS 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
9.8 EXPENSES. The Company and the Purchasers shall each bear their
own expenses incurred on their behalf with respect to this Agreement and the
transactions contemplated hereby, except that the Company shall cover the
reasonable fees and expenses (not to exceed $15,000) of one counsel to the
Purchasers.
9.9 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 all of which together shall constitute one
instrument.
9.10 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
9.11 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.
13
<PAGE>
The foregoing SERIES B PREFERRED STOCK PURCHASE AGREEMENT is hereby
executed as of the date first above written.
"COMPANY" NETRATINGS, INC.
a Delaware corporation
By:
----------------------------------
David J. Toth, President
"PURCHASERS"
SWISS FAMILY KLEIN LIMITED
Simon Chen:
By:
----------------------------------
Title:
-------------------------------
Ling Chow:
Susan L. Kurze:
John D. Dunning: Charles L. Meadows:
Liangfu Fan: Daniel Norman:
Robert L. Hooven: David A. Norman:
Wilbur T. Hooven, III: David G. Norman:
KINETECH, INC. Robert W. Peters:
By:
Title:
Stephen D. Klein: David J. Toth:
Robb W. Wilmot:
[SERIES B PREFERRED STOCK PURCHASE AGREEMENT]
14
<PAGE>
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
15
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
EXHIBIT A
- -----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF PURCHASERS
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES NUMBER OF WARRANT
NOTE TOTAL OF SERIES B STOCK AMOUNT OF SHARES OF SERIES B
NAME OF PURCHASER AMOUNT INTEREST INVESTMENT PURCHASED WARRANT PREFERRED STOCK
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Simon Chen $25,000 $1,143.75 $26,143.75 41,302 $12,500 19,748
1270 St. Mark Ct.
Los Altos, CA 94024
- -----------------------------------------------------------------------------------------------------------------------------------
Yen-Whei Chow & Ling George Chow $25,000 $1,143.75 $26,143.75 41,302 $12,500 19,748
1128 Grimley Lane
San Jose, CA 95120
- -----------------------------------------------------------------------------------------------------------------------------------
John D. Dunning $50,000 $2,287.50 $52,287.50 82,603 $25,000 39,495
18900 Graystone Ln.
San Jose, CA 95120-1013
- -----------------------------------------------------------------------------------------------------------------------------------
Liang-fu Nancy J. Fan $25,000 $1,143.75 $26,143.75 41,302 $12,500 19,748
1729 Vinehill Circle
Fremont, CA 94539
- -----------------------------------------------------------------------------------------------------------------------------------
Robert L. Hooven $25,000 $1,143.75 $26,143.75 41,302 $12,500 19,748
901 Sherman Way
Pleasanton, CA 94588
- -----------------------------------------------------------------------------------------------------------------------------------
Wilbur T. Hooven III $50,000 $2,287.50 $52,287.50 82,603 $25,000 39,495
3 Glen Road
Topsfield, MA 01983
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
EXHIBIT A
- -----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF PURCHASERS
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES NUMBER OF WARRANT
NOTE TOTAL OF SERIES B STOCK AMOUNT OF SHARES OF SERIES B
NAME OF PURCHASER AMOUNT INTEREST INVESTMENT PURCHASED WARRANT PREFERRED STOCK
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Kinetech, Inc. $50,000 $2,287.50 $52,287.50 82,603 $25,000 39,495
3140 Whisperwoods Ct.
Northbrook, IL 60062
- -----------------------------------------------------------------------------------------------------------------------------------
Stephen D. Klein $25,000 $1,143.75 $26,143.75 41,302 $12,500 19,748
200 West 79th St. #95
New York, NY 10024
- -----------------------------------------------------------------------------------------------------------------------------------
Swiss Family Klein Limited $150,000 $6,862.50 $156,862.50 247,809 $75,000 118,484
3-5-3-511 Nishi Shinjuku
Shinjuku-Ku, Tokyo 160-0023
Japan
- -----------------------------------------------------------------------------------------------------------------------------------
Susan L. Kurze $10,000 $10,000.00 15,798 $5,000 7,899
16101 Greenwood Rd.
Monte Sereno, CA 95030
- -----------------------------------------------------------------------------------------------------------------------------------
Charles L. Meadows $25,000 $1,143.75 $26,143.75 41,302 $12,500 19,748
1109 Clydebank Ct.
Sunnyvale, CA 94087
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
EXHIBIT A
- -----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF PURCHASERS
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES NUMBER OF WARRANT
NOTE TOTAL OF SERIES B STOCK AMOUNT OF SHARES OF SERIES B
NAME OF PURCHASER AMOUNT INTEREST INVESTMENT PURCHASED WARRANT PREFERRED STOCK
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
David A. Norman $100,000 $4,575 $104,575.00 165,206 $50,000 78,989
16101 Greenwood Rd.
Monte Sereno, CA 95030
- -----------------------------------------------------------------------------------------------------------------------------------
David G. Norman $25,000 $1,143.75 $26,143.75 41,302 $12,500 19,748
1748 Dorrance Dr.
San Jose, CA 95125
- -----------------------------------------------------------------------------------------------------------------------------------
Janice and Daniel Norman $10,000 $10,000.00 15,798 $5,000 7,899
16101 Greenwood Rd.
Monte Sereno, CA 95030
- -----------------------------------------------------------------------------------------------------------------------------------
R.W. and C.H. Peters 1992 Trust $50,000 $2,287.50 $52,287.50 82,603 $25,000 39,495
UTA 1/10/92
1282 St. Mark Ct.
Los Altos, CA 94024
- -----------------------------------------------------------------------------------------------------------------------------------
David J. Toth $50,000 $2,287.50 $52,287.50 82,603 $25,000 39,495
3519 Kamp Drive
Pleasanton, CA 94588
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
EXHIBIT A
- -----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF PURCHASERS
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES NUMBER OF WARRANT
NOTE TOTAL OF SERIES B STOCK AMOUNT OF SHARES OF SERIES B
NAME OF PURCHASER AMOUNT INTEREST INVESTMENT PURCHASED WARRANT PREFERRED STOCK
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
R.W. and M.J. Wilmont, Trustees $200,000 $9,150 $209,150.00 330,411 $100,000 157,978
of The Wilmont Living Trust
13333 La Cresta Drive
Los Altos, CA 94022
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL: $895,000 $40,031.25 $935,031.25 1,477,151 $447,500 706,960
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
EXHIBIT 10.7
NETRATINGS, INC.
----------------------------
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
----------------------------
AUGUST 5, 1999
<PAGE>
NETRATINGS, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Series C Preferred Stock Purchase Agreement (the "Agreement") is
made as of August 5, 1999 by and among NetRatings, Inc., a Delaware corporation
(the "Company") and the investors (the "Purchasers") listed on the Schedule of
Purchasers attached hereto as EXHIBIT A (the "Schedule of Purchasers").
SECTION 1
AUTHORIZATION AND SALE OF SERIES C PREFERRED STOCK
1.1 AUTHORIZATION. On or before the Closings (as defined in Section 2),
the Company will authorize the sale and issuance of up to 6,413,751 shares (the
"Shares") of its Series C Preferred Stock (the "Series C Preferred Stock"),
having the respective rights, privileges and preferences as set forth in the
Third Restated Certificate of Incorporation (the "Restated Certificate") in
substantially the form attached to this Agreement as EXHIBIT B.
1.2 SALE OF SERIES C PREFERRED STOCK. Subject to the terms and
conditions of this Agreement, each Purchaser agrees to purchase at each Closing
(as defined below), and the Company agrees to sell and issue to each Purchaser,
that number of shares of the Company's Series C Preferred Stock set forth
opposite such Purchaser's name in column 2 on the Schedule of Purchasers, at a
purchase price of $3.1183 per share, for the aggregate purchase price set forth
in column 3 on the Schedule of Purchasers. The Company's agreements with each of
the Purchasers are separate agreements, and the sales of the Series C Preferred
Stock to each of the Purchasers are separate sales.
SECTION 2
CLOSING DATES, DELIVERY
2.1 CLOSING DATES. The first closing, comprising the purchase by Trans
Cosmos U.S.A. Inc. ("TCI") and the sale by the Company of 3,527,563 shares of
Series C Preferred Stock under this Agreement shall be held at the offices of
Gray Cary Ware & Freidenrich, 400 Hamilton Avenue, Palo Alto, CA 94301 on or
before August 5, 1999, (the "First Closing") or at such other time and place
upon which the Company and the Purchasers shall agree. The second closing of the
purchase and sale of the Series C Preferred Stock shall be held at the offices
of Gray Cary Ware & Freidenrich, 400 Hamilton Avenue, Palo Alto, CA 94301 on or
before August 23, 1999, (the "Second Closing") at such time and place upon which
the Company and the Purchasers purchasing Shares at the Second Closing shall
agree, provided that the Second Closing shall take place no later than the close
of business on August 23, 1999. At the Second Closing, an additional 2,886,188
shares of Series C Preferred Stock may be sold, and the Company may allow
Purchasers other than TCI to purchase Series C Preferred Stock in the Second
Closing. For purposes of this Agreement, unless the context otherwise requires,
the term "Closing" shall refer, with respect to each Purchaser, to the specific
closing at which such
1
<PAGE>
Purchaser purchased the Shares. The date of the Closing,with respect to each
Purchaser, is hereinafter referred to as the "Closing Date."
The Company shall amend the Schedule of Purchasers to reflect the
Purchasers at the Second Closing and shall deliver a copy thereof to each
Purchaser. Subsequent Purchasers shall execute a counterpart signature page to
this Agreement and shall be a Purchaser hereunder subject to all the terms and
conditions hereof, other than with respect to such changes to the Schedule of
Exceptions attached hereto as EXHIBIT C as may be necessary to reflect changes
to the representations and warranties of the Company since the First Closing
Date.
2.2 DELIVERY. At each Closing, the Company will deliver to each
Purchaser a certificate or certificates, registered in the Purchaser's name as
set forth on the Schedule of Purchasers, representing the number of Shares to be
issued to such Purchaser at such Closing. At the Closing, delivery of the
certificates for the Shares will be made against delivery to the Company of the
purchase price, therefore by (i) check payable to the Company, (ii) wire
transfer according to the Company's instructions, or (iii) any combination of
the foregoing.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Schedule of Exceptions set forth in
EXHIBIT C attached to this Agreement, the Company hereby represents and warrants
to the Purchasers as follows:
3.1 CORPORATE ORGANIZATION AND AUTHORITY. The Company is a corporation
duly organized and existing under and is in good standing under the laws of the
State of Delaware. The Company is qualified to do business in the State of
California, has the corporate power and corporate authority to own and operate
its properties and to carry on its business as now conducted and as proposed to
be conducted and is not qualified to do business as a foreign corporation in any
jurisdiction other than California and such qualification is not presently
required in any jurisdiction where a failure to so qualify would have a material
adverse effect on the Company.
3.2 CAPITALIZATION. Immediately prior to the Closing, the authorized
capital stock of the Company shall consist of:
(a) PREFERRED STOCK. A total of 10,684,111 shares of Preferred
Stock, of which 1,900,000 shares are designated Series A Preferred Stock, all of
which shares are issued and outstanding as of the date hereof; of which
2,184,111 are designated Series B Preferred Stock, 1,477,151 of which shares are
issued and outstanding as of the date hereof; and 6,600,000 are designated
Series C Preferred Stock, none of which shares will be issued and outstanding
immediately prior to the First Closing. Upon the filing of the Restated
Certificate, the rights, preferences, privileges and restrictions on the Series
A Preferred Stock, Series B Preferred Stock and the Series C Preferred Stock of
the Company will be as set forth in the Restated Certificate as in effect on the
Closing Date. The Company has reserved an aggregate of 6,600,000 shares of its
Series C Preferred Stock for issuance hereunder.
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(b) COMMON STOCK. A total of 29,000,000 shares of Common
Stock, of which 7,238,000 shares are duly and validly issued and outstanding,
fully-paid, nonassessable. The Company has reserved 1,900,000 shares of Common
Stock for issuance upon conversion of the outstanding shares of Series A
Preferred Stock, and 2,184,111 shares of its Common Stock for issuance upon
conversion of the outstanding shares of Series B Preferred Stock and warrants to
purchase Series B Preferred Stock and 6,600,000 shares of Common Stock for
issuance upon conversion of the outstanding shares of Series C Preferred Stock
to be issued hereunder. The Company presently has in reserve 2,917,000 shares of
Common Stock under the 1998 Stock Option Plan for issuance to employees and
directors of, and consultants to, the Company (including 2,516,200 shares of
Common Stock subject to outstanding options). Except as contemplated by this
Agreement and the Stockholders Agreement (as defined below), there are no other
outstanding warrants, options, conversion privileges, preemptive rights, or
other rights or agreements to purchase or otherwise acquire or issue any equity
securities of the Company. Other than the Stockholders Agreement (as defined
below), the Company is not a party or subject to any agreement or understanding,
and, to the Company's knowledge, there is no agreement or understanding between
any persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
3.3 AUTHORIZATION. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution,
delivery and performance of all obligations under this Agreement and for the
sale, issuance and delivery of the Shares, and of the Common Stock issuable upon
conversion of the Shares has been taken or will be taken prior to the First
Closing. This Agreement and the Restated Rights Agreement attached hereto as
EXHIBIT D (the "Restated Rights Agreement"), when executed and delivered by the
Company, will constitute legally binding and valid obligations of the Company,
enforceable in accordance with their terms. The Stockholders Agreement attached
hereto as EXHIBIT E (the "Stockholders Agreement"), when executed and delivered
by the Company, will constitute a valid and binding obligation of the Company to
the extent of the Company's obligations thereunder. This Agreement, the Restated
Rights Agreement, and the Stockholders Agreement are referred to collectively
herein as the "Company Agreements."
3.4 VALIDITY OF SHARES. The Shares, when issued, sold and delivered in
accordance with the terms and for the consideration expressed in this Agreement,
shall be duly and validly issued (including, without limitation, issued in
compliance with applicable federal and state securities laws, assuming the
accuracy of the representations and warranties of the Purchasers set forth
herein), fully-paid and non-assessable and free and clear of all liens and
encumbrances (other than those, if any, created or imposed by a Purchaser). The
Common Stock issuable upon conversion of the Shares has been reserved, and
assuming such Common Stock is issued to the Purchasers, upon issuance in
accordance with the Restated Certificate, shall be duly and validly issued
(including, without limitation, issued in compliance with all applicable federal
and state securities laws), fully-paid and non-assessable.
3.5 NO CONFLICT WITH OTHER INSTRUMENTS. The execution, delivery and
performance by the Company of the Company Agreements and the execution and
delivery by the Company of the Stockholders Agreement will not result in any
violation of or constitute a default under, with or without the passage of time
or the giving of notice, (i) any provision of the Restated Certificate or the
Company's Bylaws; (ii) any provision of any judgment, decree or order to
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which the Company is a party or by which it is bound; (iii) any material
contract, obligation or commitment to which the Company is a party or by which
it is bound; or (iv) any statute, rule or governmental regulation applicable to
the Company.
3.6 NO DEFAULTS OR VIOLATIONS. The Company is not in violation of any
term or provision of its Restated Certificate of Incorporation or Bylaws, each
as currently in effect, or any material term or provision of any indebtedness,
mortgage, indenture, contract, agreement, judgment, statute, rule or regulation,
or to the Company's knowledge, any decree or order.
3.7 PRIVATE OFFERING. The Company agrees that neither the Company nor
anyone acting on its behalf will offer any of the Shares or any similar
securities for issuance or sale to, or solicit any offering to acquire any of
the same from, anyone so as to make the sale and issuance of the Shares subject
to the registration requirements of Section 5 of the Securities Act of 1933, as
amended (the "Securities Act").
3.8 PRIOR REGISTRATION RIGHTS. Except as provided in the Rights
Agreement, the Company is under no contractual obligation to register under the
Securities Act any of its presently outstanding securities or any of its
securities that may subsequently be issued.
3.9 LITIGATION. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement, the Stockholders Agreement or the
Restated Rights Agreement or the right of the Company to enter into any of such
agreements, or which might result, either individually or in the aggregate, in
any material adverse change in the assets, condition, affairs or prospects of
the Company, financially or otherwise, or any change in the current equity
ownership of the Company, nor is the Company aware that there is any basis for
the foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
3.10 ACTION. The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than with respect to dividend obligations,
distributions, indebtedness and other obligations incurred in the ordinary
course of business) individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000 in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
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3.11 DISTRIBUTIONS. There has been no declaration or payment by the
Company of any dividend, nor any distribution by the Company of any assets of
any kind, to any class or series of its capital stock.
3.12 EMPLOYEE COMPENSATION PLANS. The Company is not party to or bound
by any currently effective employment contracts, deferred compensation
agreements, bonus plans, incentive plans, profit sharing plans, retirement
agreements, employee benefit plan subject to the Employee Retirement Income
Security Act of 1974 or other employee compensation agreements. Subject to
applicable law, the employment of each officer and employee of the Company is
terminable at the will of the Company.
3.13 EMPLOYEES. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. No
employee has any agreement or contract, written or verbal, regarding his
employment. To the Company's knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company has not received any notice alleging that any such violation has
occurred. No employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate his
employment with the Company, nor does the Company have a present intention to
terminate the employment of any officer, key employee or group of key employees.
3.14 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS; INTELLECTUAL
PROPERTY.
(a) Each current officer, director and employee of the Company
has executed a customary form of confidential information and inventions
agreement.
(b) Each former and current employee, officer and consultant
of the Company has executed a customary form of confidential information and
inventions agreement.
(c) The Company has not violated and by conducting its
business as proposed, will not violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other of any other person or
entity. None of the Company's officers or key employees, and the Company is not
aware that any of its other employees, is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business by the employees for the Company, nor the conduct of the Company's
business as proposed, will result in a breach of the terms, conditions or
provisions of, or
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constitute a default under, any contract, covenant or instrument under which any
employee is now obligated. It will not be necessary for the Company to utilize
any inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by the Company, except for inventions, trade
secrets or proprietary information that have been assigned to the Company.
3.15 MINUTE BOOKS. The minute books of the Company contain a complete
summary of all meetings of directors and stockholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
3.16 INSURANCE. The Company currently holds fire and casualty insurance
policies, with extended coverage, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed.
3.17 PERMITS. No governmental orders, permissions, consents, approvals
or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement and the issuance of the Shares or the Conversion
Shares, except such as has been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing, as will be filed in
a timely manner. The Company has all franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted.
3.18 ENVIRONMENTAL AND SAFETY LAWS. To its knowledge, the Company is
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
3.19 FULL DISCLOSURE. The Company has fully provided the Purchasers
with all the information which the Purchasers have requested for deciding
whether to purchase the Shares and all information which the Company believes is
reasonably necessary to enable the Purchasers to make such decision. The
representations and warranties of the Company contained in this Agreement and
the Rights Agreement, certificates and other documents made or delivered in
connection herewith do not contain any untrue statement of a material fact or
omit any material fact necessary to make the statements contained therein or
herein in view of the circumstances under which they were made not misleading.
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SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby severally represents and warrants to the Company
with respect to the purchase of the Shares as follows:
4.1 EXPERIENCE. Purchaser has substantial experience in evaluating and
investing in private placement transactions so that Purchaser is capable of
evaluating the merits and risks of Purchaser's investment in the Company.
Purchaser, by reason of its business or financial experience or the business or
financial experience of its professional advisors who are unaffiliated with and
who are not compensated by the Company or any affiliate or selling agent of the
Company, directly or indirectly, has the capacity to protect its own interests
in connection with the purchase of the Shares under this Agreement.
4.2 INVESTMENT. Purchaser is acquiring the Shares and the underlying
Common Stock for investment for Purchaser's own account, not as a nominee or
agent, and not with the view to, or for resale in connection with, any
distribution thereof. Purchaser understands that the Shares and the underlying
Common Stock have not been, and will not be, registered under the Securities Act
by reason of a specific exemption therefrom, and that any such exemption would
depend, among other things, upon the bona fide nature of the investment intent
and the accuracy of such Purchaser's representations as expressed in this
Agreement. Purchaser has not been formed for the specific purpose of acquiring
the Shares or the underlying Common Stock.
4.3 RULE 144. Purchaser acknowledges that the Shares and the underlying
Common Stock must be held indefinitely unless subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser is
aware of the provisions of Rule 144 promulgated under the Securities Act which
permit limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the existence
of a public market for the shares, the availability of certain current public
information about the Company, the resale occurring following the period of time
prescribed by Rule 144, the sale being effected through a "broker's transaction"
or in transactions directly with a "market maker" (as provided by Rule 144(f))
and the number of shares being sold during any three-month period not exceeding
specified limitations.
4.4 NO PUBLIC MARKET. Purchaser understands that no public market now
exists for any of the securities issued by the Company, that the Company has
made no assurances that a public market will ever exist for the Shares or the
underlying Common Stock and that, even if such a public market exists at some
future time, the Company may not then be satisfying the current public
information requirements of Rule 144.
4.5 ACCESS TO DATA. Purchaser and its representatives have met with
representatives of the Company and have had the opportunity to ask questions of,
and receive answers from, said representatives concerning the Company and the
terms and conditions of this transaction as well as to obtain any information
requested by Purchaser. Any questions raised by Purchaser or its representatives
concerning the transaction have been answered to the satisfaction of Purchaser
and its representatives. Purchaser's decision to purchase the Shares is based in
part on the
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answers to such questions as Purchaser and its representatives have raised
concerning the transaction and on its own evaluation of the risks and merits of
the purchase and the Company's proposed business activities.
4.6 AUTHORIZATION. This Agreement when executed and delivered by the
Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms.
4.7 TAX LIABILITY. Purchaser has reviewed with its own tax advisers the
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser has relied solely on such
advisers and not on any statements or representations of the Company or its
agents. Purchaser understands that it (and not the Company) shall be responsible
for its own tax liability that may arise as a result of this Agreement.
SECTION 5
CONDITIONS TO CLOSING OF PURCHASERS
Each Purchaser's obligation to purchase the Shares at the Closing is,
at the option of the Purchaser, subject to the fulfillment or waiver as of the
Closing Date of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 of this Agreement shall be true and
correct in all material respects when made, and shall be true and correct in all
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date.
5.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all respects.
5.3 COMPLIANCE CERTIFICATE. The Company shall have delivered to each
Purchaser a certificate of the Company, executed by the President of the
Company, dated the Closing Date, and certifying to the fulfillment of the
conditions specified in Sections 5.1 and 5.2 of this Agreement.
5.4 BLUE SKY. The Company shall have obtained all necessary Blue Sky
law permits and qualifications, or secured exemptions therefrom, required by any
state for the offer and sale of the Shares and the Common Stock issuable upon
conversion of the Shares.
5.5 CERTIFICATE OF INCORPORATION. The Restated Certificate shall have
been filed with the Secretary of State of the State of Delaware.
5.6 RESTATED RIGHTS AGREEMENT. The Company shall have entered into the
Restated Rights Agreement.
5.7 STOCKHOLDERS AGREEMENT. The Company and each of the parties thereto
shall have executed and delivered the Stockholders Agreement.
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5.8 LEGAL MATTERS. All material matters of a legal nature which pertain
to this Agreement, the Restated Rights Agreement and the Restated Stockholders
Agreement, and the transactions contemplated hereby and thereby, shall have been
reasonably approved by counsel to the Purchasers.
5.9 OPINION OF COMPANY'S COUNSEL. The Purchasers shall have received
from counsel to the Company, an opinion, dated the Closing Date, substantially
in the form as that attached hereto as EXHIBIT F.
5.10 BOARD OF DIRECTORS. Effective as of the First Closing, James
Geddes, Jr. shall be appointed to the Board of Directors of the Company to fill
a vacant position.
SECTION 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares at the Closing
is, at the option of the Company, subject to the fulfillment or waiver of the
following conditions:
6.1 REPRESENTATIONS. The representations made by each Purchaser in
Section 4 of this Agreement shall be true and correct when made, and shall be
true and correct on the Closing Date.
6.2 BLUE SKY. The Company shall have obtained all necessary Blue Sky
law permits and qualifications, or secured exemptions therefrom, required by any
state for the offer and sale of the Shares and the Common Stock issuable upon
conversion of the Shares.
6.3 CERTIFICATE OF INCORPORATION. The Restated Certificate shall have
been filed with the Secretary of State of the State of Delaware.
6.4 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Purchasers on or prior to the Closing Date
shall have been performed or complied with in all material respects.
6.5 LEGAL MATTERS. All material matters of a legal nature which pertain
to this Agreement, the Restated Rights Agreement, the Restated Stockholders
Agreement and the transactions contemplated hereby and thereby, shall have been
reasonably approved by counsel to the Company.
SECTION 7
AFFIRMATIVE COVENANTS OF THE COMPANY
As long as a Purchaser (together with any affiliate of such Purchaser)
holds not less than 350,000 Shares (or an equivalent number of shares consisting
of the Shares or Common Stock issued upon conversion of the Shares), as adjusted
for recapitalizations, stock splits, stock dividends and the like, the Company
will provide the information set forth in Sections 7.1 and
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7.2 to such Purchaser, and will provide the information set forth in Section
7.1 as long as a Purchaser holds any capital stock of the Company:
7.1 FINANCIAL INFORMATION.
(a) As soon as practicable after the end of each fiscal year,
and in any event within ninety (90) days thereafter, consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of such fiscal year,
and consolidated statements of income and consolidated statements of changes in
financial position of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and audited by the Company's independent public
accountants.
(b) Contemporaneously with delivery to holders of Common
Stock, a copy of each report of the Company delivered to holders of the
Company's Common Stock.
7.2 ADDITIONAL INFORMATION.
(a) As soon as practicable after the end of each fiscal month,
and in any event within thirty (30) days thereafter, an unaudited consolidated
balance sheet of the Company, as at the end of such month, and unaudited
consolidated statements of income and unaudited consolidated statements of cash
flow for such month and for the current fiscal year to date, compared against
the annual budget. Such financial statements shall be prepared in accordance
with generally accepted accounting principles consistently applied (other than
accompanying notes and subject to year-end adjustments), all in reasonable
detail.
(b) As soon as practicable, but in any event within 30 days
prior to the end of each fiscal year, a budget for the next fiscal year,
including balance sheets and sources and applications of funds statements and,
as soon as prepared, any other budgets or revised budgets prepared by the
Company.
(c) For so long as a Purchaser is eligible to receive reports
under this Section 7.2, it shall also have the right, at its expense, to discuss
the affairs, finances and accounts of the Company with the Company's officers,
all at such reasonable times and as often as may be reasonably requested;
provided, however, that the Company shall not be obligated to provide any
information that the Board of Directors reasonably considers to be a trade
secret or to contain confidential information.
7.3 TRANSFER OF INFORMATION RIGHTS. The information rights set forth in
Sections 7.1 and 7.2 may be transferred in any nonpublic transfer of Shares (or
Shares of Common Stock issued upon conversion of the Shares), provided that the
Company is given written notice of such transfer, and provided further that the
right to receive the information set forth in Section 7.2 may only be
transferred to a holder of, or affiliated holders who in the aggregate hold, at
least 350,000 Shares (or an equivalent number of Shares consisting of the Shares
or Common Stock issued upon conversion of the Shares, as appropriately adjusted
for stock splits and the like). In the event that the Company reasonably
determines that provision of information to a transferee pursuant to this
Section 7.3 would materially adversely affect its proprietary position, such
information may be edited in the manner necessary to avoid such effect.
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7.4 TERMINATION OF COVENANTS. The covenants set forth in Sections 7.1
and 7.2 shall terminate on and be of no further force or effect upon the earlier
of (i) the consummation of the Company's sale of its Common Stock in an
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act, immediately subsequent to which the Company
shall be obligated to file annual and quarterly reports with the Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") or (ii) the registration by the Company of a class of its equity
securities under Section 12(b) or 12(g) of the Exchange Act.
7.5 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. The
Company shall require all of its current and future officers and each employee
or consultant with access to confidential information regarding the Company's
operations, to execute and deliver a customers form of confidential information
and invention assignment agreement.
7.6 VESTING OF EMPLOYEE STOCK. Any stock granted to employees of or
consultants to the Company as part of the Common Stock reserved for such purpose
shall be subject to the Company's standard vesting provisions, which provide for
a four year term with 25% of the total shares or options to be granted vesting
on the first anniversary of the date of employment or association with the
Company and the remaining shares vesting at a rate of 1/48th of the total amount
per month ("Standard Vesting"); provided, however, that in the case of any stock
granted to an employee or consultant of the Company who (x) has previously
received a stock grant with Standard Vesting and (y) has at least one year of
continuous service with the Company, the vesting provisions for such follow-on
stock grant may, at the discretion of the Board of Directors (or a committee
thereof), provide for a four year term with vesting at a rate of 1/48th of the
total amount per month.
SECTION 8
BOARD REPRESENTATION
8.1 ELECTION OF DIRECTORS. The Company and each of the Purchasers
covenant and agree to nominate, and to use their diligent best efforts to cause
the Board of Directors to be elected consistent with the provisions of Section
IV.B.3 of the Restated Certificate.
SECTION 9
MISCELLANEOUS
9.1 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, and by the General Corporation Law of the State of
Delaware to the extent applicable to any corporate action related to the Company
hereunder.
9.2 SURVIVAL. The representations, warranties, covenants and agreements
made in this Agreement shall survive the closing of the transactions
contemplated hereby, and shall in no way be affected by any investigation of the
subject matter hereof made by or on behalf of the Purchasers or the Company.
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9.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
Agreement, 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; provided, however, that the right of the
Purchasers to purchase the Shares shall not be assignable without the prior
written consent of the Company.
9.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents
delivered pursuant to this Agreement at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and supersede all prior agreements and merge all
prior discussions, negotiations, proposals and offers (written or oral) between
them, and no party shall be liable or bound to any other party in any manner by
any warranties, representations or covenants except as specifically set forth
herein or therein. 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 the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought; provided,
however, that holders of at least a majority of the Shares (or shares of Common
Stock issued upon conversion of the Shares) may, with the written consent of the
Company, waive, modify or amend on behalf of all holders, any provisions hereof
benefiting such holders, so long as the effect thereof will be that all such
holders will be treated equally.
9.5 NOTICES, ETC. All notices and other communications required or
permitted under this Agreement shall be mailed by registered or certified mail,
postage prepaid, or otherwise delivered by hand or by messenger, addressed (a)
if to a Purchaser, at such Purchaser's address set forth on EXHIBIT A, or, at
such other address as such Purchaser shall have furnished to the Company in
writing, or (b) if to any other holder of any Shares, at such address as such
holder shall have furnished the Company in writing, or, until any such holder so
furnishes an address to the Company, then to and at the address of the last
holder of such Shares who has so furnished an address to the Company, or (c) if
to the Company, one copy should be sent to its offices and addressed to the
attention of the President, or at such other address as the Company shall have
furnished to the Purchaser.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and postage prepaid as
aforesaid.
9.6 DELAYS OR OMISSIONS. Except as expressly provided in this
Agreement, no delay or omission to exercise any right, power or remedy accruing
to any holder of any Shares, upon any breach or default of the Company under
this Agreement, shall impair any such right, power or remedy of such holder nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
holder of any breach or default under this Agreement, or any waiver on the part
of any holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All
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remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
9.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTIONS 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
9.8 EXPENSES. The Company and the Purchasers shall each bear their own
expenses incurred on their behalf with respect to this Agreement and the
transactions contemplated hereby, except that the Company shall cover the
reasonable fees and expenses (not to exceed $15,000) of one counsel to the
Purchasers.
9.9 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 all of which together shall constitute one
instrument.
9.10 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
9.11 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.
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The foregoing SERIES C PREFERRED STOCK PURCHASE AGREEMENT is hereby
executed as of the date first above written.
"COMPANY" NETRATINGS, INC.
a Delaware corporation
By:
---------------------------------------
David J. Toth, President & CEO
"PURCHASERS"
TRANS COSMOS U.S.A. INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
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EXHIBIT 10.8
NETRATINGS, INC.
--------------------------
SERIES D PREFERRED STOCK
PURCHASE AGREEMENT
--------------------------
SEPTEMBER __, 1999
<PAGE>
NETRATINGS, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
This Series D Preferred Stock Purchase Agreement (the "Agreement") is
made as of September __, 1999 by and among NetRatings, Inc., a Delaware
corporation (the "Company") and the investors (the "Purchasers") listed on the
Schedule of Purchasers attached hereto as EXHIBIT A (the "Schedule of
Purchasers").
SECTION 1
AUTHORIZATION AND SALE OF SERIES D PREFERRED STOCK
1.1 AUTHORIZATION. On or before the Closing (as defined in Section 2),
the Company will authorize the sale and issuance of up to 4,887,051 shares (the
"Shares") of its Series D Preferred Stock (the "Series D Preferred Stock"),
having the respective rights, privileges and preferences as set forth in the
Third Restated Certificate of Incorporation (the "Restated Certificate") in
substantially the form attached to this Agreement as EXHIBIT B.
1.2 SALE OF SERIES D PREFERRED STOCK. Subject to the terms and
conditions of this Agreement, each Purchaser agrees to purchase at the Closing
(as defined below), and the Company agrees to sell and issue to each Purchaser,
that number of shares of the Company's Series D Preferred Stock set forth
opposite such Purchaser's name in column 2 on the Schedule of Purchasers, at a
purchase price of $3.1395 per share, for the aggregate purchase price set forth
in column 3 on the Schedule of Purchasers. The Company's agreements with each of
the Purchasers are separate agreements, and the sales of the Series D Preferred
Stock to each of the Purchasers are separate sales.
SECTION 2
CLOSING DATES, DELIVERY
2.1 CLOSING DATES. The closing, comprising the purchase by ACNielsen
Corporation ("ACN"), Trans Cosmos U.S.A. Inc. ("TCI") and Neilsen Media
Research, Inc. ("NMR") and the sale by the Company of 4,887,051 shares of Series
D Preferred Stock under this Agreement shall be held at the offices of Gray Cary
Ware & Freidenrich, 400 Hamilton Avenue, Palo Alto, CA 94301 on or before
September __, 1999, (the "Closing") or at such other time and place upon which
the Company and the Purchasers shall agree. For purposes of this Agreement,
unless the context otherwise requires, the term "Closing" shall refer, with
respect to each Purchaser, to the specific closing at which such Purchaser
purchased the Shares. The date of the Closing, with respect to each Purchaser,
is hereinafter referred to as the "Closing Date."
2.2 DELIVERY. At the Closing, the Company will deliver to each
Purchaser a certificate or certificates, registered in the Purchaser's name as
set forth on the Schedule of Purchasers, representing the number of Shares to be
issued to such Purchaser at such Closing. At the Closing, delivery of the
certificates for the Shares will be made against delivery to the
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Company of the purchase price therefor by (i) check payable to the Company, (ii)
wire transfer according to the Company's instructions, or (iii) any combination
of the foregoing.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Schedule of Exceptions set forth in EXHIBIT
C attached to this Agreement, the Company hereby represents and warrants to the
Purchasers as follows:
3.1 CORPORATE ORGANIZATION AND AUTHORITY. The Company is a corporation
duly organized and existing under and is in good standing under the laws of the
State of Delaware. The Company is qualified to do business in the State of
California, has the corporate power and corporate authority to own and operate
its properties and to carry on its business as now conducted and as proposed to
be conducted and is not qualified to do business as a foreign corporation in any
jurisdiction other than California and such qualification is not presently
required in any jurisdiction where a failure to so qualify would have a material
adverse effect on the Company.
3.2 CAPITALIZATION. Immediately prior to the Closing, the authorized
capital stock of the Company shall consist of:
(a) PREFERRED STOCK. A total of 15,571,162 shares of Preferred
Stock, of which 1,900,000 shares are designated Series A Preferred Stock, all of
which shares are issued and outstanding as of the date hereof; of which
2,184,111 shares are designated Series B Preferred Stock, 1,477,151 of which
shares are issued and outstanding as of the date hereof; of which 6,600,000
shares are designated Series C Preferred Stock, of which 6,413,751 shares are
issued and outstanding as of the date hereof; and of which 4,887,051 shares are
designated Series D Preferred Stock, none of which shares will be issued and
outstanding immediately prior to the Closing. Upon the filing of the Restated
Certificate, the rights, preferences, privileges and restrictions on the Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock of the Company will be as set forth in the Restated
Certificate as in effect on the Closing Date.
(b) COMMON STOCK. A total of 84,428,838 shares of Common Stock, of
which 7,238,000 shares are duly and validly issued and outstanding, fully-paid,
nonassessable. The Company has reserved 1,900,000 shares of Common Stock for
issuance upon conversion of the outstanding shares of Series A Preferred Stock,
and 2,184,111 shares of its Common Stock for issuance upon conversion of the
outstanding shares of Series B Preferred Stock and warrants to purchase Series B
Preferred Stock, 6,600,000 shares of Common Stock for issuance upon conversion
of the outstanding shares of Series C Preferred Stock and 4,887,051 shares of
Common Stock for issuance upon conversion of the outstanding shares of Series D
Preferred Stock to be issued hereunder. The Company has presently has in reserve
4,917,000 shares of Common Stock under the 1998 Stock Plan for issuance to
employees and directors of, and consultants to, the Company (consisting of
3,131,200 shares of Common Stock subject to outstanding options and 1,785,800
shares of Common Stock available for grant under such plan). Except as
contemplated by this Agreement and the Stockholders Agreement (as defined
below),
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there are no other outstanding warrants, options, conversion privileges,
preemptive rights, or other rights or agreements to purchase or otherwise
acquire or issue any equity securities of the Company. Other than the
Stockholders Agreement (as defined below), and the Addendum No. 1 to the
Stockholders Agreement (as defined below), and the Restated Rights Agreement (as
defined below), and the Addendum No. 1 to the Restated Rights Agreement (as
defined below),the Company is not a party or subject to any agreement or
understanding, and, to the Company's knowledge, there is no agreement or
understanding between any persons and/or entities, which affects or relates to
the voting or giving of written consents with respect to any security or by a
director of the Company.
3.3 AUTHORIZATION. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution,
delivery and performance of all obligations under this Agreement and for the
sale, issuance and delivery of the Shares, and of the Common Stock issuable upon
conversion of the Shares has been taken or will be taken prior to the Closing.
This Agreement and the Restated Rights Agreement and Addendum No. 1 thereto
attached hereto as EXHIBIT D (the "Restated Rights Agreement" and Addendum No. 1
thereto), when executed and delivered by the Company, will constitute legally
binding and valid obligations of the Company, enforceable in accordance with
their terms. The Stockholders Agreement and Addendum No. 1 thereto attached
hereto as EXHIBIT E (the "Stockholders Agreement" and Addendum No. 1 thereto),
when executed and delivered by the Company, will constitute legally valid and
binding obligations of the Company to the extent of the Company's obligations
thereunder, enforceable in accordance with their terms. This Agreement, the
Restated Rights Agreement and Addendum No. 1 thereto, and the Stockholders
Agreement and Addendum No. 1 thereto are referred to collectively herein as the
"Company Agreements."
3.4 VALIDITY OF SHARES. The Shares, when issued, sold and delivered in
accordance with the terms and for the consideration expressed in this Agreement,
shall be duly and validly issued (including, without limitation, issued in
compliance with applicable federal and state securities laws, assuming the
accuracy of the representations and warranties of the Purchasers set forth
herein), fully-paid and non-assessable and free and clear of all liens and
encumbrances (other than those, if any, created or imposed by a Purchaser). The
Common Stock issuable upon conversion of the Shares has been reserved, and
assuming such Common Stock is issued to the Purchasers, upon issuance in
accordance with the Restated Certificate, shall be duly and validly issued
(including, without limitation, issued in compliance with all applicable federal
and state securities laws), fully-paid and non-assessable.
3.5 NO CONFLICT WITH OTHER INSTRUMENTS. The execution, delivery and
performance by the Company of the Company Agreements will not result in any
violation of or constitute a default under, with or without the passage of time
or the giving of notice, (i) any provision of the Restated Certificate or the
Company's Bylaws; (ii) any provision of any judgment, decree or order to which
the Company is a party or by which it is bound; (iii) any material contract,
obligation or commitment to which the Company is a party or by which it is
bound; or (iv) any statute, rule or governmental regulation applicable to the
Company.
3.6 NO DEFAULTS OR VIOLATIONS. The Company is not in violation of any
term or provision of its Restated Certificate of Incorporation or Bylaws, each
as currently in effect, or
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any material term or provision of any indebtedness, mortgage, indenture,
contract, agreement, judgment, statute, rule or regulation, or to the Company's
knowledge, any decree or order.
3.7 PRIVATE OFFERING. The Company agrees that neither the Company nor
anyone acting on its behalf will offer any of the Shares or any similar
securities for issuance or sale to, or solicit any offering to acquire any of
the same from, anyone so as to make the sale and issuance of the Shares subject
to the registration requirements of Section 5 of the Securities Act of 1933, as
amended (the "Securities Act").
3.8 PRIOR REGISTRATION RIGHTS. Except as provided in the Rights
Agreement and Addendum No. 1 thereto, the Company is under no contractual
obligation to register under the Securities Act any of its presently outstanding
securities or any of its securities that may subsequently be issued.
3.9 LITIGATION. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement, the Stockholders Agreement and
Addendum No. 1 thereto or the Restated Rights Agreement and Addendum No. 1
thereto or the right of the Company to enter into any of such agreements, or
which might result, either individually or in the aggregate, in any material
adverse change in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for the foregoing. The
foregoing includes, without limitation, actions pending or threatened (or any
basis therefor known to the Company) involving the prior employment of any of
the Company's employees, their use in connection with the Company's business of
any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
3.10 ACTION. The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than with respect to dividend obligations,
distributions, indebtedness and other obligations incurred in the ordinary
course of business) individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000 in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
3.11 DISTRIBUTIONS. There has been no declaration or payment by the
Company of any dividend, nor any distribution by the Company of any assets of
any kind, to any class or series of its capital stock.
3.12 EMPLOYEE COMPENSATION PLANS. The Company is not party to or bound
by any currently effective employment contracts, deferred compensation
agreements, bonus plans, incentive plans, profit sharing plans, retirement
agreements, employee benefit plan subject to the
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Employee Retirement Income Security Act of 1974 or other employee compensation
agreements. Subject to applicable law, the employment of each officer and
employee of the Company is terminable at the will of the Company.
3.13 EMPLOYEES. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. No
employee has any agreement or contract, written or verbal, regarding his
employment. To the Company's knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company has not received any notice alleging that any such violation has
occurred. No employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate his
employment with the Company, nor does the Company have a present intention to
terminate the employment of any officer, key employee or group of key employees.
3.14 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS; INTELLECTUAL
PROPERTY.
(a) Each current officer, director and employee of the Company has
executed a customary form of confidential information and inventions agreement.
(b) Each former and current employee, officer and consultant of
the Company has executed a customary form of confidential information and
inventions agreement.
(c) The Company has not violated and by conducting its business as
proposed, will not violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other of any other person or entity. None
of the Company's officers or key employees, and the Company is not aware that
any of its other employees, is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's business by the
employees for the Company, nor the conduct of the Company's business as
proposed, will result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, covenant or instrument under which any
employee is now obligated. It will not be necessary for the Company to utilize
any inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by the Company, except for inventions, trade
secrets or proprietary information that have been assigned to the Company.
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3.15 MINUTE BOOKS. The minute books of the Company contain a complete
summary of all meetings of directors and stockholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
3.16 INSURANCE. The Company currently holds fire and casualty insurance
policies, with extended coverage, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed.
3.17 PERMITS. No governmental orders, permissions, consents, approvals
or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement and the issuance of the Shares or the Conversion
Shares, except such as has been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing, as will be filed in
a timely manner. The Company has all franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted.
3.18 ENVIRONMENTAL AND SAFETY LAWS. To its knowledge, the Company is
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
3.19 FULL DISCLOSURE. The Company has fully provided the Purchasers
with all the information which the Purchasers have requested for deciding
whether to purchase the Shares and all information which the Company believes is
reasonably necessary to enable the Purchasers to make such decision. The
representations and warranties of the Company contained in this Agreement and
the Restated Rights Agreement and Addendum No. 1 thereto, certificates and other
documents made or delivered in connection herewith do not contain any untrue
statement of a material fact or omit any material fact necessary to make the
statements contained therein or herein in view of the circumstances under which
they were made not misleading.
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SECTION 4
Representations and Warranties of the Purchasers
Each Purchaser hereby severally represents and warrants to the Company
with respect to the purchase of the Shares as follows:
4.1 EXPERIENCE. Purchaser has substantial experience in evaluating and
investing in private placement transactions so that Purchaser is capable of
evaluating the merits and risks of Purchaser's investment in the Company.
Purchaser, by reason of its business or financial experience or the business or
financial experience of its professional advisors who are unaffiliated with and
who are not compensated by the Company or any affiliate or selling agent of the
Company, directly or indirectly, has the capacity to protect its own interests
in connection with the purchase of the Shares under this Agreement.
4.2 INVESTMENT. Purchaser is acquiring the Shares and the underlying
Common Stock for investment for Purchaser's own account, not as a nominee or
agent, and not with the view to, or for resale in connection with, any
distribution thereof. Purchaser understands that the Shares and the underlying
Common Stock have not been, and will not be, registered under the Securities Act
by reason of a specific exemption therefrom, and that any such exemption would
depend, among other things, upon the bona fide nature of the investment intent
and the accuracy of such Purchaser's representations as expressed in this
Agreement. Purchaser has not been formed for the specific purpose of acquiring
the Shares or the underlying Common Stock.
4.3 RULE 144. Purchaser acknowledges that the Shares and the underlying
Common Stock must be held indefinitely unless subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser is
aware of the provisions of Rule 144 promulgated under the Securities Act which
permit limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the existence
of a public market for the shares, the availability of certain current public
information about the Company, the resale occurring following the period of time
prescribed by Rule 144, the sale being effected through a "broker's transaction"
or in transactions directly with a "market maker" (as provided by Rule 144(f))
and the number of shares being sold during any three-month period not exceeding
specified limitations.
4.4 NO PUBLIC MARKET. Purchaser understands that no public market now
exists for any of the securities issued by the Company, that the Company has
made no assurances that a public market will ever exist for the Shares or the
underlying Common Stock and that, even if such a public market exists at some
future time, the Company may not then be satisfying the current public
information requirements of Rule 144.
4.5 ACCESS TO DATA. Purchaser and its representatives have met with
representatives of the Company and have had the opportunity to ask questions of,
and receive answers from, said representatives concerning the Company and the
terms and conditions of this transaction as well as to obtain any information
requested by Purchaser. Any questions raised by Purchaser or its representatives
concerning the transaction have been answered to the satisfaction of Purchaser
and its representatives. Purchaser's decision to purchase the Shares is based in
part on the
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answers to such questions as Purchaser and its representatives have raised
concerning the transaction and on its own evaluation of the risks and merits of
the purchase and the Company's proposed business activities.
4.6 AUTHORIZATION. This Agreement when executed and delivered by the
Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms.
4.7 TAX LIABILITY. Purchaser has reviewed with its own tax advisers the
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser has relied solely on such
advisers and not on any statements or representations of the Company or its
agents. Purchaser understands that it (and not the Company) shall be responsible
for its own tax liability that may arise as a result of this Agreement.
SECTION 5
CONDITIONS TO CLOSING OF PURCHASERS
Each Purchaser's obligation to purchase the Shares at the Closing is,
at the option of the Purchaser, subject to the fulfillment or waiver as of the
Closing Date of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 of this Agreement shall be true and
correct in all material respects when made, and shall be true and correct in all
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date.
5.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all respects.
5.3 COMPLIANCE CERTIFICATE. The Company shall have delivered to such
Purchaser a certificate of the Company, executed by the President of the
Company, dated the Closing Date, and certifying to the fulfillment of the
conditions specified in Sections 5.1 and 5.2 of this Agreement.
5.4 BLUE SKY. The Company shall have obtained all necessary Blue Sky
law permits and qualifications, or secured exemptions therefrom, required by any
state for the offer and sale of the Shares and the Common Stock issuable upon
conversion of the Purchaser's Shares.
5.5 CERTIFICATE OF INCORPORATION. The Restated Certificate shall have
been filed by the Company with the Secretary of State of the State of Delaware.
5.6 RESTATED RIGHTS AGREEMENT. The Company and each of the other
parties thereto shall have executed and delivered the Restated Rights Agreement
and Addendum No. 1 thereto.
5.7 STOCKHOLDERS AGREEMENT. The Company and each of the other parties
thereto shall have executed and delivered the Stockholders Agreement and
Addendum No. 1 thereto.
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5.8 LEGAL MATTERS. All material matters of a legal nature which pertain
to this Agreement, the Restated Rights Agreement and Addendum No. 1 thereto and
the Restated Stockholders Agreement and Addendum No. 1 thereto , and the
transactions contemplated hereby and thereby, shall have been reasonably
approved by counsel to the Purchasers.
5.9 OPINION OF COMPANY'S COUNSEL. Such Purchaser shall have received
from counsel to the Company, an opinion, dated the Closing Date, substantially
in the form as that attached hereto as EXHIBIT F.
SECTION 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares to any Purchaser
at the Closing is, at the option of the Company, subject to the fulfillment or
waiver of the following conditions (PROVIDED, that since each sale to each
Purchaser is a separate sale, if a condition is required to be fulfilled by a
Purchaser, then it must be fulfilled by the Purchaser to which the shares are
being issued):
6.1 REPRESENTATIONS. The representations made by such Purchaser in
Section 4 of this Agreement shall be true and correct when made, and shall be
true and correct on the Closing Date.
6.2 BLUE SKY. The Company shall have obtained all necessary Blue Sky
law permits and qualifications, or secured exemptions therefrom, required by any
state for the offer and sale of the Shares and the Common Stock issuable upon
conversion of the Shares being sold to such Purchaser.
6.3 CERTIFICATE OF INCORPORATION. The Restated Certificate shall have
been filed by the Company with the Secretary of State of the State of Delaware.
6.4 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by such Purchaser on or prior to the Closing Date
shall have been performed or complied with in all material respects.
6.5 LEGAL MATTERS. All material matters of a legal nature which pertain
to this Agreement, the Restated Rights Agreement and Addendum No. 1 thereto, the
Restated Stockholders Agreement and Addendum No. 1 thereto and the transactions
contemplated hereby and thereby, shall have been reasonably approved by counsel
to the Company.
SECTION 7
AFFIRMATIVE COVENANTS OF THE COMPANY
As long as a Purchaser (together with any affiliate of such Purchaser)
holds not less than 350,000 Shares (or an equivalent number of shares consisting
of the Shares or Common Stock issued upon conversion of the Shares), as adjusted
for recapitalizations, stock splits, stock dividends and the like, the Company
will provide the information set forth in Sections 7.1 and
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7.2 to such Purchaser, and will provide the information set forth in Section 7.1
as long as a Purchaser holds any capital stock of the Company:
7.1 FINANCIAL INFORMATION.
(a) As soon as practicable after the end of each fiscal year, and
in any event within ninety (90) days thereafter, consolidated balance sheets of
the Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of changes in
financial position of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and audited by the Company's independent public
accountants.
(b) Contemporaneously with delivery to holders of Common Stock, a
copy of each report of the Company delivered to holders of the Company's Common
Stock.
7.2 ADDITIONAL INFORMATION.
(a) As soon as practicable after the end of each fiscal month, and
in any event within thirty (30) days thereafter, an unaudited consolidated
balance sheet of the Company, as at the end of such month, and unaudited
consolidated statements of income and unaudited consolidated statements of cash
flow for such month and for the current fiscal year to date, compared against
the annual budget. Such financial statements shall be prepared in accordance
with generally accepted accounting principles consistently applied (other than
accompanying notes and subject to year-end adjustments), all in reasonable
detail.
(b) As soon as practicable, but in any event within 30 days prior
to the end of each fiscal year, a budget for the next fiscal year, including
balance sheets and sources and applications of funds statements and, as soon as
prepared, any other budgets or revised budgets prepared by the Company.
(c) For so long as a Purchaser is eligible to receive reports
under this Section 7.2, it shall also have the right, at its expense, to discuss
the affairs, finances and accounts of the Company with the Company's officers,
all at such reasonable times and as often as may be reasonably requested;
provided, however, that the Company shall not be obligated to provide any
information that the Board of Directors reasonably considers to be a trade
secret or to contain confidential information.
7.3 TRANSFER OF INFORMATION RIGHTS. The information rights set forth in
Sections 7.1 and 7.2 may be transferred in any nonpublic transfer of Shares (or
Shares of Common Stock issued upon conversion of the Shares), provided that the
Company is given written notice of such transfer, and provided further that the
right to receive the information set forth in Section 7.2 may only be
transferred to a holder of, or affiliated holders who in the aggregate hold, at
least 350,000 Shares (or an equivalent number of Shares consisting of the Shares
or Common Stock issued upon conversion of the Shares, as appropriately adjusted
for stock splits and the like). In the event that the Company reasonably
determines that provision of information to a transferee pursuant to this
Section 7.3 would materially adversely affect its proprietary position, such
information may be edited in the manner necessary to avoid such effect.
10
<PAGE>
7.4 TERMINATION OF COVENANTS. The covenants set forth in Sections 7.1
and 7.2 shall terminate on and be of no further force or effect upon the earlier
of (i) the consummation of the Company's sale of its Common Stock in an
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act, immediately subsequent to which the Company
shall be obligated to file annual and quarterly reports with the Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") or (ii) the registration by the Company of a class of its equity
securities under Section 12(b) or 12(g) of the Exchange Act.
7.5 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. The
Company shall require all of its current and future officers and each employee
or consultant with access to confidential information regarding the Company's
operations, to execute and deliver a customers form of confidential information
and invention assignment agreement.
7.6 VESTING OF EMPLOYEE STOCK. Any stock granted to employees of or
consultants to the Company as part of the Common Stock reserved for such purpose
shall be subject to the Company's standard vesting provisions, which provide for
a four year term with 25% of the total shares or options to be granted vesting
on the first anniversary of the date of employment or association with the
Company and the remaining shares vesting at a rate of 1/48th of the total amount
per month ("Standard Vesting"); provided, however, that in the case of any stock
granted to an employee or consultant of the Company who (x) has previously
received a stock grant with Standard Vesting and (y) has at least one year of
continuous service with the Company, the vesting provisions for such follow-on
stock grant may, at the discretion of the Board of Directors (or a committee
thereof), provide for a four year term with vesting at a rate of 1/48th of the
total amount per month.
SECTION 8
BOARD REPRESENTATION
8.1 ELECTION OF DIRECTORS. The Company and each of the Purchasers
covenant and agree to nominate, and to use their diligent best efforts to cause
the Board of Directors to be elected consistent with the Bylaws or any agreement
between the Company and its stockholders.
SECTION 9
MISCELLANEOUS
9.1 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, and by the General Corporation Law of the State of
Delaware to the extent applicable to any corporate action related to the Company
hereunder.
9.2 SURVIVAL. The representations, warranties, covenants and agreements
made in this Agreement shall survive the closing of the transactions
contemplated hereby, and shall in no way be affected by any investigation of the
subject matter hereof made by or on behalf of the Purchasers or the Company.
11
<PAGE>
9.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
Agreement, 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; provided, however, that the right of the
Purchasers to purchase the Shares shall not be assignable without the prior
written consent of the Company.
9.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents
delivered pursuant to this Agreement at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and supersede all prior agreements and merge all
prior discussions, negotiations, proposals and offers (written or oral) between
them, and no party shall be liable or bound to any other party in any manner by
any warranties, representations or covenants except as specifically set forth
herein or therein. 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 the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought; provided,
however, that holders of at least a majority of the Shares (or shares of Common
Stock issued upon conversion of the Shares) may, with the written consent of the
Company, waive, modify or amend on behalf of all holders, any provisions hereof
benefiting such holders, so long as the effect thereof will be that all such
holders will be treated equally.
9.5 NOTICES, ETC. All notices and other communications required or
permitted under this Agreement shall be mailed by registered or certified mail,
postage prepaid, or otherwise delivered by hand or by messenger, addressed (a)
if to a Purchaser, at such Purchaser's address set forth on EXHIBIT A, or, at
such other address as such Purchaser shall have furnished to the Company in
writing, or (b) if to any other holder of any Shares, at such address as such
holder shall have furnished the Company in writing, or, until any such holder so
furnishes an address to the Company, then to and at the address of the last
holder of such Shares who has so furnished an address to the Company, or (c) if
to the Company, one copy should be sent to its offices and addressed to the
attention of the President, or at such other address as the Company shall have
furnished to the Purchaser.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and postage prepaid as
aforesaid.
9.6 DELAYS OR OMISSIONS. Except as expressly provided in this
Agreement, no delay or omission to exercise any right, power or remedy accruing
to any holder of any Shares, upon any breach or default of the Company under
this Agreement, shall impair any such right, power or remedy of such holder nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
holder of any breach or default under this Agreement, or any waiver on the part
of any holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All
12
<PAGE>
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
9.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTIONS 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
9.8 EXPENSES. The Company and the Purchasers shall each bear their own
expenses incurred on their behalf with respect to this Agreement and the
transactions contemplated hereby, except that the Company shall cover the
reasonable fees and expenses (not to exceed $15,000) of one counsel to the
Purchasers.
9.9 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 all of which together shall constitute one
instrument.
9.10 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
9.11 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.
13
<PAGE>
The foregoing SERIES D PREFERRED STOCK PURCHASE AGREEMENT is hereby
executed as of the date first above written.
"COMPANY" NETRATINGS, INC.
a Delaware corporation
By:
----------------------------------
David J. Toth, President & CEO
"PURCHASERS" ACNIELSEN CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
NIELSEN MEDIA RESEARCH
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
TRANS COSMOS U.S.A. INC.
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
14
<PAGE>
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
15
<PAGE>
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 September 9, 1999, except for Note 11 as to which
the date is September 21, 1999, in the Registration Statement (Form S-1) of
NetRatings, Inc. dated September 24, 1999.
Palo Alto, California
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the
effectiveness of the stock split as described in Note 11 to the financial
statements.
/s/ ERNST & YOUNG LLP
Palo Alto, California
September 23, 1999
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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<SECURITIES> 0
<RECEIVABLES> 158
<ALLOWANCES> (25)
<INVENTORY> 0
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<PP&E> 585
<DEPRECIATION> (191)
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0
1
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<TOTAL-LIABILITY-AND-EQUITY> 1965
<SALES> 237
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