-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BQddjQsBmoKZFsaeekbJbwD5NNIoxDffSul3JLyyOOZOOqjs9a2/cRkXBhMSVuQI irkcO1tZLJrEuWBTLjotaw== 0001012870-00-002252.txt : 20000421 0001012870-00-002252.hdr.sgml : 20000421 ACCESSION NUMBER: 0001012870-00-002252 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20000420 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIGHTNOW TECHNOLOGIES INC CENTRAL INDEX KEY: 0001111247 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 810503640 STATE OF INCORPORATION: MT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-35290 FILM NUMBER: 606006 BUSINESS ADDRESS: STREET 1: 77 DISCOVERY DR CITY: BOZEMAN STATE: MT ZIP: 59718 MAIL ADDRESS: STREET 1: 77 DISCOVERY DR CITY: BOZEMAN STATE: MT ZIP: 59718 S-1 1 FORM S-1 REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on April 20, 2000 Registration No. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- RIGHT NOW TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Montana 7372 81-0503540 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
77 Discovery Drive Bozeman, Montana 59718 (406) 522-4200 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Greg R. Gianforte Chief Executive Officer Right Now Technologies, Inc. 77 Discovery Drive Bozeman, Montana 59718 (406) 522-4200 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: John W. Manning William H. Hinman, Jr. Lawrence T. Martinez Shearman & Sterling Dorsey & Whitney LLP 1550 El Camino Real, Suite 100 507 Davidson Building Menlo Park, CA 94025-4100 8 Third Street North (650) 330-2200 Great Falls, Montana 59401 (406) 727-3632
---------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, 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, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------
Title of each class of securities to be Maximum Aggregate Amount of registered Offering Price(1) Registration Fee - ------------------------------------------------------------------------------ Common Stock, par value $.001 per share................................. $50,000,000 $13,200 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(o). The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and it is not soliciting offers to buy these + +securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED APRIL 20, 2000 Shares [RightNow Technologies, Inc. Logo] Common Stock -------- Prior to this offering, there has been no public market for our common stock. The initial public offering price of the common stock is expected to be between $ and $ per share. We have applied to list our common stock on The Nasdaq Stock Market's National Market under the symbol "RTNW." The underwriters have an option to purchase a maximum of additional shares to cover over-allotments of shares. Investing in the common stock involves risks. See "Risk Factors" on page 6.
Underwriting Proceeds to Price to Discounts and RightNow Public Commissions Technologies -------------- -------------- -------------- Per Share.......................... $ $ $ Total.............................. $ $ $
Delivery of the shares of common stock will be made on or about , 2000. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Credit Suisse First Boston Dain Rauscher Wessels Thomas Weisel Partners LLC Adams, Harkness & Hill, Inc. D.A. Davidson & Co. The date of this prospectus is , 2000. [DESCRIBE INSIDE COVER GRAPHICS] [Our artwork portrays a representation of how our RightNow Web product addresses questions a visitor to a business Web site may have. It will use the words "Self-Help," "E-Mail Management," "Live Chat Interaction" and "Customer Driven Dynamic Knowledgebase" in the depiction. It will also use our corporate logo and the phrase "Getting Answers with RightNow Web."] ------------ TABLE OF CONTENTS
Page ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 6 Special Note Regarding Forward-Looking Statements........................ 16 Use of Proceeds.......................................................... 17 Dividend Policy.......................................................... 17 Capitalization........................................................... 18 Dilution................................................................. 19 Selected Financial Data.................................................. 20 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 21
Page ---- Business................................................................... 29 Management................................................................. 43 Related Party Transactions................................................. 52 Principal Stockholders..................................................... 53 Description of Capital Stock............................................... 55 Shares Eligible for Future Sale............................................ 58 Underwriting............................................................... 60 Notice to Canadian Residents............................................... 63 Legal Matters.............................................................. 64 Experts.................................................................... 64 Where You Can Find More Information........................................ 64 Index to Financial Statements.............................................. F-1
------------ You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may be used only where it is legal to sell these securities. The information in this document may be accurate only on the date of this document. Dealer Prospectus Delivery Obligation Until , 2000 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions. PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before buying shares in this offering. You should read the entire prospectus carefully, including our financial statements and related notes, before making an investment decision. RightNow Technologies, Inc. We are a leading provider of Internet customer service solutions. Our products are designed to enable businesses and other organizations operating on or utilizing the Web to enhance customer interactions and anticipate customer needs, thereby producing higher levels of customer satisfaction. Our comprehensive solution uses a dynamically updated, self-learning knowledgebase to deliver customer self-service, e-mail management, live interaction, issue tracking and customer satisfaction measurement capabilities. The content of each individual knowledgebase is customer-driven, meaning that the knowledgebase "learns" as customers communicate and interact with the business. This allows businesses to efficiently capture, organize, publish and distribute valuable product and service information both to customers and throughout the rest of the extended enterprise. Businesses are increasingly using the Internet as an integral means of communicating and interacting with their customers, business partners and employees. As customer communication shifts to the Internet, customers expect the capability not only to view and purchase products online, but also to obtain answers to their product and service questions at any hour of the day. We believe that the ability to efficiently provide fast, reliable and accurate information to meet customer expectations has become a competitive necessity for many organizations. We believe a significant market opportunity exists for an integrated Internet customer service solution that enables both effective customer self- service and streamlined escalation to other channels of company communication. Self-service, or the ability of customers to help themselves by accessing the information they seek, allows businesses to rapidly respond to growing customer needs without hiring the large numbers of additional personnel that are required to generate responses by traditional means. When self-service is combined with a dynamically updated knowledgebase and the ability to easily deliver information through e-mail, live chat or other person-to-person interaction, the resulting solution allows companies to leverage their existing resources to achieve higher levels of customer satisfaction, increased employee productivity and decreased cost per customer service interaction. Our Internet customer service solution provides businesses and other organizations with the following benefits: . increased customer satisfaction, which our products achieve by enabling fast, efficient and intelligent resolution of customer service questions and issues; . reduced cost of customer service, which results from enabling and encouraging customer self-service, helping customers communicate questions they cannot answer on their own to a customer service representative and assisting customer service representatives to answer questions; . dynamic knowledge capture, organization, publication and distribution, the core features of our knowledgebase technology; . application service provider delivery, which allows businesses to minimize implementation requirements and reduce the cost of ownership of our hosted products; 3 . a comprehensive, rapidly deployable solution that integrates Internet- based customer self-service, e-mail management, live interaction, issue tracking and customer satisfaction measurement capabilities; and . a scalable, Web-based architecture that allows businesses to meet the growth in Internet-based communications. Our objective is to enhance our position as a leading provider of Internet customer service solutions to businesses and organizations of all sizes. As of March 31, 2000, we had 574 customers, which we believe to be more than any other Internet customer service software company. To continue our success in this regard, we intend to leverage the efficiency of our direct sales channel to acquire new customers and increase penetration of our existing customers, and to expand our indirect sales channels and strategic relationships. In addition, we intend to extend the breadth and depth of our product offerings, increase the availability of our application service provider hosting services and expand our international presence. We were incorporated in Montana in September 1995. We intend to reincorporate in Delaware as RightNow Technologies, Inc. prior to the consummation of this offering. Our principal executive offices are located at 77 Discovery Drive, Bozeman, Montana 59718, and our telephone number is (406) 522-4200. Our Web site is located at http://www.rightnowtech.com. Information contained on our Web site does not constitute a part of this prospectus. "Right Now" is our trademark. We have applied for federal registration of the trademarks "RightNow" combined with the RightNow logo, and "SmartAssistant." Other trademarks or service marks appearing in this prospectus are the property of their respective holders. The Offering Common stock offered................ shares Common stock to be outstanding after the offering....................... shares Use of proceeds..................... For general corporate purposes, including working capital. See "Use of Proceeds." Proposed Nasdaq National Market symbol............................. RTNW
The number of shares of common stock to be outstanding after the offering is based upon the actual number of shares outstanding as of March 31, 2000. It does not include: . 10,000,000 shares of common stock reserved for issuance under our stock option plans, 6,572,050 of which were covered by outstanding options with a weighted average exercise price of $0.63 per share and 2,705,200 of which were available for future grants; and . 500,000 additional shares of common stock that will be reserved for issuance under our employee stock purchase plan. ---------------- Unless otherwise indicated, the information in this prospectus reflects the number of shares outstanding on March 31, 2000 assuming: . the conversion of all outstanding shares of preferred stock into common stock upon the closing of this offering; . our reincorporation in Delaware, which will be effected prior to the closing of this offering; and . no exercise of the underwriters' over-allotment option. 4 Summary Financial Data
Three Months Year Ended December Ended March 31, 31, ---------------------- --------------- 1997 1998 1999 1999 2000 ------ ------ ------- ------ ------- (in thousands, except per share data) Statements of Operations Data: Revenue.............................. $ 79 $ 279 $ 2,025 $ 135 $ 1,443 Cost of revenue...................... 1 3 64 3 166 Gross profit......................... 78 276 1,961 132 1,277 Total operating expenses............. 61 439 4,439 316 4,473 Income (loss) from operations........ 17 (163) (2,478) (184) (3,196) Net income (loss).................... 26 (163) (2,445) (184) (3,028) Basic and diluted net income (loss) per share........................... $ -- $(0.01) $ (0.12) $(0.01) $ (0.15) Shares used in computing basic and diluted net income (loss) per share............................... 20,000 20,114 20,364 20,319 20,602 Pro forma basic and diluted net loss per share........................... $ (0.12) $ (0.12) Shares used in computing basic and diluted pro forma net loss per share............................... 20,509 26,156
March 31, 2000 ------------------------------ Pro Forma Actual Pro Forma As Adjusted ------- --------- ----------- (in thousands) Balance Sheet Data: Cash and cash equivalents........................ $12,374 $12,374 Working capital.................................. 10,683 10,683 Total assets..................................... 18,140 18,140 Deferred revenue................................. 7,171 7,171 Redeemable convertible preferred stock........... 16,120 -- Total stockholders' equity (deficit)............. (6,899) 9,221
The pro forma information in the above tables assumes conversion of all outstanding shares of our preferred stock into common stock. The pro forma as adjusted information in the above balance sheet data table is adjusted to reflect the sale of shares of common stock offered by us in this offering at an assumed initial public offering price of $ per share, after deduction of the estimated underwriting discounts and commissions and estimated offering expenses. See note 1 of the notes to our financial statements for an explanation of the determination of the number of weighted average shares used to compute basic and diluted net income (loss) per share and pro forma basic and diluted net loss per share data. 5 RISK FACTORS Before investing in our common stock, you should be aware that various risks are involved, including those described below. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. Before making a decision to buy our common stock, you should carefully consider the risks described below as well as the other information in this prospectus, including our financial statements and the related notes. Risks Related to Our Business Our limited operating history makes it difficult to evaluate our business and future prospects. We first recorded revenue from subscriptions for our software in November 1997. Due to our limited operating history, we have limited financial data that you can use to evaluate our business. In addition, our products address a new and emerging market for Internet-based customer service software solutions. Because of the new and rapidly evolving nature of the market in which we operate combined with our limited operating history, our prospects are difficult to predict and may change rapidly and without warning. If we fail to properly manage and support the rapid growth and expansion of our business, our financial results will be adversely affected. We have substantially expanded our business and operations since March 1, 1999. We have increased our number of employees to 206 at March 31, 2000 from 36 at March 31, 1999. We have recently expanded our operations by opening a sales office in Dallas, and we plan to open other sales offices. In addition, the majority of our senior management team has been hired since August 1999. This expansion has placed, and is expected to continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. To manage this growth and execute our business strategy effectively, we will need to implement and improve our financial systems, procedures and controls, hire, train and integrate new personnel, manage expanded operations and integrate our management team. If we are unable to properly manage and support our rapid growth, our business and financial results will be adversely affected. We have incurred and expect to incur substantial operating losses, and consequently we may not be profitable in the future. We incurred losses from operations of approximately $2.5 million for the year ended December 31, 1999 and $3.2 million for the three months ended March 31, 2000. As of March 31, 2000, we had an accumulated deficit of approximately $5.6 million. We expect to continue to incur significant sales and marketing, product development and general and administrative expenses and, as a result, we will need to generate significant revenues to achieve and maintain profitability. Although our revenues have grown significantly in recent quarters, we cannot be certain that we can sustain these growth rates or that we will generate sufficient revenues to achieve profitability in the future or at all. Substantially all of our revenue to date has been derived from subscriptions for RightNow Web, and if we fail to successfully upgrade or enhance RightNow Web and introduce new products, our ability to grow our business will be adversely affected. Substantially all of our revenue to date has been derived from subscriptions for RightNow Web. Our future financial performance will depend, in significant part, on our successful development and sale of new and enhanced versions of RightNow Web and other new products. We may not be able to successfully develop new products and our new products may not achieve market acceptance, in which case we will be unable to adequately grow our business. 6 We face intense competition in our market, and our failure to compete successfully could make it difficult for us to acquire and retain customers. The market for our products is new and intensely competitive. We expect the intensity of competition to increase in the future. If we are unable to compete effectively, it will be difficult for us to acquire and retain customers. Increased competition could result in pricing pressures, reduced margins or the failure of our products to achieve or maintain market acceptance. Our products compete with systems that were developed and maintained internally by businesses. We also compete directly with companies that provide licensed software products for customer service solutions. Our competitors include a number of companies offering one or more products for the electronic customer relationship management software market, some of which compete directly with our products. Our competitors include companies providing similar solutions, including eGain Communications Corporation, Kana Communications, Inc. and Servicesoft Technologies, Inc. In addition, we face competition from other companies that provide customer relationship management, e-commerce and communications and knowledgebase management solutions. Many of our current and potential competitors have longer operating histories, greater name recognition and substantially greater financial, technical, marketing, management, service, support and other resources than we have. In addition, many of our competitors have well-established relationships with our current or potential customers and potential alliance partners and have an extensive knowledge of our industry. Therefore, they may be able to respond more quickly than we can to new or changing opportunities, technologies, standards or customer requirements. A significant number of companies are entering the electronic customer relationship management software market. We expect that new competitors will continue to enter the market with competing products as the size and visibility of the market opportunity increase. We also expect that competition will increase as a result of software industry consolidations and formations of alliances among industry participants. For example, in February 2000, Kana announced plans to acquire Silknet Software, Inc. Competitors with large market capitalizations or cash reserves would be better positioned than we are to acquire complementary businesses, new technologies or products. We may not be able to compete successfully against current and future competitors, and competitive pressures may seriously harm our business. Substantially all of our products are sold pursuant to single- or multi-year subscriptions, and if our existing customers elect not to renew their subscriptions, our reputation and financial results will be adversely affected. Customers who desire to continue to use our products at the end of their software subscription term will have to renew their subscriptions. To date, only a few subscriptions have come up for renewal. Between March 31 and December 31, 2000, approximately 8% of our current subscriptions will come up for renewal and, in 2001, a majority of our current subscriptions will come up for renewal. Given our limited operating history, we do not have historical information with which to estimate the rates of renewal or the terms on which renewals will be made. If large numbers of existing customers decide not to renew their subscriptions, our reputation will suffer and our financial results will be adversely affected. If we fail to respond effectively to rapidly changing technology and evolving industry standards, our products may become obsolete. The market for our products is characterized by rapid technological change, changes in customer requirements, frequent new product and service introductions and enhancements and evolving industry 7 standards. Competing products based on new technologies or new industry standards may perform better or cost less than our products and could render our products obsolete or unmarketable. If we are unable on a timely basis to develop new and enhanced products that respond to changing technology and satisfy the needs of our customers, our business and financial results could suffer. Our future success depends on our ability to satisfy diverse and evolving customer requirements and achieve market acceptance. We cannot be certain that we will be successful in developing and marketing product enhancements or new products in a timely or cost-effective manner, or that these products, if developed, will achieve market acceptance. Failure to develop and expand our marketing capabilities will limit our growth and prevent us from increasing our revenue. We need to expand our marketing operations in order to increase market awareness of our products, market our products to a greater number of organizations and generate increased revenue. Competition in the market for Internet-based customer service solutions is intense, and if we fail to differentiate our products from those of our competitors and acquire greater market share, we will be unable to grow our business or increase our revenue. Furthermore, we have limited experience marketing our products broadly to a large number of customers and may be unable to do so successfully. A failure to expand our direct sales force will impede our growth. To date, we have sold our products primarily through our direct sales force, which has grown to 79 at March 31, 2000 from eight at December 31, 1998. Our ability to achieve significant revenue growth in the future will depend, in large part, on our success in recruiting, training and retaining sufficient direct sales personnel. New hires require training and take time to achieve full productivity. Our recent hires and planned hires may not become as productive as necessary, and we may be unable to hire sufficient numbers of qualified individuals in the future. In addition, we plan to use international direct sales personnel and therefore must hire sales personnel outside of the United States, where we have no experience in hiring and managing sales personnel and may be unsuccessful in doing so. If we are unable to hire and develop sufficient numbers of productive sales personnel, sales of our products will suffer. A failure to develop indirect sales channels will impede our growth. To execute our business strategy, we must increase the number of our marketing and distribution partners, including value-added resellers, integrators and outsourced call centers. In addition, we intend to pursue strategic alliances with technology providers to enhance the marketing and distribution of our products. We will rely on these indirect sales channels to increase our customer base. At times, we will rely on these third parties to recommend our products to their customers and to implement and support our products for their customers. Our existing or future distribution partners may choose to devote greater resources to marketing and supporting the products of our competitors than they do to marketing and supporting our products, which would impede our revenue growth. Further, if these third parties fail to implement or support our products successfully, our reputation may be harmed and sales will be adversely affected. Our application service provider delivery model relies on third parties to provide hosting services, and if we are unable to contract with third-party hosting providers, our products may become less desirable. Approximately 50% of our current customers have selected our hosting services, and we expect that the percentage of our customers that are hosted will increase. We currently have relationships with third-party hosting providers to maintain data centers. If our current hosting arrangements were to be terminated, we could experience delays in arranging new third-party hosting services, which could harm our relationships with customers and our reputation, resulting in decreased revenue. Our operations depend on our current hosting providers' ability to protect their and our systems in their data center against damage or interruption. Our third-party hosting providers do not guarantee that our customers' access to hosted solutions will be uninterrupted, error-free or secure. We have no formal disaster recovery plan in the event of damage or interruption, and our 8 insurance policies may not adequately compensate us for any losses that we may incur. Any system failure that causes an interruption in our service or a decrease in responsiveness could harm our relationships with our customers and result in reduced revenue. In addition, our business and customer relationships could suffer or we could be subject to costly litigation if the security of our customers' confidential information contained in our data centers is breached. Variations in quarterly revenue and operating results due to factors such as changes in demand for our products may cause our stock price to decline. Our quarterly revenue and operating results may fluctuate significantly as a result of a variety of factors, including those listed below, many of which are outside of our control. If our quarterly revenue or operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Factors that might cause fluctuations in our quarterly revenue and operating results include the following: . variations in and difficulty predicting demand for our products; . the timing and success of new product introductions or upgrades by us or our competitors; . our practice of paying sales commissions at the time of sale, while the related revenue is recognized ratably over the term of the subscription; . the renewal rate of customers whose subscriptions have expired and the terms upon which they renew; . changes in our pricing policies or those of our competitors; . changes in the mix of term software subscriptions and perpetual licenses sold in a particular quarter due to the different methods of revenue recognition; . our ability to expand our operations, and the amount and timing of expenditures related to this expansion; . the purchasing and budgeting cycles of our customers; . the rate of success of our international expansion; . general economic conditions as well as those specific to our customers and markets; and . costs related to possible acquisitions of technology or businesses. Most of our expenses, such as salaries and third-party hosting costs, are relatively fixed in the short term, and our expense levels are based in part on our expectations regarding future revenue levels. As a result, if revenue for a particular quarter is below our expectations, we will not be able to proportionally reduce operating expenses for that quarter. A revenue shortfall will have a disproportionate effect on our expected operating results for that quarter. For the foregoing reasons, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful, and you should not rely on them as an indication of our future performance. Our business operations could be significantly disrupted if we lose members of, or fail to properly integrate, our management team. Our success depends to a significant degree upon the skills, experience and performance of our senior management, engineering, sales, marketing, service, support and other key personnel. Specifically, we believe that our future success is highly dependent on Greg R. Gianforte, our founder, Chairman and Chief Executive Officer. If we lose the services of Mr. Gianforte or other key personnel, our business will be severely disrupted and we may be unable to operate effectively. We do not maintain "key person" life insurance policies except on Mr. Gianforte. This life insurance policy may not be sufficient to compensate us for the loss of his services. 9 Almost all of the members of our senior management team joined us since August 1999. Most of these individuals have not previously worked together and are currently being integrated as a management team. If our senior management is unable to work effectively as a team, our business operations could be significantly disrupted. Our failure to attract and retain qualified personnel may prevent us from effectively developing, marketing and supporting our products. We intend to continue to significantly expand our sales, marketing, product development and customer support personnel. Qualified personnel are in great demand throughout the software industry. Our business success depends in large part upon our ability to attract, train, motivate and retain highly skilled employees, particularly sales and marketing personnel, software engineers and other senior personnel. If we fail to retain and recruit necessary sales and marketing, engineering, customer support or other personnel, we will be unable to develop new products and services in a timely manner or to provide acceptable levels of customer support. Our market share will decrease and our reputation will suffer if our products fail to perform properly. Our software products may contain undetected errors, or bugs, that may result in product failures or otherwise fail to perform in accordance with customer expectations. Product performance problems could result in loss of or delay in revenue, loss of market share, failure to achieve market acceptance, the diversion of development resources or injury to our reputation. We intend to expand our international sales efforts but do not have substantial experience in international markets, and therefore may be unable to successfully expand internationally. Although our international sales have not been material to date, we intend to expand our international sales efforts, including the development of direct and indirect sales channels. We have limited experience in marketing, selling and supporting our products and services abroad. If we are unable to grow our international operations successfully and in a timely manner, we will be unable to grow our business successfully. Expanding internationally subjects us to a number of risks, including: . greater difficulty in staffing and managing foreign operations; . changes in a specific country's or region's political or economic conditions; . expenses associated with localizing products for foreign countries; . differing intellectual property rights; . protectionist laws and business practices that favor local competitors; . longer sales cycles and collection periods or seasonal reductions in business activity; . multiple, conflicting and changing governmental laws and regulations; and . foreign currency exchange rate fluctuations. We are starting to implement our international expansion and expect to have sales and marketing professionals located in the United Kingdom and Germany by the end of 2000 and in the Pacific Rim in 2001. We also may explore other regions for future expansion. Expanding our international operations will require a significant amount of attention from our management and significant financial resources, and may take needed attention and resources away from our domestic operations, which could harm our business and financial results. We may face increased competition if we are unable to protect our intellectual property rights. Our success depends to a significant degree upon the protection of our software and other proprietary technology rights. We rely on trade secret, copyright and trademark laws, patents and confidentiality 10 agreements with employees and third parties, all of which offer only limited protection. We currently have four U.S. patent applications pending relating to our software. Our pending patent applications may not result in the issuance of patents and, if issued, may not be broad enough to protect our proprietary rights or could be successfully challenged by one or more third parties, which could result in our loss of the right to prevent others from exploiting the inventions claimed in those patents. None of our technology is patented outside of the United States, nor do we currently have any international patent applications pending. The laws of other countries in which we market our products may afford little or no effective protection of our proprietary technology. Consequently, we may be unable to prevent our proprietary technology from being exploited abroad, which could diminish international sales revenue or require costly efforts to protect our technology. Both domestically and internationally, the reverse engineering, unauthorized copying or other misappropriation of our proprietary technology could enable third parties to benefit from our technology without paying us for it. This could have a material adverse effect on our business and financial results. Policing the unauthorized use of our products is difficult. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of management resources, either of which could harm our business. We may become subject to claims of intellectual property infringement, which could be costly and time-consuming. If any of our products violate third-party proprietary rights, we may be required to reengineer our products or seek to obtain licenses from third parties to continue offering our products without substantial reengineering. We generally do not conduct comprehensive patent searches to determine whether the technology used in our products infringes patents held by third parties. Third parties might make a claim of infringement against us or our customers. Many of our license agreements require us to indemnify our customers from any claim or finding of intellectual property infringement. In addition, product development is inherently uncertain in a rapidly evolving technological environment in which there may be numerous patent applications pending, many of which are confidential when filed, with regard to similar technologies. Any efforts to reengineer our products or obtain licenses from third parties may not be successful and, in any case, would substantially increase our costs and harm our business and financial results. We could incur substantial costs as a result of product liability claims relating to our customers' business operations. If one of our products fails, a customer may assert a claim for substantial damages against us, whether or not we are responsible for the product failure. Our license agreements generally contain provisions designed to limit our exposure to potential product liability claims, such as disclaimers of warranties and limitations on liability for special, consequential and incidental damages. However, these contractual limitations on liability may not be enforceable, and we may be subject to claims based on errors in our software. Product liability claims could require us to spend significant time and money in litigation or to pay significant damages. Although we maintain general liability insurance, including coverage for errors and omissions, we cannot assure you that this coverage will continue to be available on reasonable terms or will be available in amounts sufficient to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. Future acquisitions could disrupt our business and harm our financial condition. In order to remain competitive, we may find it necessary to acquire additional businesses, products and technologies. In the event that we do complete an acquisition, we could be required to do one or more of the following: . issue equity securities, which would dilute current stockholders; . incur substantial debt; 11 . assume contingent liabilities; . incur a one-time charge; or . amortize goodwill and other intangible assets. Any of these actions would adversely affect our financial results and could result in decreased profitability. Additionally, we may not be able to successfully integrate any technologies, products, personnel or operations of companies that we acquire. These difficulties could disrupt our business, divert management resources and increase our expenses. Risks Related to Our Industry Our business depends on the continued growth of Internet usage and the continued growth of business being conducted over the Web. Our products are designed to serve the customer service needs of businesses that use the Internet for marketing, sales and customer service. Our future success depends substantially upon the widespread adoption of the Internet as a primary medium for commerce, communication and business applications. Because our business is Internet-based, the failure of this market to develop, or a delay in the development of this market, would impact our ability to grow our business. Our business growth also would be impeded if Internet usage does not continue to grow or grows more slowly than we currently anticipate. The continued growth of the Internet depends on various factors, all of which are outside of our control. Moreover, the Web has experienced, and is expected to continue to experience, significant user and traffic growth, which has, at times, caused user frustration with slow access and download times. If Web infrastructure is unable to support the demands placed on it, our market may grow more slowly than expected and our revenue growth may suffer. Additionally, critical issues concerning the commercial use of the Web, such as security, reliability, cost, accessibility and quality of service, remain unresolved and may negatively affect the growth of Web use or the attractiveness of commerce and business communication over the Web. The Web could lose its viability due to delays in the development or adoption of new standards and protocols to handle increased activity or due to increased government regulation and taxation of Internet commerce. Because our business is Internet-based, any of these results would significantly limit the market for our products. Finally, our products address a new and emerging market for Internet-based, interactive electronic business solutions. Because of the new and rapidly evolving nature of the market in which we operate combined with our limited operating history, our prospects are difficult to predict and may change rapidly and without warning. Increasing government regulation of the Internet could slow our growth or impede our ability to be profitable. Federal, state or foreign government bodies or agencies may adopt laws or regulations affecting the use of the Internet as a commercial medium. If enacted, these laws or regulations could limit the market for our products, which could slow our growth and reduce our revenue. Even if they do not apply to our business directly, we expect that laws and regulations relating to user privacy, pricing, content and quality of products and services could indirectly affect our business. It is possible that these types of laws or regulations could expose companies involved in Internet commerce to liability or could limit the growth of Internet commerce generally. Either of these results would slow our growth and impede our ability to be profitable. The imposition of sales and other taxes on products sold by our customers over the Internet could limit online commerce and, as a result, reduce the demand for our products. The imposition of new sales or other taxes could limit the growth of Internet commerce generally and, as a result, the demand for our products and services. Current federal legislation limits the imposition of state and 12 local taxes on Internet-related sales. Congress may choose not to renew this legislation in 2001, in which case state and local governments would be free to impose taxes on electronically purchased goods. Companies that sell products over the Internet are not required to collect sales or other taxes on shipments of their products into states or foreign countries where they are not physically present. However, one or more states or foreign countries may seek to impose sales or other tax collection obligations on companies that engage in e-commerce outside of the state or foreign jurisdiction. A successful assertion by one or more states or foreign countries that companies engaging in e-commerce should collect sales or other taxes on the sale of their products over the Internet, even though not physically in the state or country, could indirectly reduce demand for our products. Privacy concerns relating to the Internet are increasing, which could result in legislation that adversely affects our business or reduces sales of our products. Businesses using our software capture information regarding their customers when those customers contact them online with customer service inquiries. Privacy concerns may cause visitors to resist providing the personal data necessary to allow our customers to use our software products most effectively. Also, even the perception of privacy concerns, whether or not valid, may indirectly inhibit market acceptance of our products. In addition, legislative or regulatory requirements may heighten these concerns if businesses must notify visitors to their Web sites that the data captured after visiting some Web sites may be used by marketing entities to direct product promotion and advertising to that user. While we are not aware of any legislation or regulatory requirements of this sort currently in effect in the United States, other countries and political entities, including the European Union, have adopted this type of legislation or regulatory requirements, and the United States may do so as well. Risks Related to This Offering Our common stock is particularly subject to volatility because our industry is newly emerging and rapidly growing. The stock market has recently experienced extreme price and volume fluctuations. In particular, the market prices of securities of technology companies, especially Internet-related companies, have been extremely volatile and have experienced fluctuations that often have been unrelated or disproportionate to the operating performance of companies. These broad market fluctuations could reduce the market price of our common stock. The significant control over stockholder voting matters that may be exercised by our founder and Chief Executive Officer will deprive you of the ability to influence corporate actions. After this offering, Greg R. Gianforte, our founder and Chief Executive Officer, will control approximately % of the outstanding common stock and, together with our other officers and directors, will control approximately % of the outstanding stock. As a result, Mr. Gianforte, acting alone, will be able to control all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of RightNow, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of RightNow and might reduce the market price of our common stock. The price of our common stock after this offering may be lower than the price you pay. The price of our common stock that will prevail in the market after this offering may be higher or lower than the price you pay. After this offering, an active trading market in our stock might not develop or continue. If you purchase shares of our common stock in this offering, you will pay a price that was not established in a 13 competitive market. Rather, you will pay a price that we negotiated with the representatives of the underwriters based upon several factors. See "Underwriting" for a description of these factors. Our broad discretion in using the proceeds from this offering may negatively impact our financial results. Our decisions regarding the use of the proceeds of this offering could harm our business, operating results and financial condition. We have not identified specific uses for the proceeds from this offering, and we will have broad discretion in how we use them. You will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds. Our prospects for obtaining additional financing, if required, are uncertain, and failure to obtain needed financing could diminish our ability to pursue future growth. We may need to raise additional funds to develop or enhance our products, to fund expansion, to respond to competitive pressures or to acquire complementary products, businesses or technologies. If required, additional financing may not be available on terms that are acceptable to us. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced and these securities might have rights, preferences and privileges senior to those of our current stockholders. If adequate funds are not available on acceptable terms, our ability to fund our expansion, develop or enhance products, take advantage of unanticipated opportunities or otherwise respond to competitive pressures will be significantly limited. Investors will experience immediate and substantial dilution in the book value of their investment. If you purchase shares of our common stock in this offering, you will experience immediate and substantial dilution, in that the price you pay will be substantially greater than the net tangible book value per share of the shares you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the public offering price when they purchased their shares of common stock. You will experience additional dilution upon our optionees' exercise of outstanding stock options to purchase our common stock. Anti-takeover provisions in our charter documents and Delaware law could prevent or delay a change in control of our company. Provisions of our certificate of incorporation and bylaws and Delaware law may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable and may limit the market price of our common stock. These provisions include the following: . establishing a classified board in which only a portion of the total board members will be elected at each annual meeting; . authorizing the board to issue preferred stock; . prohibiting cumulative voting in the election of directors; . limiting the persons who may call special meetings of stockholders; and . prohibiting stockholder action by written consent. Future sales by existing stockholders could depress the market price of our common stock. If our existing stockholders sell a large number of shares of our common stock after this offering, the market price of the common stock could decline significantly. Moreover, a perception in the public market that our existing stockholders might sell shares of common stock could depress the market price of our common 14 stock. Immediately after this offering, approximately 26,301,438 shares held by our existing stockholders will be outstanding. Of these shares, shares will be available for resale in the public market without restriction immediately following this offering, substantially all of which are subject to lock-up agreements restricting the sale of common stock for 180 days after the date of this prospectus. In addition, shares will be available for resale in the public market without restriction 90 days after the date of this prospectus, of which are subject to lock-up agreements restricting the sale of common stock for 180 days after the date of this prospectus. Some of our existing stockholders have the right to require us to register with the Securities and Exchange Commission up to 5,554,853 shares of our common stock that they own. If we register these shares of common stock, the stockholders can freely sell those shares in the public market. All of these shares are subject to lock-up agreements restricting their sale for 180 days after the date of this prospectus. After this offering, we intend to register approximately 10 million shares of our common stock that we have issued or may issue under our stock plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements, if applicable, described above. 15 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements in "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue" or the negative of these terms, or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under "Risk Factors," that may cause our or our industry's actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assume responsibility for the accuracy and completeness of these statements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results. In this prospectus, we use market data and industry forecasts that we have obtained from publicly available information and other industry publications. Neither we nor any of the underwriters represent that any such information is accurate. Each of these sources may have its own definitions for a particular market or market segment and, accordingly, the information obtained from one source might not be comparable with information obtained from other sources. Industry publications generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We have not independently verified any of this information. In particular, we do not know what rate of general economic growth was assumed in preparing forecasts. Forecasts of developing industries such as ours are not based upon sophisticated analyses of substantial amounts of historical data, as in the case of more mature industries. Thus, forecasts of developing industries like ours are much less likely to be accurate. 16 USE OF PROCEEDS We estimate that our net proceeds from the sale of the shares of common stock we are offering will be approximately $ million, assuming an initial public offering price of $ per share and after deducting the estimated underwriting discounts and commissions and estimated offering expenses. If the underwriters' over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $ million. The principal purposes of this offering are to obtain additional working capital, to create a public market for our common stock and to facilitate future access by us to public markets. In addition, we may use a portion of the net proceeds to acquire complementary products, technologies or businesses. However, we currently have no commitments or agreements and are not involved in any negotiations to make any acquisitions. Pending use of the net proceeds of this offering, we intend to invest the net proceeds in interest-bearing, investment-grade securities. DIVIDEND POLICY We have never declared or paid any cash dividends on our capital stock, except for the S corporation distribution discussed below. We currently intend to retain any future earnings to finance the growth and development of our business and therefore do not anticipate paying any cash dividends in the foreseeable future. Prior to the issuance of shares of our preferred stock in December 1999, we were a corporation subject to taxation under Subchapter S of the Internal Revenue Code of 1986, as amended. As a result, our net earnings were taxed, for federal and state income tax purposes, as income of our stockholders. In December 1999, we terminated our S corporation status. At that time, we authorized the payment of a distribution to our S corporation stockholders in an amount approximating their individual income tax liability resulting from S corporation taxable earnings up to the date of termination. For further discussion of our S corporation distribution, see "Related Party Transactions." 17 CAPITALIZATION The following table sets forth our capitalization as of March 31, 2000: . on an actual basis; . on a pro forma basis, giving effect to the conversion of all outstanding shares of our preferred stock into a total of 5,554,853 shares of common stock upon the closing of this offering; and . on a pro forma as adjusted basis after giving effect to our receipt of the net proceeds from the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share. This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes that appear elsewhere in this prospectus.
As of March 31, 2000 ------------------------------ Pro Forma Actual Pro Forma As Adjusted ------- --------- ----------- (in thousands, except share data) Long-term capitalized lease obligations, less current portion................................ $ 5 $ 5 $ Redeemable convertible Series A preferred stock, $.001 par value per share, 5,554,853 shares authorized and designated, 5,554,853 shares outstanding actual, no shares outstanding pro forma and pro forma as adjusted................ 16,120 -- -- Stockholders' equity (deficit): Common stock, $.001 par value, 50,000,000 shares authorized, 20,746,585 shares outstanding actual, 26,301,438 shares outstanding pro forma, shares outstanding pro forma as adjusted............ 21 26 Preferred stock, $.001 par value, 9,445,147 shares authorized and undesignated, no shares issued or outstanding actual, pro forma or pro forma as adjusted........................ -- -- Additional paid-in capital.................... (1,319) 14,796 Accumulated deficit........................... (5,601) (5,601) ------- ------- ---- Total stockholders' equity (deficit)........ (6,899) 9,221 ------- ------- ---- Total capitalization...................... $ 9,226 $ 9,226 $ ======= ======= ====
This table excludes the following shares: . 6,572,050 shares of common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $0.63 per share; . 2,705,200 shares of common stock available for future grant under our stock option plans; and 500,000 shares of common stock available for issuance under our employee stock purchase plan. 18 DILUTION If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding. Our pro forma net tangible book value as of March 31, 2000, after giving effect to the conversion of our outstanding preferred stock into common stock in connection with this offering, was $9.2 million, or approximately $0.35 per share. After giving effect to our sale of the shares of common stock in this offering at an assumed initial public offering price of $ per share, less estimated underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value at March 31, 2000 would have been approximately $ 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 in pro forma net tangible book value of $ per share to purchasers of common stock in this offering. The following table illustrates this dilution: Assumed initial public offering price per share................. $ Pro forma net tangible book value per share at March 31, 2000......................................................... $0.35 Increase per share attributable to new investors.............. ----- Pro forma as adjusted net tangible book value per share after the offering................................................... ---- Dilution per share to new investors............................. $ ====
The following table sets forth, on a pro forma basis as of March 31, 2000, the differences between the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and by new investors:
Total Shares Purchased Consideration Average ------------------ -------------- Price Number Percent Amount Percent Per Share ---------- ------- ------ ------- --------- Existing stockholders............... 26,301,438 New public investors................ ---------- --- --- --- Total............................. 100% 100% ========== === === ===
The above tables exclude the following shares: . 6,572,050 shares issuable upon exercise of outstanding options at a weighted average exercise price of $0.63 per share; . 2,705,200 shares of common stock available for future grant under our stock option plans; and . 500,000 shares of common stock available for issuance under our employee stock purchase plan. To the extent that any of these options are exercised or shares are issued, there will be further dilution to new investors. See "Capitalization," "Management--Employee Benefit Plans" and "Description of Capital Stock." 19 SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the financial statements and related notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial data included elsewhere in this prospectus. The statement of operations data for the years ended December 31, 1997, 1998 and 1999, and the balance sheet data as of December 31, 1998 and 1999, are derived from our audited financial statements included elsewhere in this prospectus. The statements of operations data for the period from our inception on September 18, 1995 to December 31, 1995 and for the year ended December 31, 1996, and the balance sheet data as of December 31, 1995, are derived from our unaudited financial information not included in this prospectus. The balance sheet data as of December 31, 1996 and 1997 are derived from our audited financial statements not included in this prospectus. The selected financial data as of March 31, 2000 and for the three months ended March 31, 1999 and 2000 have been derived from our unaudited financial statements also included elsewhere in this prospectus and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the data for the unaudited periods. Historical results are not necessarily indicative of results to be expected in any future period, and results of interim periods are not necessarily indicative of results that may be expected for the entire year.
Three Months Period from Ended Inception Year Ended December 31, March 31, (September 18, 1995) ----------------------------- --------------- to December 31, 1995 1996 1997 1998 1999 1999 2000 -------------------- ------ ------ ------ ------- ------ ------- (in thousands, except per share data) Statements of Operations Data: Revenue................. $ 1 $ 63 $ 79 $ 279 $ 2,025 $ 135 $ 1,443 Cost of revenue......... -- -- 1 3 64 3 166 ------ ------ ------ ------ ------- ------ ------- Gross profit............ 1 63 78 276 1,961 132 1,277 Operating expenses: Sales and marketing.... 7 4 -- 279 3,343 206 3,479 Research and development........... 1 35 43 74 603 72 633 General and administrative........ 6 13 18 86 493 38 361 ------ ------ ------ ------ ------- ------ ------- Total operating expenses.............. 14 52 61 439 4,439 316 4,473 ------ ------ ------ ------ ------- ------ ------- Income (loss) from operations............. (13) 11 17 (163) (2,478) (184) (3,196) Interest and other income, net............ -- 12 9 -- 33 -- 168 ------ ------ ------ ------ ------- ------ ------- Net income (loss)....... $ (13) $ 23 $ 26 $ (163) $(2,445) $ (184) $(3,028) ====== ====== ====== ====== ======= ====== ======= Basic and diluted net income (loss) per share.................. -- -- -- $(0.01) $ (0.12) $(0.01) $ (0.15) Shares used in computing basic and diluted net income (loss) per share.................. 20,000 20,000 20,000 20,114 20,364 20,319 20,602 Pro forma basic and diluted net loss per share.................. $ (0.12) $ (0.12) Shares used in computing pro forma basic and diluted net loss per share.................. 20,509 26,156
December 31, March 31, 2000 ----------------------------- ------------------------------ Pro Forma 1995 1996 1997 1998 1999 Actual Pro Forma As Adjusted ---- ---- ---- ---- ------- ------- --------- ----------- (in thousands) Balance Sheet Data: Cash and cash equivalents............ $ 2 $ 5 $19 $ 86 $14,183 $12,374 $12,374 Working capital (deficit).............. (31) 11 33 (64) 13,113 10,683 10,683 Total assets............ 21 20 37 264 17,348 18,140 18,140 Deferred revenue........ -- -- -- 171 4,165 7,171 7,171 Long-term capital lease obligations, less current portion........ -- -- -- -- 7 5 5 Redeemable convertible preferred stock........ -- -- -- -- 16,120 16,120 -- Total stockholders' equity (deficit)....... (12) 11 37 (96) (3,981) (6,899) 9,221
See note 1 of the notes to our financial statements for an explanation of the determination of the number of weighted average shares used to compute basic and diluted net income (loss) per share and pro forma basic and diluted net loss per share data. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Financial Data" and our financial statements and related notes appearing elsewhere in this document. Overview We provide a comprehensive Internet-based customer service solution that integrates customer self-service, e-mail management, live interaction, issue tracking and customer satisfaction measurement capabilities. We were incorporated in September 1995 but had no significant operations until 1997. In the second half of 1997, we began to conduct research and development relating to our initial product. In November 1997, we released the initial version of RightNow Web on a hosted and non-hosted basis. Since that time, we have released upgrades, including enhancements to existing product features and additional functionality, at least twice a year. In the second half of 1999, we significantly expanded the functionality and features of RightNow Web to include e-mail management, live interaction and service contract management capabilities. In April 2000, we introduced RightNow Metrics, a customer satisfaction survey and measurement tool. As we have expanded our business, we have increased our direct sales force to 79 at March 31, 2000 from eight at December 31, 1998. In October 1999, we opened a sales office in Dallas, Texas. To date, virtually all of our sales activity has taken place over the telephone and via the Web, rather than through face-to-face meetings. The average sales cycle for our products is less than 100 days. In cases where our sales force has been provided leads generated through our marketing activities described below, the sales cycle has generally been shorter than the average. In the fourth quarter of 1999, we also began to develop our indirect sales channels. Our customer base has increased to 574 at March 31, 2000 from 106 at December 31, 1998. We intend to continue to develop and expand our direct and indirect sales channels, initially focusing on value- added resellers, integrators, technology providers and outsourced call centers. We also plan to establish sales offices in the United Kingdom and Germany in 2000 and in the Pacific Rim in 2001. As of March 31, 2000, we had an accumulated deficit of $5.6 million. This deficit and our losses are the result of costs incurred in the development and sales and marketing of our products. We intend to continue to invest heavily in our product development, sales and marketing strategies and administrative infrastructure. As a result, we anticipate that we will incur additional operating losses for the foreseeable future. Revenue The majority of our revenue is generated from subscriptions for our software, support and application service provider hosting services. The typical subscription term is 24 months, although we also offer terms ranging from six to 36 months. Support consists of maintenance and upgrades provided over the subscription term and is included in the price of term software subscriptions. We also sell our software on a perpetual basis, in which case subscriptions for our support services are sold separately. Our hosting services include providing data connections, equipment, maintenance and automatic upgrades to hosted customers and are priced on a subscription basis. We also generate revenue from providing training and professional services to our customers. We recognize revenue from subscriptions ratably on a monthly basis over the software, support or hosting term. We begin to recognize revenue when a customer purchases a subscription for our software, is granted a password and is able to download our software over the Internet. Because our subscriptions are typically billed in full at the time of purchase, substantially all of the subscription price is recorded as deferred revenue on our balance sheet. This practice of collecting cash at the beginning of the subscription period contributes to the funding of our operations. We recognize the revenue generated from the sale of perpetual software licenses when there is persuasive evidence of an arrangement and collectibility is considered probable. Revenue generated from providing training and professional services is recognized when the service is performed and collectibility is reasonably certain. 21 Customers generally have the right to return our products for a full refund within 60 days of purchase for any reason. As of March 31, 2000, less than 5% of the products sold have been returned. Customers who desire to continue to use our products at the end of their software subscription term will have to renew their subscriptions. To date, only a few subscriptions have come up for renewal. Between March 31 and December 31, 2000, approximately 8% of our current subscriptions will come up for renewal and, in 2001, a majority of our current subscriptions will come up for renewal. Given our limited operating history, we do not have historical information with which to estimate the rates of renewal or the terms on which renewals will be made. Cost of Revenue Cost of revenue consists primarily of costs relating to our hosting services, including maintaining data centers for our hosted customers. Cost of revenue also includes payroll and travel expenses related to providing training and professional support to our customers. We do not pay royalties to any third parties for technology included in our products. Since our products are delivered via the Internet, we do not incur significant product delivery costs. We plan to expand our application hosting services by developing an international network of application hosting services through internal and external resources. As our customer base grows, we intend to continue to invest additional resources in our application hosting services. Operating Expenses Sales and marketing expenses. Sales and marketing expenses consist primarily of payroll related to the sales, marketing and customer support functions, advertising and promotion of our products and telecommunications costs for sales activities. As we hire more employees in sales and customer service and further develop our indirect sales channels, we expect these costs to continue to increase significantly. We also expect significant increases in advertising expenses as we more fully implement our marketing plan. We are also expanding our sales office in Texas and are currently evaluating other locations both in the United States and abroad. We expect our sales and marketing expenses to increase significantly in the foreseeable future as we continue to expand our sales force, implement our marketing strategy and increase our customer service group to support our business expansion. As our business grows, we also expect sales commissions to increase. These commissions are expensed at the time of sale, while the related revenue is recognized ratably over the term of the subscription. Research and development expenses. Research and development expenses consist primarily of payroll for development personnel and costs related to the development of new products, enhancement of existing products and quality assurance and testing. To date, we have not capitalized any of our software development costs because the timing of the commercial release of our products has substantially coincided with the attainment of technological feasibility. As a result, research and development costs have been expensed as incurred. We intend to continue to expand and enhance our product offerings. To accomplish this we are hiring additional personnel and, to a lesser extent, contracting with external resources. Accordingly, we expect our research and development expenses will continue to increase significantly for the foreseeable future. General and administrative expenses. General and administrative expenses consist primarily of payroll associated with executive management and corporate administrative personnel as well as professional fees. We expect general and administrative expenses will continue to increase significantly as we expand our business. We allocate most general expenses such as office supplies, computer supplies, utilities, rent, depreciation for furniture and equipment, bad debt expense, payroll taxes, and employee benefits to sales and marketing, research and development and general and administrative based on the relative headcount of our respective departments. Provision for income taxes. At the time of our incorporation, we elected to be treated as an S corporation under Subchapter S of the Internal Revenue Code of 1986, as amended. As an S corporation, our 22 stockholders were liable for any federal and state income tax liabilities resulting from our operations. Effective December 13, 1999, we terminated our status as an S corporation and have been liable for federal and state income taxes subsequent to that date. Immediately prior to the termination of our S corporation status, we authorized a cash distribution payable to our S corporation stockholders in an amount approximating their individual income tax liability resulting from S corporation taxable earnings up to the date of termination. If we had been a C corporation for all of 1999, we would have recorded income tax expense of approximately $266,000. At March 31, 2000, we had a deferred tax asset of approximately $2.9 million, all of which has been reserved for by a valuation allowance. In the future, if available evidence indicates it is more likely than not that we will be able to utilize this deferred tax asset, we will record an income tax benefit in the amount of the asset recognized. Results of Operations The following table lists, for the periods indicated, each line item as a percentage of revenue:
Three Months Year Ended Ended March December 31, 31, --------------------- --------------- 1997 1998 1999 1999 2000 ----- ----- ------ ------ ------ As a Percentage of Revenue: Revenue..................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenue............. 1.0 1.3 3.1 2.0 11.5 ----- ----- ------ ------ ------ Gross profit.............. 99.0 98.7 96.9 98.0 88.5 Operating expenses: Sales and marketing....... 1.0 99.9 165.1 152.3 241.1 Research and development.. 54.0 26.5 29.8 53.0 43.9 General and administrative........... 23.0 30.7 24.3 28.4 25.0 ----- ----- ------ ------ ------ Total operating expenses............... 78.0 157.1 219.2 233.7 310.0 ----- ----- ------ ------ ------ Income (loss) from operations................. 21.0 (58.4) (122.3) (135.7) (221.5) Interest and other income, net........................ 11.8 -- 1.6 -- 11.6 ----- ----- ------ ------ ------ Net income (loss)........... 32.8% (58.4)% (120.7)% (135.7)% (209.9)% ===== ===== ====== ====== ======
Three Months Ended March 31, 2000 and 1999 Revenue Revenue increased to $1.4 million for the three months ended March 31, 2000 from $135,000 for the three months ended March 31, 1999. This increase was the result of increased sales of RightNow Web, an increase in the average selling price of our products due, in part, to increased functionality of RightNow Web and the introduction of RightNow Metrics. We added 176 customers in the three months ended March 31, 2000, compared to 56 in the three months ended March 31, 1999. Cost of Revenue Cost of revenue increased to $166,000 for the three months ended March 31, 2000 from $3,000 for the three months ended March 31, 1999. Cost of revenue increased to 11.5% of revenue in the three months ended March 31, 2000 from 2.0% of revenue in the three months ended March 31, 1999. The increase was due primarily to the increase of our application hosting costs. We increased the number of personnel in our application hosting services group beginning in late 1999 and entered into a contract in December 1999 with a third party to provide our application hosting equipment and facilities. We also increased the number of our professional services and training personnel to support our increasing customer base. 23 Operating Expenses Sales and marketing expenses. Sales and marketing expenses increased to $3.5 million for the three months ended March 31, 2000 from $206,000 for the three months ended March 31, 1999. This increase was due primarily to the addition of sales, marketing and customer service personnel, an increase in sales commissions associated with increased sales and higher marketing costs due to expanded advertising and promotional activities. The number of sales, marketing and customer service personnel increased to 158 as of March 31, 2000 from 15 as of March 31, 1999. As a percentage of revenue, sales and marketing expenses increased to 241.1% in the three months ended March 31, 2000 from 152.3% in the three months ended March 31, 1999. Research and development expenses. Research and development expenses increased to $633,000 for the three months ended March 31, 2000 from $72,000 for the three months ended March 31, 1999. This increase was due primarily to the increase in personnel for development of new products, enhancement of existing products, quality assurance and testing. As a percentage of revenue, research and development expenses decreased to 43.9% in the three months ended March 31, 2000 from 53.0% of revenue in the three months ended March 31, 1999. General and administrative expenses. General and administrative expenses increased to $361,000 for the three months ended March 31, 2000 from $38,000 for the three months ended March 31, 1999. The increase was due to the addition of senior management and other administrative personnel and professional services expenses. General and administrative expenses decreased to 25.0% of revenue in the three months ended March 31, 2000 from 28.4% of revenue in the three months ended March 31, 1999. Interest and other income, net. Interest and other income, net consists primarily of interest earned on cash and cash equivalents. Interest and other income, net was $168,000 for the three months ended March 31, 2000. The increase in interest income was due to increased cash balances resulting from the sale of our preferred stock in December 1999. Years Ended December 31, 1999 and 1998 Revenue Revenue increased to $2.0 million in 1999 from $279,000 in 1998. The increase in revenue was due primarily to increased sales of RightNow Web and also to a higher average sales price due, in part, to increased functionality of the product. Our number of customers increased to 422 at December 31, 1999 from 106 at December 31, 1998. Cost of Revenue Cost of revenue increased to $63,000 in 1999 from $4,000 in 1998. Cost of revenue increased to 3.1% of revenue for the year ended December 31, 1999 from 1.3% of revenue for the year ended December 31, 1998. The increase in cost of revenue in 1999 was primarily due to the expansion of our application hosting costs. We increased the number of personnel in our application hosting services group in 1999 and entered into a contract with a third party in December 1999 to provide our application hosting equipment and facilities. Operating Expenses Sales and marketing expenses. Sales and marketing expenses increased to $3.3 million in 1999 from $279,000 in 1998. This increase was due primarily to the addition of sales, marketing and customer service personnel, an increase in sales commissions associated with increased sales, and higher marketing costs due to expanded advertising and promotional activities. The number of sales, marketing and customer service personnel increased to 107 as of December 31, 1999 from 13 as of December 31, 1998. Sales and marketing expenses increased to 165.1% of revenue in 1999 from 99.9% of revenue in 1998. 24 Research and development expenses. Research and development expenses increased to $603,000 in 1999 from $74,000 in 1998. This increase was due primarily to the increase of personnel for product development and enhancement. As a percentage of revenue, research and development expenses were 29.8% in 1999 and 26.5% in 1998. General and administrative expenses. General and administrative expenses increased to $493,000 in 1999 from $86,000 in 1998. The increase was due to the addition of senior management and other administrative personnel. General and administrative expenses decreased to 24.3% of revenue in 1999 from 30.7% of revenue in 1998, primarily as a result of increased revenue in 1999. Interest and other income, net. In 1999 we recorded net interest income of $33,000 due to increased cash balances resulting from the sale of our preferred stock in December 1999. Years Ended December 31, 1998 and 1997 Revenue Revenue increased to $279,000 in 1998 from $79,000 in 1997. We began selling our initial product in November 1997. Our number of customers increased to 106 at December 31, 1998, from seven at December 31, 1997. Until September 1998, our products were sold primarily through hosting arrangements and perpetual licenses. Revenue from consulting services unrelated to our current operations was $68,000 in 1997. Cost of Revenue Cost of revenue was $4,000 in 1998 related to application hosting costs when our product was initially released in November 1997. In 1997, cost of revenue was immaterial. Operating Expenses Sales and marketing expenses. Sales and marketing expenses were $279,000 in 1998. In 1998, sales and marketing expenses increased as we hired sales and marketing personnel and incurred public relations expenses in connection with the release of our initial product at the end of 1997. We also created our customer service group in October 1998 to support new installations and maintenance of our product. Sales and marketing expenses were 99.9% of revenue in 1998. Until January 1998, we did not expend any material resources on sales and marketing. Research and development expenses. Research and development expenses increased to $74,000 in 1998 from $43,000 in 1997. The increase was due primarily to the addition of personnel for continued development and enhancement of our products. Research and development expense decreased to 26.5% of revenue in 1998 from 54.0% of revenue in 1997. This decrease in the percentage of revenue in 1998 was a result of increased revenue from the introduction of our initial product in 1997. General and administrative expenses. General and administrative expenses increased to $86,000 in 1998 from $18,000 in 1997. The increase was primarily the result of increasing our personnel. In addition, our founder and Chief Executive Officer began receiving a salary, which he had not received prior to 1998. Interest and other income, net. We had no material interest income in 1998 or 1997. Other income in 1997 was the result of a gain on the sale of assets unrelated to our current operations. 25 Quarterly Results of Operations The following table sets forth a summary of our unaudited quarterly operating results for the five quarters ended March 31, 2000. In management's opinion, this unaudited quarterly information has been prepared on the same basis as the audited financial statements and related notes 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 audited financial statements and related notes included elsewhere in this prospectus. We believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance.
Three Months Ended --------------------------------------------------------- March 31, June 30, September 30, December 31, March 31, 1999 1999 1999 1999 2000 --------- -------- ------------- ------------ --------- (in thousands) Revenue................. $ 135 $ 264 $ 714 $ 912 $ 1,443 Cost of revenue......... 3 4 17 40 166 ------ ----- ------ ------- ------- Gross profit........ 132 260 697 872 1,277 Operating expenses: Sales and marketing... 206 325 875 1,937 3,479 Research and development.......... 72 87 143 301 633 General and administrative....... 38 52 95 308 361 ------ ----- ------ ------- ------- Total operating expenses........... 316 464 1,113 2,546 4,473 ------ ----- ------ ------- ------- Loss from operations.... (184) (204) (416) (1,674) (3,196) Interest and other income, net............ -- -- -- 33 168 ------ ----- ------ ------- ------- Net loss................ $ (184) $(204) $ (416) $(1,641) $(3,028) ====== ===== ====== ======= ======= As a Percentage of Revenue: Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenue......... 2.0 1.6 2.3 4.4 11.5 ------ ----- ------ ------- ------- Gross profit.......... 98.0 98.4 97.7 95.6 88.5 Operating expenses: Sales and marketing... 152.3 123.1 122.6 212.4 241.1 Research and development.......... 53.0 33.0 20.1 32.9 43.9 General and administrative....... 28.4 19.6 13.3 33.8 25.0 ------ ----- ------ ------- ------- Total operating expenses........... 233.7 175.7 156.0 279.1 310.0 ------ ----- ------ ------- ------- Loss from operations.... (135.7) (77.3) (58.3) (183.5) (221.5) Interest and other income, net............ -- -- -- 3.6 11.6 ------ ----- ------ ------- ------- Net loss................ (135.7)% (77.3)% (58.3)% (179.9)% (209.9)% ====== ===== ====== ======= =======
We do not consider our business to be seasonal. Our revenue is impacted by the mix of term software subscriptions and perpetual licenses sold in a particular quarter. In the three months ended September 30, 1999, perpetual licenses represented a higher proportion of our revenue than in other periods. Accordingly, total operating expenses in the quarter, as a percentage of revenue, were lower. The trend over the past five quarters represents the expansion in all areas of our business. In the fourth quarter of 1999, we began to significantly expand our sales force and marketing activities, released an upgrade to RightNow Web, which included e-mail management and live interaction capabilities, and increased our research and development and administrative personnel. This expansion continued in the three months ended March 31, 2000, as we continued to grow our customer base. 26 The amount and timing of our operating results generally will vary from quarter to quarter depending on our level of actual and anticipated business activities. Factors affecting quarterly operating results can include, but are not limited to: . variations in and difficulty predicting demand for our products; . the timing and success of new product introductions or upgrades by us or our competitors; . our practice of paying sales commissions at the time of sale, while the related revenue is recognized ratably over the term of the subscription; . the renewal rate of customers whose subscriptions have expired and the terms upon which they renew; . changes in our pricing policies or those of our competitors; . changes in the mix of term software subscriptions and perpetual licenses sold in a particular quarter due to the different methods of revenue recognition; . our ability to expand our operations, and the amount and timing of expenditures related to this expansion; . the purchasing and budgeting cycles of our customers; . the rate of our international expansion; . general economic conditions, as well as those specific to our customers and markets; and . costs related to possible acquisitions of technology or businesses. Our revenues and operating results are difficult to forecast and will fluctuate, and we believe that quarter-to-quarter comparisons of our operating results will not necessarily be meaningful. As a result, you should not rely upon them as an indication of our future performance. Liquidity and Capital Resources From our inception through December 1999, we funded our operations primarily through cash from operations, with additional funding from private borrowings, including loans from our founder and Chief Executive Officer, and bank borrowings. Our practice of collecting cash at the beginning of the subscription period also contributed to the funding of our operations. In December 1999, we raised approximately $16.1 million from a private placement of our preferred stock to fund our significant business expansion. As of March 31, 2000, we had $12.4 million in cash and cash equivalents and a secured bank line of credit of $500,000. The line of credit expires on July 29, 2000, and the borrowings under the line of credit bear interest at prime plus 1.5%. There were no borrowings under the line of credit at March 31, 2000. Our operating activities used cash of $1.2 million during the three months ended March 31, 2000. Cash provided from operating activities was $64,000 for the year ended December 31, 1999, $5,000 for the year ended December 31, 1998 and $19,000 for the year ended December 31, 1997. As we continue to expand our sales and marketing, product development and support organizations, we anticipate the growth in these activities will use cash resources in excess of cash received. Our deferred revenue was $7.2 million at March 31, 2000 and $4.2 million at December 31, 1999. We expect our deferred revenue and accounts receivable balances to increase significantly if we continue to increase sales at current rates. Our practice of collecting cash at the beginning of the subscription period will continue to contribute to the funding of our operations. Our investing activities used cash of $580,000 during the three months ended March 31, 2000. Cash used for investing activities was $514,000 for the year ended December 31, 1999, $37,000 for the year ended December 31, 1998 and $5,000 for the year ended December 31, 1997. Our investing activities have consisted 27 primarily of purchases of computer equipment, furniture and equipment to support our operations. We expect to continue to use cash for purchases of furniture and equipment to support our expanding workforce and application service provider hosting infrastructure. Our financing activities generated $21,000 for the three months ended March 31, 2000 from the exercise of stock options. Total financing activities for the year ended December 31, 1999 generated $14.5 million compared to $100,000 during 1998. In December 1999, we issued shares of preferred stock generating $16.1 million of net proceeds. Of the proceeds, $1.2 million was used to repurchase stock. Prior to the termination of our S corporation status in December 1999, a stockholder distribution of $330,000 was declared to fund S corporation income taxes payable by our stockholders. The distribution was paid in April 2000. In 1998, cash from financing activities was generated through loans totaling $100,000 from our founder and Chief Executive Officer and an affiliated entity. Our capital requirements depend on numerous factors. We expect to devote substantial resources to continue research and development efforts, expand our sales, support and marketing organizations, establish additional offices worldwide and build the infrastructure necessary to support our growth. Since the introduction of our initial product in November 1997, we have experienced increases in our expenditures consistent with the growth in our operations and personnel, and we anticipate that our expenditures will continue to increase in the future. We believe that the proceeds of this offering, together with our current cash and cash equivalents and our borrowing capacity, will be sufficient to fund our activities for at least the next 12 months. Thereafter we may need to raise additional funds to develop or enhance products, to fund expansion, to respond to competitive pressures or to acquire complementary products, businesses or technologies. If required, additional financing may not be available on terms that are acceptable to us. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced and these securities might have rights, preferences and privileges senior to those of our current stockholders. Qualitative and Quantitative Disclosures About Market Risk We develop products in the United States and sell them primarily in North America and to a lesser extent internationally. Our sales to date have all been priced and payable in U.S. dollars. As such, we are not subject to significant market risk from foreign exchange rates at this time. However, fluctuations in the U.S. dollar or foreign currencies could affect the competitiveness of our products in foreign markets. Interest income and expense are sensitive to changes in the general level of U.S. interest rates, particularly since our investments are in short-term instruments. However, based on the nature and current level of our investments and obligations, we have concluded that there is no material risk of exposure. 28 BUSINESS Overview We are a leading provider of Internet customer service solutions. Our products are designed to enable businesses and other organizations operating on or utilizing the Web to enhance customer interactions and anticipate customer needs, thereby producing higher levels of customer satisfaction. Our comprehensive solution uses a dynamically updated, self-learning knowledgebase to deliver customer self-service, e-mail management, live interaction, issue tracking and customer satisfaction measurement capabilities. The content of each individual knowledgebase is customer-driven, meaning that the knowledgebase "learns" as customers communicate and interact with the business. This allows businesses to efficiently capture, organize, publish and distribute valuable product and service information both to customers and throughout the rest of the extended enterprise. Our objective is to enhance our position as a leading provider of Internet customer service solutions to businesses and organizations of all sizes. As of March 31, 2000, we had 574 customers, which we believe to be more than any other Internet customer service software company. To continue our success in this regard, we intend to leverage the efficiency of our direct sales channel to acquire new customers and increase penetration of our existing customers, and to expand our indirect sales channels and strategic relationships. In addition, we intend to extend the breadth and depth of our product offerings, increase the availability of our application service provider hosting services and expand our international presence. Industry Background The use of the Internet to communicate and conduct business is growing rapidly. Businesses and other organizations are increasingly using the Internet as an integral means of communicating and interacting with their customers, business partners and employees. International Data Corporation, or IDC, estimates that the worldwide number of customers buying goods and services over the Web will grow from approximately 33.8 million in 1998 to 229.7 million in 2003. This growth has led to a dramatic transformation in the manner in which companies communicate and interact with their customers. As Internet-based customer communication continues to grow, we believe that the ability to efficiently provide fast, reliable and accurate information to meet customer expectations has become a competitive necessity for many organizations. As customer communication shifts to the Internet, customers increasingly expect the capability not only to view and purchase products online, but also to obtain answers to their product and service questions 24 hours a day, seven days a week. We believe that, to remain competitive in this environment, every organization, whether a traditional bricks-and-mortar company with a Web presence or a completely Internet-based business, must be able to provide a significant level of service and interaction electronically and in real-time. The low cost of switching vendors or services on the Internet heightens the importance of providing superior customer service and communication. Moreover, Internet-based customer service also applies to other parts of the extended enterprise that generate product and support-related questions, such as internal support personnel, human resources departments and suppliers. The initial Web presence for many companies consisted only of an infrastructure that supported general marketing and transaction capabilities. However, in many cases both companies that conduct their business over the Internet and those that simply have a Web presence have been unprepared for the significant increase in volume of customer service inquiries that Internet- based communications channels generate. According to Jupiter Communications, customer satisfaction with shopping on the Internet is decreasing, and the proportion of customers who were highly satisfied with their experiences purchasing from online businesses decreased from 62% in 1998 to 42% in 1999. We believe that the primary cause of this dissatisfaction is the combination of increased customer expectations and the inability of many businesses on the Web to efficiently respond to 29 customer needs. We also believe that customers expect a quicker response when they communicate with businesses via the Internet than when traditional modes of communication such as direct mail and the telephone are used. To effectively respond to customer inquires on this scale, we believe businesses need to enable their customers to easily find answers on their own. E-mail, in particular, illustrates the customer service problems that businesses on the Internet currently face. E-mail, like a telephone call, requires a prompt, accurate response in order to be effective. Many businesses have been unable to cost-effectively manage the volume of e-mail inquiries that a presence on the Internet generates. According to a Jupiter Communications survey, 43% of Web sites surveyed did not respond to a customer's e-mail within 24 hours, and 19% of sites did not respond at all. As a result, we believe many customers prefer to have the ability to resolve questions on their own by reference to the company's Web site. In situations like these, an increasing volume of e-mails from customers is often symptomatic of a larger customer service problem that the business has not addressed, namely, the inability of customers to find the information they are seeking on a company's Web site. We believe that businesses that subject their customers to this experience are driving a significant proportion of their customers to do business elsewhere. Internet self-service can provide an attractive alternative to this frustrating end-user experience. When companies first began to move their businesses to the Internet, customer service solutions were often designed and developed by internal information technology personnel. However, in response to rapidly changing technology, the expansion of Internet-based business activities, time-to-market pressures and the lack of information technology personnel, many companies have sought external solutions for their customer service automation needs. Current Internet customer service products generally take one of two approaches. The first approach is to provide highly customized products to large businesses that can afford the relatively high prices and long implementation cycles of the traditional enterprise software model. This approach, by virtue of its cost and complexity of implementation, is effectively unavailable to anyone other than large companies. The second approach is to address only a portion of the larger customer service problem through point solutions such as e-mail management or live chat. This second approach fails to provide the functionality and scalability needed to address current customer service needs and, because it is not a comprehensive solution, requires integration with other point products. We believe these approaches are not effective because neither provides an integrated customer service solution that begins with self- service and includes a dynamically updated, self-learning and customer-driven knowledgebase. Most self-service solutions currently available rely on knowledge experts to collect, compile and publish information. There are three problems with these solutions. First, a manual approach is time-consuming and expensive, as the knowledge expert must often spend a great deal of time to compile, document and organize the information. Second, the resulting knowledgebase quickly becomes obsolete because there is no automatic method for adding or deleting information. Finally, and perhaps most significantly, this approach relies on the knowledge expert to know what information customers are seeking. We believe a significant market opportunity exists for an integrated Internet customer service solution that enables both effective customer self- service and streamlined escalation to other channels of company communication. IDC estimates that demand for Internet customer service-related software and services will grow from $11 billion in 1998 to $43 billion by 2003. We believe an integrated, cost-effective solution that enables customer self-service by drawing on a dynamically updated, self-learning knowledgebase is required to meet this demand. Self-service, or the ability of customers to help determine the type of interaction and information they seek, allows businesses to rapidly respond to changes in customer needs without hiring the large numbers of additional personnel that are required to generate accurate responses by telephone, mail or other traditional means. When self-service is combined with a dynamically updated knowledgebase and the ability to easily deliver information through e-mail, live chat or other person-to-person interaction, the resulting solution allows companies to leverage their existing resources to achieve higher levels of customer satisfaction and revenue. 30 Solution We provide an Internet customer service solution for businesses and other organizations that operate on or utilize the Web. Our products are designed to enable businesses to enhance customer interactions and anticipate customer needs, thereby producing higher levels of customer satisfaction. Our comprehensive solution uses a dynamically updated, self-learning knowledgebase to deliver customer self-service, e-mail management, live interaction, issue tracking and customer satisfaction measurement capabilities. The content of each individual knowledgebase is customer-driven, meaning that the knowledgebase "learns" as customers communicate and interact with the business. This allows businesses to efficiently capture, organize, publish and distribute valuable product and service information both to customers and throughout the rest of the extended enterprise. In addition, because each knowledgebase is self-learning, it does not require businesses to invest significant resources in the manual processes traditionally associated with knowledgebase creation and maintenance. Our products are available on both a hosted and non-hosted basis. Our products offer customers the following important benefits: Increased customer satisfaction. Our products are designed to increase customer satisfaction by enabling fast, efficient and intelligent resolution of customer service questions and issues. Our automated Internet-based self- service solutions enable a greater number of customers to answer their own questions on a 24x7 basis. Additionally, our products allow customers to choose other forms of interaction with a customer support representative, including e- mail and live chat. When a customer elects one of these options, our solution automatically accesses the knowledgebase to suggest answers to the customer service representative handling the inquiry. This allows a company's customer service representatives to more effectively address customer inquiries that require person-to-person assistance. The result is enhanced customer interactions and improved customer loyalty. Reduced cost of customer service. Our products reduce the costs of customer service inquiries by enabling and encouraging customer self-service, helping customers communicate questions they cannot resolve on their own to customer service representatives and assisting customer service representatives to answer questions. Costs are also reduced by automating the expansion and organization of the business's knowledgebase, which replaces the process of manually collecting and organizing the information needed to answer customer questions. As a result, businesses that use our solution can focus customer service representatives on servicing the more complex issues and providing an integrated, personalized customer interaction experience. These same features allow businesses to cost-effectively scale their customer support infrastructure to the higher volume of customer communications that an Internet presence generates, increase employee productivity and decrease cost per customer service interaction. Dynamic knowledge capture, management and distribution. Our solution enables a dynamically developed company-specific knowledgebase that provides customers, business partners and employees with a single point of access for customer service information. The content that our solution generates is customer-driven and reflects both customer communications that are explicit, such as e-mails, and those that are implicit, such as a customer's navigation patterns within the knowledgebase. This knowledgebase also allows businesses to collaborate with customers, partners, vendors and suppliers to solve support problems, share information and conduct e-commerce. Businesses and other organizations can use our solution not only to address current customer questions, but also to capture the information generated in answering questions and automatically add it to the knowledgebase to enable customer self-resolution of similar questions in the future. Customers benefit from the company's experience in resolving prior customers' issues, and the information developed in the knowledgebase becomes a valuable internal marketing and training tool. In addition, customers, business partners and employees can elect to receive selected information from the knowledgebase as that information develops and is updated. Application service provider delivery. We have designed our products to be installed in a hosted fashion in order to minimize implementation requirements and reduce cost of ownership. As a result, hosted solutions 31 can be implemented in a matter of days and work together as a comprehensive product suite as soon as they are installed. Our application service provider design reduces total cost of ownership of our solutions and eliminates the need for our customers to purchase hardware, obtain additional Internet connections or hire additional systems administration personnel. This delivery model also allows us to install and rapidly upgrade our software with minimal customer involvement or commitment of resources. Comprehensive, rapidly deployable, scalable solution. Our product suite is a comprehensive solution for Internet-based customer service, which integrates self-service, e-mail management, live interaction, issue tracking and customer satisfaction measurement capabilities. The ability of our solutions to work together facilitates rapid deployment and eliminates the need for companies to try to customize multiple vendors' software tools. When desired, our customers also can integrate our software solutions with external systems such as call centers and other customer databases. We work together with our alliance partners to provide the professional services necessary to perform such integrations. In addition, our products are built on a scalable Web-based architecture which allows our customers to scale their customer service infrastructure to meet levels of customer service activity significantly greater than any of our customers are currently experiencing. Strategy Our objective is to enhance our position as a leading provider of Internet customer service solutions to businesses and organizations of all sizes. As of March 31, 2000, we had 574 customers, which we believe to be more than any other Internet customer service software company. To continue our success in this regard, we intend to pursue the following key strategies: Leverage highly efficient direct sales channel. To date, our sales model has allowed us to rapidly scale our business in terms of the number of potential customers contacted, the number of customers acquired and the number of solutions actually implemented. In contrast to the traditional methods of on- site sales and implementation used by most other enterprise software companies, we conduct the vast majority of our sales and implementation processes through the telephone and over the Internet. We believe that this gives us significant operating efficiencies relative to many of our competitors. We intend to continue to leverage the efficiency and scalability of our sales model by targeting those companies with a strong need for Internet-based customer service capabilities. Additionally, we intend to increase our sales and marketing efforts to broaden our customer base and to achieve expanded use of our products by our existing customers. Expand indirect sales channels and strategic relationships. We currently have strategic alliances with more than 30 value-added resellers, integrators, technology providers and outsourced call centers. We intend to continue to enter into and expand our strategic relationships to assist in the marketing and distribution of our products and services. By expanding existing alliances and aggressively developing new ones, we can leverage the sales and services organizations of much larger firms to increase our market penetration and target the needs of specific market segments. Extend the breadth and depth of our product offerings. We believe that maintaining and enhancing our products is important to our ability to expand our market share, differentiate ourselves from our competitors and acquire and retain customers. We intend to continue to invest in research and development to broaden the range of solutions our products offer. In particular, we intend to leverage our current base of more than 550 customers and our strategic partners to determine desired features and product extensions, and to develop, license or acquire new products that would complement our current products. We recently introduced RightNow Metrics to provide businesses the ability to survey and measure customer satisfaction. Expand application service provider hosting services. Companies that conduct business over the Internet usually desire rapid implementation and integrated delivery of software, which makes software products hosted by application service providers an attractive alternative to products that reside locally on the company's network. We intend to continue to expand our application service provider hosting infrastructure. In addition, 32 we intend to make our application service provider hosting services increasingly available through third-party application service providers. Expand international presence. As Web usage accelerates abroad, we believe that significant international market demand will exist for Internet-based customer service solutions, especially in Europe and the Pacific Rim. We intend to devote significant resources toward making our products and services the leading solution for Internet customer service internationally. We expect to establish sales offices in the United Kingdom and Germany by the end of 2000 and in the Pacific Rim in 2001. Our flagship product RightNow Web is currently available in eight languages, and we intend to continue to adapt our products to additional languages to facilitate the penetration of international markets. Products and Technology Our products provide an Internet customer service solution for businesses and other organizations that operate on or utilize the Web. Our comprehensive solution uses a dynamically updated, self-learning knowledgebase to deliver customer self-service, e-mail management, live interaction, issue tracking and customer satisfaction measurement capabilities. The content of each individual knowledgebase is customer-driven, meaning that the knowledgebase "learns" as customers communicate and interact with the business. This allows businesses to efficiently capture, organize, publish and distribute valuable product and service information both to customers and throughout the rest of the extended enterprise. In addition, because each knowledgebase is self-learning, it does not require a business to invest significant resources in the manual processes traditionally associated with knowledgebase creation and maintenance. Our products are available both in hosted form, in which case we act as an application service provider, and in local form, in which case our software is installed directly on the customer's systems. RightNow Web is currently available in English, French, German, Italian, Spanish, Portuguese, Dutch and Finnish. In addition, we are in the process of developing RightNow Web's capability to support all major languages by the end of 2000. All of our products have been designed using industry standards for the Internet. Our software is written in C/C++ and Java, two widely accepted development languages for developing applications. Our products can be deployed by any business using the Web through a Web browser. Our products operate on a number of operating systems and hardware platforms. Currently, both UNIX (Solaris, Linux, FreeBSD) and Microsoft Windows Server (NT, 2000) are supported operating systems. Industry standard relational databases (such as Oracle8 and Microsoft SQL Server) are used to store data. [A diagram is presented illustrating how customer e-mail and Web inquiries seeking an answer to a question interact with the self-help, e-mail management and live chat interaction capabilities of RightNow Web. The diagram also illustrates the individual knowledgebase and workflow routing between the customer and a company's customer service representative. The diagram also presents boxes to note the external system integration and system reporting capabilities of our solution. Finally, the diagram contains a box noting the automated survey capability of RightNow Metrics.] 33 RightNow Web RightNow Web was first released commercially in November 1997. The initial release was designed to allow businesses to provide their customers the ability to answer questions themselves. Since the initial release, we have upgraded RightNow Web frequently to include additional capabilities, such as e-mail management, live interaction, management reporting, issue tracking and service contract management capabilities. The current release, RightNow Web 3.1, integrates all of these capabilities. Knowledgebase technology. Our self-learning knowledgebase incorporates proprietary technology that is designed to minimize the amount of administrative time necessary for a business to compile, organize and publish information on their Web site. We have developed several proprietary approaches to knowledge management that enable our solution to learn what information is important and related without requiring the intervention of a knowledge expert. In this way, the knowledge structure and content is customer-driven and grows automatically as our products are used. For example, each time a piece of information is accessed by a customer, its usefulness is recorded and ranked so that future Web site visitors benefit from prior searches for that information. We currently have four patent applications pending relating to our knowledgebase technology, including processes relating to the relative usefulness ranking and the order of display of retrieved information in the knowledgebase; the ability of the knowledgebase to suggest related information to a customer accessing the knowledgebase based on the keyword search and navigation patterns of the customer; and the ability of the knowledgebase to produce a relational map of help information items based on the historical usage patterns of customers accessing the knowledgebase. RightNow Web's self-learning knowledgebase provides a comprehensive, Internet customer service solution for a business's external customers, and valuable information by which business partners, vendors and suppliers may collaborate to solve problems, share information and conduct e-commerce. For example, this allows sharing of customer records, support activity or common marketing documents. In addition, customer service representative, or CSR, performance is made more efficient and effective by utilizing the knowledgebase for internal training and educational purposes. Customer self-service. RightNow Web is designed around the principle that most customer questions are repetitive in nature and can be predicted. Our self-service capability works by enabling businesses to offer to their customers a dynamically updated selection of frequently asked questions via the Web. Customers are able to search for answers to their questions, which are organized according to a particular business's requirements. For example, the questions may be organized by product, service or other individual category. Customers are also able to use keyword searches to find the answers to their questions. As customers interact with our solution, our proprietary knowledgebase technology automatically prioritizes answers in the knowledgebase to anticipate future customer questions. Using the knowledge gained from a customer's previous sessions, our products have the functionality to allow a customer to view answers that are related to the information that they viewed during a prior search. If customers are unable to answer their questions on their own, our solution includes functionality that allows them to submit their questions via the Web, e-mail their questions, initiate a live chat with a CSR or request a telephone callback from a CSR. E-mail management. The e-mail management capability of RightNow Web provides businesses a full range of options for handling incoming e-mail inquiries. Our SmartAssistant technology performs natural language processing on the submitted question and searches the knowledgebase for appropriate answers. After this processing, the SmartAssistant automatically suggests answers to questions submitted via the Web either to the customer or to the CSR depending on the business rules established by the company. In the event that the answer is not available in the knowledgebase, the CSR can publish and distribute the question and the answer into the knowledgebase, thereby making the solution easily accessible to future customers. We believe our 34 SmartAssistant technology increases the accuracy of and speed with which CSRs can respond to e-mail inquiries, making CSRs more efficient and enhancing the overall level of customer service a business provides. Live interaction. Although we believe that the majority of customer questions may be answered through the self-service capability of RightNow Web, live chat interaction or a telephone call with a CSR may be the best method of addressing some customer questions. We implement the live interaction capability of RightNow Web using a Java applet. Based on established customer service guidelines, our products allow customers who have not found the answers to their questions to initiate live text chat or request a telephone call from a CSR. Our SmartAssistant technology can assist the CSR in handling the customer inquiry in a consistent, fast and efficient manner by allowing the CSR to access the knowledgebase for potential answers. Two-way chat (via pop-up browser windows) allows a business's customers and CSRs to converse through typed conversation, enabling interactive problem resolution. Web pages and additional product information or installation instruction and diagrams can be "pushed" to the customer's computer screen during live interaction, providing a visual, multimedia response. In addition, at any time during a live chat session, customers can request a callback for live phone conversation. Each CSR can handle a number of concurrent live chat sessions to maximize the CSR's productivity. Workflow routing and issue escalation. RightNow Web incorporates sophisticated workflow routing and issue escalation capabilities. Although self-service may be a preferred choice for many customers, organizations may want to direct a certain portion of their customers to CSRs for personal attention. In these cases, RightNow Web allows business rules to be easily implemented to automatically assign incoming e-mails or Web requests to specific customer service areas. An organization may also establish business rules to provide that incoming questions be assigned, acted on or even automatically responded to based on the question's content, customer status, service contract status and other business rules. Our products also allow businesses to establish escalation rules for monitoring CSR performance. If a customer issue is not addressed in a timely manner, escalation rules can be established to automatically re-assign the issue to another CSR or to notify a supervisor. Integration with external systems. RightNow Web incorporates a number of features that facilitate integration with external systems, including data import and export utilities to allow for bulk conversion between the RightNow Web knowledgebase and a company's internal database. RightNow Web also has the capability to provide linkage with a customer's other systems so that when an e-mail or Web request is made through RightNow Web, a notification automatically can be generated in the customer's call center application. RightNow Web allows direct database programming when extremely tight system integration is required. This is generally implemented through the use of professional services personnel. In May 2000, we will add an Application Programming Interface to RightNow Web that will provide our alliance partners, customers requiring complex integrations and our professional services group with additional flexibility in building tight integration bridges with external systems. Flexible reporting. RightNow Web incorporates a sophisticated Web-based management report capability, including a report designer function that allows an organization to create the reports its business needs may require. Once a report is created, RightNow Web allows the organization to establish a schedule for delivery via e-mail for daily, weekly or monthly automatic reporting. Reports can be generated at any time using a Web browser to allow for real-time report viewing and analysis. Contract management. The contract management component of RightNow Web automates the administration of service contracts of the customer. This feature assists businesses that sell service contracts in managing the contracts based on the term of the contract or the number of service interactions covered by the contract. 35 RightNow Metrics In April 2000, we introduced the initial version of RightNow Metrics. RightNow Metrics is a survey and measurement tool that allows businesses to design and disseminate custom surveys to external and internal parties to gather information for business decisions. RightNow Metrics can be used as a stand alone product or can be fully integrated with RightNow Web. When integrated with RightNow Web, surveys are automatically generated after customers have submitted questions to a CSR. Survey responses are automatically tabulated and graphed and can then be used by businesses to measure the performance of their customer service staff or any individual CSR. This product is designed to allow businesses to measure reaction to new products and programs; identify product and service enhancements; evaluate and improve Web sites; evaluate training locations, content and instruction quality; and collect market intelligence on customer demographics, brand identification and company positioning. Application Service Provider Hosting Services Our products are available on a hosted basis or can be implemented and maintained by our customers in their own facilities. Our products have been specifically designed to be installed in a hosted fashion in order to minimize implementation requirements and reduce cost of ownership. As a result, our hosted solutions can be implemented in a matter of days and work together as a comprehensive product suite as soon as they are installed. In addition, upgrades to our products can be made quickly and efficiently without the need for a customer's systems group to be involved. We believe providing our solutions on a hosted basis will be an important factor in growing our customer base and making our comprehensive Internet-based customer service solutions available to any business interacting with its customers over the Web. Approximately 50% of our current customers are hosted and an increasing percentage of our new customers since January 1, 2000 have elected to be hosted. We have contracted with Exodus Communications, Inc. and Up2 Technologies, a subsidiary of Teleglobe, Inc., leading providers of Internet server hosting and management solutions, to provide hosting services to support our product solutions. Up2 maintains our East Coast data center operations while Exodus will maintain our West Coast data center beginning in May 2000. We believe both Exodus and Up2 are equipped to provide the security, reliability and performance required for hosting our products through their network of operating centers and high-speed wide area network backbone. Sales and Marketing We sell our products primarily through our direct sales force. Our sales force consists of sales development personnel who make initial calls to potential customers and qualify potential customer leads and direct sales representatives who close sales with customers and assist our customer support group in implementing our products. We are in the process of expanding our direct sales force to also include named account representatives who will focus on penetrating existing customer accounts where our solution is deployed in only a portion of the larger organization. To date, virtually all of our sales activity has taken place over the telephone and via the Web, rather than through face-to-face meetings. The average sales cycle for our products is less than 100 days. In cases where our sales force has been provided leads generated through our marketing activities described below, the sales cycle has generally been shorter than the average. As of March 31, 2000, we had 77 North American direct sales employees and two international sales employees together with a group of 11 sales engineers. We typically recruit people for our sales force with a four-year college degree and at least three years' experience in corporate field sales. We currently have sales offices in Bozeman, Montana and Dallas, Texas. Our marketing department coordinates customer interaction, conducts market and competitive research and develops strategies to evaluate new product direction, enhancements and product specifications. The product 36 marketing function is an integral part of customer beta testing, product packaging, pricing and deployment. Our marketing department consisted of 14 full-time employees as of March 31, 2000. As an important part of our strategy to expand our customer base, we intend to continue to expand both our direct and indirect sales channels. We are actively pursuing alliances with value-added resellers, integrators and outsourced call centers. In addition, we intend to pursue strategic alliances with other technology providers to enhance the marketing and distribution of our products and to offer our customers additional products that complement our products. At March 31, 2000, we had relationships with more than 30 indirect channel distributors. In addition, as we introduce new products and enhance the functionality of our existing products, we intend to market and sell additional products to our existing customer base. We use an assortment of marketing programs to create market awareness of our products and to generate sales leads. Our marketing activities include: . conducting educational and product seminars; . participating in trade shows and industry conferences; . developing and placing Internet and traditional advertising; . conducting ongoing media and public relations campaigns; . developing and maintaining our Web site; . developing customer reference programs, such as customer case studies; . developing sales tools, including product brochures; and . publishing white papers relating to customer relationship management issues. 37 Customers As of March 31, 2000, we had 574 customers, including Internet, software and hardware, consumer products, financial and travel-related companies as well as governmental agencies and educational institutions. The following is a representative list of our customers by industry as of March 31, 2000. No customer accounted for more than 3% of our revenue in the year ended December 31, 1999. We do not intend the identification of these customers to imply that these customers are actively endorsing or promoting our products. Media Manufacturing Hardware Echostar Communications Bes-Pac, Inc. CABLEExpress Corporation Black and Decker Technologies Investor Business Network Corporation Pitney Bowes, Inc. Rocket Network, Inc. Briggs & Stratton Xerox Europe LTD Corporation Government Financial Services Education Florida Department of FundsXpress Financial Rice University Highway Safety Network Saddleback Valley United Social Security Union Bank & Trust Co. School Administration Women's Financial University of California Wayne County GIS Network, Inc. Santa Cruz Internet Consumer Communications Cyberprinter.com Freelife International, Excel Corporation product2store.com, Inc. Inc. Smith Micro Software, ValueClick, Inc. Nike, Inc. Inc. Rockford Corporation Sprint Local Telephone Division Automotive Software Services Dana Corporation DataCore Software Corp CA4IT Inc. Ford Motor Company of Eagle Software Digital Paper Canada, Limited UTM systems corp Corporation Henna Chevrolet IT Utility Medical & Science Solution Providers Associations Ambion, Inc. Fullscope, Inc. American Chemical Aventis Pharmaceuticals It-radar.com Society Transcend Services, Inc. Starr Seigle American Simmental Communications Association CIESIN at Columbia University International Travel Aeronaut Industries Pty Frontier Airlines Ltd. Lufthansa Airlines Dolphin Communication Technologies GmbH Securicomm Italia S.r.l. The following case studies illustrate the benefits some companies have realized by using our products either to deliver Internet-based customer solutions to their customers or to deliver information necessary to support their internal customer service personnel. Viata Online, Inc. Specialized Bicycle Company (www.specialized.com) Creating Sales with Service Specialized, a customer since June 1999, is a premier manufacturer of bicycles and bicycle accessories. As consumer awareness and interest in its Web site grew, Specialized needed a fast, cost-effective way to answer customer questions. Specialized chose RightNow Web's self-service capabilities to allow its customers to 38 obtain quick, consistent and accurate answers to their questions about the company's bikes and accessories. By using our hosted service, Specialized was able to deploy RightNow Web in less than 30 days. Specialized believes that the information RightNow Web delivers to Web visitors helps it to win sales over its competitors by providing superior customer service. According to Specialized, RightNow Web allowed the company to fully recoup its investment within one month of implementation by reducing costs and increasing sales. In addition, the area of Specialized's Web site where RightNow Web has been implemented is now the most heavily-trafficked area of the company's Web site. Sanyo Corporation (www.sanyo.com) Providing Product Support via Self-Help Solutions Sanyo is a leading developer and manufacturer of consumer electronics, home appliances and other commercial products. Sanyo's service support organization for North America chose RightNow Web to alleviate pressure on its call center and to enable its customers to find answers to their more frequently asked product and service questions. Prior to implementing RightNow Web in November 1999, Sanyo's North American service organization was receiving approximately 1,000 incoming customer service calls per day. These calls typically involved repetitive questions about product features and specifications, requests for operation manuals, repair requests and general product troubleshooting. After deploying our solution and creating a phone message directing "on hold" customers to their support site, Sanyo's incoming customer service calls were reduced by approximately 27% within 40 days of implementation. University of South Florida--Information and Technology Department (www.acomp.usf.edu) Online Self-Help for Students, Faculty and Staff The University of South Florida serves 36,000 students and 5,000 employees in four campus locations. The University's Information and Technology Department provides computer services and manages computer equipment for all students and faculty. The IT Department was experiencing a growing number of repetitive e-mail inquiries and phone calls at its help desk, with topics ranging from simple to complex. After unsuccessfully trying to implement a competing solution, the IT Department purchased and implemented RightNow Web. According to the IT Department, RightNow Web provides a cost-effective online self-help solution for its students, faculty and support staff, which has allowed it to reduce its support staff. The IT Department estimates that calls and e-mails were reduced by 20% within a month of deploying RightNow Web in November 1999. The University of South Florida recently purchased two additional licenses of RightNow Web for its Financial Aid and Student Computing Departments. Customer Service and Support We believe we must provide a high level of support services to our customers in order to increase and maintain our customer base. We use RightNow Web and RightNow Metrics as an integral part of managing our customer support staff's performance and measuring our customers' satisfaction level. All of our products are designed to be installed easily and administered without requiring any significant amount of professional services or special programming. In order for our customers to have the most up-to-date version of our software, we have made it easy to upgrade the software. Included in our normal installation utility is the intelligence to determine the version of software installed and then automatically perform the actions required to upgrade the installed version to the most recent version. Our Customer Services Group consists of an Implementation and Technical Support Group, Application Service Provider Management Group and Professional Services Group. As of March 31, 2000, our Customer Services Group consisted of 29 full-time employees. 39 Our Implementation and Technical Support Group assists our customers in implementing our products and promoting customer self-sufficiency. To date, virtually all of our product implementations have been done on a remote basis through the Internet and telephone. The level of our implementation services vary depending on the individual customer's requirements. As we increase our indirect sales channel, these implementation services will increasingly be provided by third parties who are marketing and selling our products. We also provide our customers with 24x7 Web and telephone support, software update support and other product maintenance services. Our Application Service Provider Management Group manages our East and West Coast data centers. As of March 31, 2000, approximately 50% of our customers were hosted. Our Professional Services Group's technical and product specialists help customers achieve business benefits through a process of Web site prototyping, testing and deployment. Our professional services personnel allow companies to use their staff more efficiently, reduce strain on their own internal resources and efficiently integrate our products into their existing operations. Our professional services personnel also provide consulting services relating to specific tasks, including analysis of a customer's business processes, customization, configuration and integration of our products with a customer's existing systems and designing custom reports. Research and Development We believe that strong product development capabilities are essential to our strategy of enhancing our core technology, developing new products and maintaining the competitiveness of our product offerings. Our research and development expenses totaled approximately $633,000, or 43.9% of revenue in the three months ended March 31, 2000, $603,000, or 29.8% of revenue in 1999, $74,000, or 26.5% of revenue in 1998 and $43,000, or 54.0% of revenue in 1997. As of March 31, 2000, 31 of our employees were engaged in research and development activities. In addition, we supplement our internal research and development activities with outside development resources. Competition The market for our products is new and intensely competitive. We expect the intensity of competition to increase in the future. If we are unable to compete effectively, it will be difficult for us to acquire and retain customers. Increased competition could result in pricing pressures, reduced margins or the failure of our products to achieve or maintain market acceptance. Our products compete with systems that were developed and maintained internally by businesses. We also compete directly with companies that provide licensed software products for customer service solutions. Our competitors include a number of companies offering one or more products for the electronic customer relationship management software market, some of which compete directly with our products. Our competitors include companies providing similar solutions, including eGain Communications Corporation, Kana Communications, Inc. and Servicesoft Technologies, Inc. In addition, we face competition from other companies providing customer relationship management, e-commerce and communications and knowledgebase management solutions. Many of our current and potential competitors have longer operating histories, greater name recognition and substantially greater financial, technical, marketing, management, service, support and other resources than we have. Therefore, they may be able to respond more quickly than we can to new or changing opportunities, technologies, standards or customer requirements. In addition, many of our competitors have well-established relationships with our current or potential customers and potential alliance partners and have an extensive knowledge of our industry. A significant number of companies are entering the electronic customer relationship management software market. We expect that new competitors will continue to enter the market with competing products as the size 40 and visibility of the market opportunity increase. We also expect that competition will increase as a result of software industry consolidations and formations of alliances among industry participants. For example, in February 2000, Kana announced plans to acquire Silknet Software, Inc. Competitors with large market capitalizations or cash reserves would be better positioned than we are to acquire complementary businesses, new technologies or products. We may not be able to compete successfully against current and future competitors, and competitive pressures may seriously harm our business. Intellectual Property Our success depends on our ability to maintain the proprietary aspects of our technology and operate without infringing the property rights of others. We rely on a combination of patent, copyright, trade secret and trademark laws to protect our intellectual property. We currently have pending four U.S. patent applications covering the following aspects of our knowledgebase technology: . processes relating to an information search and retrieval system via a network, such as the Internet, in which the relative usefulness ranking and the order of display of the retrieved information in the knowledgebase is adjusted based on actions taken by a user and the amount of time elapsed since the particular information was last accessed; . processes allowing the knowledgebase to suggest related information to a customer based on the keyword search and navigation patterns of a customer; and . processes allowing the knowledgebase to produce a relational map of help information items based on the strengths of the relationship between information in the knowledgebase, which are determined based on historical usage behaviors of customers accessing the knowledgebase. We also enter into confidentiality or license agreements with our employees, consultants and alliance partners, and generally control access to and distribution of our software, documentation and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology or to develop products with the same functionality as our products. Policing unauthorized use of our products is difficult, and we cannot be certain that the steps we have taken will prevent misappropriation of our technology, particularly in foreign countries where the laws may not protect proprietary rights as fully as do the laws of the United States. In addition, we have one U.S. trademark registration and two pending U.S. trademark applications. Our trademark applications may not be allowed and even if allowed, may not provide us a competitive advantage. Competitors may successfully challenge the validity and scope of our patents and trademarks. Although we rely on patent, copyright, trade secret and trademark law to protect our technology, we believe that factors such as the technological and creative skills of our personnel, new product developments, frequent product enhancements and reliable product maintenance are more essential to establishing and maintaining a technology leadership position. We can give no assurance that others will not develop technologies that are similar or superior to our technology. If any of our products violate third-party proprietary rights, we may be required to reengineer our products or seek to obtain licenses from third parties to continue offering our products without substantial reengineering. Any efforts to reengineer our products or obtain licenses from third parties may not be successful and, in any case, would substantially increase our costs and have a material adverse effect on our business, operating results and financial condition. We generally do not conduct comprehensive patent searches to determine whether the technology used in our products infringes patents held by third parties. In addition, product development is inherently uncertain in a rapidly evolving technological environment in which there may be numerous patent applications pending, many of which are confidential when filed, with regard to similar technologies. 41 Employees As of March 31, 2000, we had 206 full-time employees, of which 150 were at our headquarters in Bozeman, Montana and 56 were at our Dallas, Texas sales office. Of the total employees, 129 were in sales and marketing, 31 were in research and development, 29 were in customer service and 17 were in finance and administration. None of our employees is represented by a labor union. We believe that our relations with our employees are good. Facilities Our corporate headquarters are located in Bozeman, Montana, where we lease approximately 20,000 square feet with terms that expire in March 2005, and approximately 10,000 square feet under multiple leases with terms that expire within one year. We have agreed to enter into a five-year lease for an additional 30,000 square feet of space in Bozeman, Montana, that will be available in approximately one year. We also lease 14,000 square feet in Dallas, Texas with a term that expires in April 2004. We believe that these existing and planned facilities are adequate to meet our current, foreseeable requirements or that suitable additional or substitute space will be available on commercially reasonable terms. Legal Proceedings We currently are not subject to any material legal proceedings; however, we may from time to time become a party to various legal proceedings arising in the ordinary course of our business. 42 MANAGEMENT Executive Officers, Directors and Key Employees Our executive officers, directors and other key employees and their ages as of March 31, 2000, are as follows:
Name Age Position - ---- --- -------- Greg R. Gianforte..................... 38 Chairman and Chief Executive Officer Jeffrey W. Honeycomb.................. 44 President and Chief Operating Officer Susan J. Carstensen................... 37 Chief Financial Officer Michael A. Myer....................... 33 Vice President of Development Cynthia A. Taylor..................... 52 Vice President of Alliances Roger L. Evans(1)..................... 54 Director William J. Lansing(1)................. 41 Director Robert J. Ryan(2)..................... 52 Director Margaret L. Taylor(1)(2).............. 48 Director
- -------- (1) Member of audit committee. (2) Member of compensation committee. Greg R. Gianforte is our founder, Chairman and Chief Executive Officer. Prior to founding RightNow in September 1995, he was the Vice President of North American Sales of Network Associates, Inc. (formerly McAfee Associates, Inc.), a provider of network security and tools to small and medium-sized businesses, during 1994. Before joining McAfee Associates, Mr. Gianforte founded Brightwork Development, a developer of network management applications, in 1986, and served as President of Brightwork until 1994. Mr. Gianforte holds a B.E. degree in electrical engineering and an M.S. degree in computer science from Stevens Institute of Technology. Jeffrey W. Honeycomb has been our President and Chief Operating Officer since August 1999. He served as a director from October 1999 to April 2000. From 1994 to 1999, Mr. Honeycomb served as Vice President of Business Direct Sales at Network Associates, Inc., a provider of network security and management tools to small and medium-sized companies. Mr. Honeycomb also served as Vice President Europe and Vice President of Eastern Sales for Network Associates. Prior to joining Network Associates, Mr. Honeycomb served in sales and management positions with Brightwork Development, Central Point Software and Lanier Business Products. Mr. Honeycomb holds a B.S. degree in business administration from the University of Maine. Susan J. Carstensen has been our Chief Financial Officer since October 1999. She served as a director from October 1999 to April 2000. From 1995 to October 1999, Ms. Carstensen held various positions in finance and audit at Powerhouse Technologies, Inc., a diversified gaming technology company. She served as Chief Financial Officer of Powerhouse from 1997 until June 1999. Prior to joining Powerhouse in 1995, Ms. Carstensen spent three years in financial management for Martin Marietta Astronautics Group and six years at Ernst & Young LLP. Ms. Carstensen holds B.S and B.A degrees in business and political science from Montana State University. Michael A. Myer has been our Vice President of Development since March 2000 and prior to that served as our Director of Development from August 1998. From 1987 through August 1998, Mr. Myer held various positions in computer research and product development with Lucent Technologies (previously a subsidiary of AT&T Corp.). Mr. Myer holds M.S. and B.S. degrees in computer science from Rutgers University and an A.S. degree in computer science from Penn State University. 43 Cynthia A. Taylor has been our Vice President of Alliances since March 2000. In January 1998, Ms. Taylor founded and served as President of The Improved Performance Group, a consulting company, until joining us in March 2000. Prior to founding Improved Performance, she was the Senior Director of the New Media Division for Oracle Corporation from June 1995 through December 1997, Vice President of Sales for Avistar Systems Corporation from August 1994 through May 1995, and Vice President for Sales and Marketing of Servio Corporation (now known as Gemstone Corporation) from 1990 through 1994. Ms. Taylor is a director of Docuscribe, a Bozeman-based software company, and also is a member of the National Advisory Board of Burns Telecommunications Center at Montana State University and the advisory board of Tradeaway.com, a Web bartering site. She holds B.S. and M.S. degrees in mathematics from Georgia Southern University. Roger L. Evans has served on our board of directors since December 1999. Mr. Evans has been associated with Greylock Management Corporation, a Boston-based venture capital firm, since 1989, serving as a general partner of Greylock since January 1991. From 1985 to 1988, he served as President and Chief Executive Officer of Micom Systems, Inc., a data communications equipment manufacturer, which he co-founded in 1976. Mr. Evans also serves as a director of Copper Mountain Networks, Phone.com Inc. and several privately held companies. Mr. Evans holds an M.A. degree in economics from Cambridge University, England. William J. Lansing has served on our board of directors since April 2000. Mr. Lansing is the Chief Executive Officer of NBC Internet, Inc. From May 1998 to March 2000, Mr. Lansing served in various positions for Fingerhut Companies Inc., a direct marketing company, including Chairman, President and Chief Executive Officer. From November 1996 to May 1998, Mr. Lansing served as Vice President of Corporate Development for General Electric Corp. From January 1996 to October 1996, he served as Chief Operating Officer of Prodigy, Inc., an online service company. From 1986 through 1995, Mr. Lansing was a principal at McKinsey & Co., a management consulting company. Mr. Lansing also serves as a director of Digital River, Inc., an electronic commerce solutions provider, Select Comfort Corp., a specialty retailer and direct marketer of air beds, Net Perceptions, Inc., a developer of Internet marketing solutions, and BigStar Entertainment, Inc., an online film and entertainment superstore. Mr. Lansing holds a B.A. degree in English from Wesleyan University and a J.D. degree from Georgetown University. Robert J. Ryan has served on our board of directors since May 1999. Since 1995, Mr. Ryan has served as Chairman of Entrepreneur America, LLC, a business consulting company. Prior to founding Entrepreneur America in 1995, Mr. Ryan founded and served as Chief Executive Officer and Chairman of Ascend Communications, Inc., a networking company, from 1989 to 1995. Mr. Ryan also serves as a director of Looksmart Ltd. and several privately held companies. Mr. Ryan holds a B.S. degree in mathematics and physics from Cornell University and an M.A. in mathematics from the University of Wisconsin. Margaret L. Taylor has served on our board of directors since April 2000. Since 1999, she has served as the Chief Executive Officer of Venture Buildings, LLC, a consulting company for start-up businesses. From 1989 to 1999, Ms. Taylor was the Senior Vice President of PeopleSoft, Inc., a provider of enterprise application software. Prior to joining PeopleSoft, she served in various management positions for The Hibernia Bank of San Francisco, California and the Bank of California. Ms. Taylor also serves as a director of Fair, Isaac and Co., Inc. and OnDisplay, Inc. She has a B.A. degree in communications and psychology from Lone Mountain College. In connection with its investment in us in December 1999, Greylock Management Corporation was given the right to elect one person to be a member of our board of directors. Mr. Evans was appointed to our board of directors by Greylock Management Corporation in December 1999. At the closing of this offering, Greylock's right to appoint a member of our board of directors will cease. Board Composition Our certificate of incorporation provides for a classified board of directors consisting of three classes of directors, each serving staggered three-year terms. As a result, a portion of our board of directors will be 44 elected each year. To implement the classified structure, prior to the consummation of the offering, one of the nominees to the board will be elected to a one-year term, two will be elected to two-year terms, and two will be elected to three-year terms. Thereafter, directors will be elected for three- year terms. Mr. Gianforte has been designated a Class I director whose term expires at the 2001 annual meeting of stockholders. Mr. Evans and Mr. Lansing have been designated Class II directors whose terms expire at the 2002 annual meeting of stockholders. Mr. Ryan and Ms. Margaret Taylor have been designated Class III directors whose terms expire at the 2003 annual meeting of stockholders. For more information on the classified board, see "Description of Capital Stock--Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws and Delaware Law." Board Committees Our board of directors has established an audit committee and a compensation committee. The audit committee consists of Messrs. Evans and Lansing and Ms. Margaret Taylor. The audit committee makes recommendations to the board of directors regarding the selection of independent auditors, reviews the results and scope of audit and other services provided by our independent auditors and reviews and evaluates our audit and control functions. The compensation committee consists of Mr. Ryan and Ms. Margaret Taylor. The compensation committee administers our stock plans and makes recommendations to the board of directors regarding executive compensation matters. Compensation Committee Interlocks and Insider Participation The members of our compensation committee currently are Mr. Ryan and Ms. Margaret Taylor, neither of whom has at any time been an officer or employee of RightNow. Director Compensation We currently do not provide our directors with cash compensation for their services as members of the board of directors or any committee of the board, but we may reimburse directors for some expenses in connection with their attendance at board and committee meetings. Under our 2000 stock plan, outside directors are granted an option to purchase 20,000 shares of our common stock upon appointment to our board of directors, vesting quarterly over two years. At each annual stockholders' meeting, non-employee directors will receive automatic option grants for 5,000 shares of common stock, which options will be vested immediately. In April 2000, in connection with the adoption of a compensation plan for non-employee directors, the board granted options to purchase 20,000 shares of our common stock to each of Messrs. Evans, Lansing and Ryan and Ms. Margaret Taylor. The options, which vest quarterly over two years, have an exercise price of $7.00 per share. During 1999, the board of directors also granted options to purchase 600,000 shares to Mr. Ryan in connection with his initial appointment to the board, at an exercise price of $0.10 per share, under our 1998 stock plan. After this offering, future grants will be made under our 2000 stock plan. See "--Benefit Plans." 45 Executive Compensation The following table provides information regarding compensation paid or earned for services rendered to us in all capacities during the year ended December 31, 1999 by our Chief Executive Officer and each of our other two most highly compensated executive officers who earned more than $100,000 in 1999. These individuals are referred to in this prospectus as the "named executive officers." Summary Compensation Table
Long-Term Annual Compensation Compensation -------------------------------- ------------ Number of Shares Other Annual Underlying Name and Principal Position Salary Bonus Compensation Options - --------------------------- -------- ------- ------------ ------------ Greg R. Gianforte Chief Executive Officer and Chairman........................ $116,200(3) -- -- -- Jeffrey W. Honeycomb(1) President and Chief Operating Officer......................... 36,711(3) $24,471 $7,000(4) 2,200,000 Susan J. Carstensen(2) Chief Financial Officer......... 21,627 -- -- 300,000
- -------- (1) Mr. Honeycomb became our President and Chief Operating Officer in August 1999. Mr. Honeycomb's salary in 1999 on an annualized basis was $100,000. (2) Ms. Carstensen became our Chief Financial Officer in October 1999. Ms. Carstensen's salary in 1999 on an annualized basis was $100,000. (3) Includes matching contributions by us under our 401(k) plan as follows: Mr. Gianforte, $1,200; and Mr. Honeycomb, $1,484. Employees vest in the employer matching contribution in four equal installments over a four-year period. (4) Reflects expenses paid by us for Mr. Honeycomb's relocation to Bozeman, Montana. 46 In the year ended December 31, 1999, we granted options to purchase up to an aggregate of 5,379,700 shares to employees, directors and consultants. No stock appreciation rights were granted during this period. All options were granted under our 1998 stock plan at exercise prices at or above the fair market value of our common stock on the date of grant, as determined in good faith by the board of directors. All options granted under the plan have a term of 10 years. However, in the event of the optionee's death, disability or termination of employment with us, the option will terminate 90 days after the optionee's death, disability or termination. Optionees may pay the exercise price by cash, check, cancellation of any outstanding indebtedness of the optionee to us or delivery of already owned shares of our common stock. All options granted to executive officers vest over four years in equal installments every six months from the date of grant, except that Mr. Honeycomb's options vested 25% upon his relocation to Bozeman, Montana, and his remaining options vest over four years in equal installments every six months from the date of grant. The following table provides information concerning the stock option grants we made in 1999 to each of the named executive officers, including the potential realizable value over the 10-year term of the options, based on assumed rates of stock appreciation of 5% and 10%, compounded annually. These assumed rates of appreciation comply with the rules of the Securities and Exchange Commission and do not represent our estimate of future stock price. Actual gains, if any, on stock option exercises will be dependent on the future performance of our common stock. Option Grants in 1999
Individual Grants ----------------------------------------------- Potential Realizable Value at Assumed Annual Rates of Stock Number of Price Securities % of Total Appreciation for Underlying Options Option Term Options Granted Exercise Price Expiration ----------------- Name Granted in 1999 Per Share Date 5% 10% - ---- ---------- ---------- -------------- ---------- -------- -------- Greg R. Gianforte....... -- -- -- -- -- -- Jeffrey W. Honeycomb.... 2,200,000 40.9% $0.15 8/25/09 $207,535 $525,935 Susan J. Carstensen..... 300,000 5.6 0.30 10/14/09 56,601 143,437
The following table provides information concerning shares of common stock represented by the number and value of unexercised stock options held by the named executive officers as of December 31, 1999. No options were exercised by the named executive officers during the year ended December 31, 1999. There was no public trading market for the common stock as of December 31, 1999. The value of unexercised in-the-money options has been calculated by determining the difference between the exercise price per share payable upon exercise of the options and the fair value price, $2.91, at December 31, 1999. Aggregated 1999 Year-End Option Values
Number of Securities Underlying Unexercised Value of Unexercised Options at In-the-Money Options at December 31, 1999 December 31, 1999 ------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- ------------- Greg R. Gianforte........... -- -- -- -- Jeffrey W. Honeycomb........ 550,000 1,650,000 $1,518,000 $4,554,000 Susan J. Carstensen......... -- 300,000 -- 783,000
Employment and Change-in-Control Arrangements In August 1999 we entered into an employment agreement with Jeffrey W. Honeycomb, our President and Chief Operating Officer. Under Mr. Honeycomb's agreement, he will serve as President and Chief Operating Officer for a one- year term, which will automatically be extended for two successive one-year periods if not 47 terminated earlier by us or Mr. Honeycomb. The agreement provides for an annual base salary of $100,000, and Mr. Honeycomb also is eligible for a quarterly incentive bonus of up to $25,000 per quarter based on quarterly goals related to revenue and profit. Additionally, we granted Mr. Honeycomb an option to purchase 2,200,000 shares of common stock, 25% of which vested upon Mr. Honeycomb's establishment of a residence in Montana in September 1999. The remaining shares vest in equal installments every six months from the date of grant for a period of four years. If Mr. Honeycomb is terminated by us without cause (as defined in the agreement), he will receive 12 months' salary, and his option shares will continue to vest during that time as if he were still employed by us, but all unexercised options will terminate on the third anniversary of his termination without cause. Upon the occurrence of a change- in-control transaction, the vesting of all of Mr. Honeycomb's options will be automatically accelerated so that they become completely vested. Ms. Carstensen's offer letter provides that if she is terminated after the occurrence of a change in control, she will be entitled to receive six months' salary as severance. The option agreements with our executive officers, other than Mr. Honeycomb, and key employees provide that if the officer's or key employee's employment is terminated involuntarily other than for cause within 12 months following a change-in-control transaction, then, subject to limitations, the vesting of any stock option held by the officer or key employee will be automatically accelerated so that the option becomes completely vested. Benefit Plans 1998 Long-Term Incentive and Stock Option Plan Our 1998 Long-Term Incentive and Stock Option Plan, or "1998 Option Plan," was adopted by the board of directors and received stockholder approval in February 1998. A total of 10,000,000 shares of common stock have been reserved for issuance under the 1998 Option Plan. Under the 1998 Option Plan, we were authorized to grant to officers and other employees options to purchase shares of common stock intended to qualify as incentive stock options, as defined under Section 422 of the Internal Revenue Code of 1986, and options that do not qualify as incentive stock options under the Internal Revenue Code. Incentive stock options granted under the 1998 Option Plan are exercisable within 10 years and non-incentive stock options are exercisable within 15 years of the original grant date and generally become exercisable pro rata every six months over a period of four years from the date of grant. Options granted under the 1998 Option Plan are not transferable by the recipient except by will or by the laws of descent and distribution. As of March 31, 2000, options to purchase 9,181,450 shares of our common stock had been granted under the 1998 Option Plan. Of that amount, options to purchase 6,572,050 shares of our common stock remain outstanding as of March 31, 2000, and are exercisable at prices ranging from $0.025 per share to $6.00 per share. 2000 Stock Incentive Plan Our 2000 Stock Incentive Plan will be approved by our board of directors and stockholders prior to the completion of this offering. The 2000 Stock Incentive Plan provides for the granting of: . stock options, including incentive stock options and non-qualified stock options; . stock appreciation rights, or "SARs"; . restricted stock and restricted stock units; . performance awards; and . other stock-based awards. We have reserved shares of common stock for issuance under the 2000 Stock Incentive Plan. The 2000 Stock Incentive Plan will be administered by our compensation committee. The compensation committee will have the authority: . to establish rules for the administration of the 2000 Incentive Plan; . to select the persons to whom awards are granted; 48 . to determine the types of awards to be granted and the number of shares of common stock covered by awards; and . to set the terms and conditions of awards. The compensation committee also may determine whether the payment of any amounts received under any award shall be deferred. Awards may provide that upon grant or exercise, the holder will receive shares of common stock, cash or any combination, as the compensation committee will determine. In order to meet the requirements of Section 162(m) of the Internal Revenue Code, the 2000 Stock Incentive Plan limits the number of options that may be granted to any single person in any one calendar year. The exercise price per share under any incentive stock option or the grant price of any SAR cannot be less than 100% of the fair market value of our common stock on the date of grant of that incentive stock option or SAR. In the event that a proposed optionee owns more than 10% of our common stock, any incentive stock option granted to that optionee must have an exercise price not less than 110% of the fair market value of our common stock on the grant date and may not have a term longer than five years. Options may be exercised by payment in full of the exercise price, either in cash or, at the discretion of the compensation committee, in whole or in part by the tendering of shares of common stock or other consideration having a fair market value on the date the option is exercised equal to the exercise price. Determinations of fair market value under the 2000 Stock Incentive Plan are made in accordance with methods and procedures established by the compensation committee. The holder of an SAR is entitled to receive the excess of the fair market value on the date of exercise of a specified number of shares over the grant price of the SAR. The holder of restricted stock may have all of the rights of a stockholder of our company, including the right to vote the shares subject to the restricted stock award and to receive any dividends, or these rights may be restricted. Restricted stock may not be transferred by the holder until the restrictions established by the compensation committee lapse. Holders of restricted stock units have the right, subject to any restrictions imposed by the compensation committee, to receive shares of common stock, or a cash payment equal to the fair market value of such shares, at some future date. Upon termination of the holder's employment during the restriction period, restricted stock and restricted stock units will be forfeited, unless the compensation committee determines otherwise. If any shares of common stock subject to any award or to which an award relates are not purchased or are forfeited, or if any award terminates without the delivery of shares or other consideration, the shares previously used for these awards will become available for future awards under the 2000 Stock Incentive Plan. Except as otherwise provided under the procedures adopted by the compensation committee to avoid double-counting with respect to awards granted in tandem with or in substitution for other awards, all shares relating to awards granted are counted against the aggregate number of shares available for granting awards under the 2000 Stock Incentive Plan. Our board of directors may amend, alter or discontinue the 2000 Stock Incentive Plan at any time, except that stockholder approval must be obtained for any change that, absent stockholder approval: . would cause Rule 16b-3 of the Exchange Act or Section 162(m) of the Internal Revenue Code to become unavailable with respect to the 2000 Stock Incentive Plan; . would violate any rules or regulations of the National Association of Securities Dealers, Inc., The Nasdaq National Market or any securities exchange applicable to us; or . would cause us to be unable under the Internal Revenue Code to grant incentive stock options under the 2000 Stock Incentive Plan. Under the 2000 Stock Incentive Plan, the compensation committee may permit participants receiving or exercising awards to surrender shares of common stock to us to satisfy federal and state withholding tax 49 obligations. In addition, the compensation committee may grant a bonus to a participant in order to provide funds to pay all or a portion of federal and state taxes due as a result of the receipt, exercise or lapse of restrictions relating to an award. Employee Stock Purchase Plan Our board of directors and stockholders will adopt our 2000 Employee Stock Purchase Plan, or the "Stock Purchase Plan," prior to the completion of this offering. The Stock Purchase Plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code of 1986. The Stock Purchase Plan covers an aggregate of 500,000 shares of common stock. In order to participate in the Stock Purchase Plan, employees must meet certain eligibility requirements. Participating employees will be able to direct the company to make payroll deductions of up to 15% of their compensation during a purchase period for the purchase of shares of common stock. The maximum amount that an employee may deduct during any one year is $25,000. Each purchase period, with the exception of the initial offering period, will be six months. The Stock Purchase Plan will provide participating employees with the right, subject to some limitations, to purchase our common stock at a price equal to 85% of the lesser of the fair market value of our common stock on the first day or the last day of the applicable purchase period, except that the price on the first day of the initial purchase period will be the initial public offering price of the shares of the common stock offered by this prospectus. The Stock Purchase Plan will terminate on a date that our board of directors may determine, or automatically as of the date on which all of the shares of common stock reserved for purchase under the Stock Purchase Plan have been sold. 401(k) Plan We have established a tax-qualified employee savings and retirement plan, or "401(k) Plan," for all of our employees who satisfy eligibility requirements, including requirements relating to age and length of service. Pursuant to the 401(k) Plan, employees may elect to reduce their current compensation by up to the lower of 12% or the statutorily prescribed limit and have the amount of the reduction contributed to the 401(k) Plan. The 401(k) Plan permits us to make additional discretionary matching contributions, and we currently match 100% of employees' contributions up to a maximum of 3% of their annual compensation. The employer contribution vests annually over a four-year period in four equal installments. The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue Code so that contributions by employees or by us to the 401(k) Plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the 401(k) Plan, and so that our contributions, if any, will be deductible by us when made. Limited Liability and Indemnification Matters We have entered into indemnification agreements with each of our directors and executive officers. The form of agreement provides that we will indemnify against any and all expenses of the director or executive officer who incurred the expenses because of his or her status as a director or executive officer of RightNow, to the fullest extent permitted by Delaware law, our certificate of incorporation and our bylaws. Our certificate of incorporation and bylaws contain provisions relating to the limitation of liability and indemnification of directors and officers. The certificate of incorporation provides that our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability: . for any breach of the director's duty of loyalty to us or our stockholders; . for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; . in respect of unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or . for any transaction from which the director derives any improper personal benefit. 50 Our certificate of incorporation also provides that if Delaware law is amended after the approval by our stockholders of the certificate of incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law. The foregoing provisions of the certificate of incorporation are not intended to limit the liability of directors or officers for any violation of applicable federal securities laws. In addition, as permitted by Section 145 of the Delaware General Corporation Law, our bylaws provide that: . we are required to indemnify our directors and executive officers to the fullest extent permitted by Delaware law; . we may, in our discretion, indemnify other officers, employees and agents as provided by Delaware law; . to the fullest extent permitted by Delaware law, but subject to various exceptions, we are required to advance all expenses incurred by our directors and executive officers in connection with a legal proceeding; . the rights conferred in the bylaws are not exclusive; . we are authorized to enter into indemnification agreements with our directors, officers, employees and agents; and . we may not retroactively amend the bylaw provisions relating to indemnity. 51 RELATED PARTY TRANSACTIONS Share Issuances In December 1999, we received proceeds of approximately $16.1 million from the sale of 5,554,853 shares of our preferred stock in a private placement to several investors, including Greg R. Gianforte and Susan J. Carstensen, our Chief Executive Officer and Chief Financial Officer, respectively, Robert J. Ryan, a director, Summit Accelerator Fund, L.P. and Greylock IX Limited Partnership, the general partner of which is Greylock IX GP Limited Partnership. Roger L. Evans, a member of our board of directors, is a general partner of Greylock IX GP Limited Partnership. In connection with this sale of stock, Greylock was given the right to designate one person to serve on our board of directors, and Mr. Evans was elected to the board in December 1999 as Greylock's designee. At the closing of this offering, Greylock's right to designate a member of our board of directors will cease. The shares of preferred stock will be converted into an equal number of shares of our common stock upon the closing of this offering. We have granted options to two of our named executive officers (Mr. Honeycomb and Ms. Carstensen) and to our directors, other than Mr. Gianforte. See "Management--Option Grants in Last Fiscal Year" and "Principal Stockholders." Subchapter S Corporation Distribution Prior to the issuance of shares of our Series A preferred stock in December 1999, we were a corporation subject to taxation under Subchapter S of the Internal Revenue Code of 1986. As a result, our net earnings were taxed, for federal and state income tax purposes, as income of our stockholders. In December 1999, we terminated our S corporation status. At that time, we authorized the payment of a distribution to our S corporation stockholders in an amount approximating their individual income tax liability resulting from taxable earnings up to the date of termination. As a part of this distribution, Mr. Gianforte received a distribution of $351,292, representing his pro rata ownership of our outstanding common stock at the time our S corporation status was terminated. Transactions with our Chief Executive Officer Office Leases with Genesis We have entered into two leases with Genesis Partners, LLC, under which we lease 9,184 square feet of office space for our principal executive offices at 77 Discovery Drive, Bozeman, Montana, and another 9,184 square feet of office space at 45 Discovery Drive, Bozeman, Montana. Mr. Gianforte has a 50% membership interest in Genesis Partners, LLC. The leases have 60-month terms starting April 1, 2000 and May 1, 2000, with options to extend for three additional 60-month periods upon the same terms and conditions except for renegotiated rent. Under each lease, our rent for the first year of the lease term is $13.50 per square foot, or $10,332 per month, including insurance, taxes and common area maintenance, but excluding utilities. We believe that the terms of these leases are no less favorable to us than they would have been if obtained from unaffiliated third parties. Loans to RightNow In 1998, Mr. Gianforte and an affiliated entity made loans totaling $100,000 to us to provide working capital. We repaid the full amount of these loans in 1999. Pledge of Collateral to Secure Line of Credit to RightNow In October 1999, we established a line of credit with Big Sky Western Bank under which we may borrow up to $500,000 pursuant to a promissory note due July 29, 2000. Mr. Gianforte and his spouse pledged securities to secure the line of credit in accordance with the terms of a pledge agreement between Big Sky Western Bank and Mr. Gianforte and his spouse. This pledge was terminated in December 1999. 52 PRINCIPAL STOCKHOLDERS The following table provides information concerning beneficial ownership of our common stock as of March 31, 2000, by: . each stockholder that we know owns more than 5% of our outstanding common stock; . each of our named executive officers; . each of our directors; and . all of our directors and executive officers as a group. The following table lists the applicable percentage of beneficial ownership based on 26,301,438 shares of common stock outstanding as of March 31, 2000, as adjusted to reflect the conversion of the outstanding shares of preferred stock upon completion of this offering. The table also lists the applicable percentage beneficial ownership based on shares of common stock outstanding upon completion of this offering, assuming no exercise of the underwriters' over-allotment option. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, and generally includes voting power and/or investment power with respect to the securities held. Shares of common stock subject to options currently exercisable or exercisable within 60 days of March 31, 2000, are deemed outstanding for purposes of computing the percentage beneficially owned by the person holding the options but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person. Except as otherwise noted, the persons or entities named have sole voting and investment power with respect to all shares shown as beneficially owned by them. 53 Unless otherwise indicated, the principal address of each of the stockholders below is c/o RightNow Technologies, Inc., 77 Discovery Drive, Bozeman, Montana 59718.
Percentage of Common Number of Stock Owned Shares ------------------------- Beneficially Before After Name and Address of Beneficial Owner Owned(1) the Offering the Offering - ------------------------------------ ------------ ------------ ------------ Greg R. Gianforte(2)................... 20,034,367 76.17% Roger L. Evans(3)...................... 4,759,650 18.10 c/o Greylock Management Corporation One Federal Street Boston, MA 02110 Greylock IX Limited Partnership........ 2,379,825 9.05 c/o Greylock Management Corporation One Federal Street Boston, MA 02110 Greylock X Limited Partnership......... 2,209,953 8.40 c/o Greylock Management Corporation One Federal Street Boston, MA 02110 Robert J. Ryan......................... 373,377 1.41 Roaring Lion Ranch, LLC 77 Storm King Road Hamilton, MT 59840 Jeffrey W. Honeycomb................... 756,250 2.80 Susan J. Carstensen.................... 71,549 * William J. Lansing..................... -- -- -- NBC Internet 300 Montgomery Street San Francisco, CA 94104 Margaret L. Taylor..................... -- -- -- P.O. Box 7546 Incline Village, NV 89452 All directors and executive officers as a group (8 persons)(4)................ 26,326,443 95.47
- -------- * Less than 1% of the outstanding shares of common stock. (1) Includes the following shares underlying options exercisable as of or within 60 days of March 31, 2000: Mr. Ryan, 150,000 shares; Mr. Honeycomb, 756,250 shares; and Ms. Carstensen, 37,500 shares. (2) Excludes 40,000 shares held by Mr. Gianforte's spouse, as to which he has no voting or investment power and disclaims beneficial ownership. (3) Consists of 2,379,825 shares held by Greylock IX Limited Partnership, 2,209,953 shares held by Greylock X Limited Partnership and 169,872 shares held by Greylock X-A Limited Partnership. Mr. Evans is a director of RightNow and a general partner of Greylock IX GP Limited Partnership, which is the general partner of Greylock IX Limited Partnership, and Mr. Evans also is the general partner of Greylock X GP Limited Partnership, which is the general partner of Greylock X Limited Partnership and Greylock X-A Limited Partnership. Mr. Evans disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. Mr. Evans shares voting and dispositive powers over these shares with the other general partners of Greylock IX Limited Partnership, Greylock X Limited Partnership and Greylock X-A Limited Partnership. (4) Includes 1,275,000 shares underlying options exercisable as of or within 60 days of March 31, 2000. 54 DESCRIPTION OF CAPITAL STOCK Following the closing of this offering, our authorized capital stock will consist of 150,000,000 shares of common stock, par value $.001 per share, and 15,000,000 shares of preferred stock, par value $.001 per share. Common Stock As of March 31, 2000, there were 20,746,585 shares of common stock outstanding, held by approximately 34 stockholders of record. Holders of our common stock do not have cumulative voting rights and are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors. Holders of our common stock are entitled to receive ratably dividends declared by the board of directors out of funds legally available therefor, subject to the prior rights of any preferred stock then outstanding. See "Dividend Policy." Upon a liquidation, dissolution or winding up of RightNow, the holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all debts and other liabilities of RightNow, subject to the prior rights of any preferred stock then outstanding. Holders of our common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking funds provisions applicable to the common stock. All outstanding shares of common stock are, and the common stock outstanding upon completion of this offering will be, fully paid and nonassessable. Preferred Stock Effective upon the closing of this offering, our board of directors will have the authority, without further action by the stockholders, to issue from time to time 15,000,000 shares of preferred stock in one or more series and to fix for each series the number of shares, designations, preferences, powers and relative, participating, optional or other special rights and the qualifications or restrictions thereof. The preferences, powers, rights and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions, purchase funds and other matters. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to holders of common stock or adversely affect the rights and powers, including voting rights, of the holders of common stock. It may have the effect of delaying, deferring or preventing a change in control of RightNow. We currently do not plan to issue any additional shares of preferred stock. Registration Rights After this offering, the holders of 5,554,853 shares of common stock or their transferees will be entitled to rights with respect to the registration of these shares under the Securities Act as follows: Demand registration rights. At any time after six months following the closing of this offering, the holders of at least 50% of these shares of common stock may request that we register all or a portion of their shares with an aggregate offering price of at least $7,500,000. Upon their request, we must, subject to some restrictions and limitations, use our best efforts to cause a registration statement covering the number of shares of common stock that are subject to the request to become effective. The holders may only require us to file a maximum of two registration statements in response to their demand registration rights. Piggyback registration rights. The holders of these shares may request that we register their shares whenever we file a registration statement to register securities for our own account. These registration 55 opportunities are unlimited, but the number of shares that may be registered may be cut back in limited situations by the underwriters. Form S-3 registration rights. The holders of these shares may request that we register their shares if we are eligible to file a registration statement on Form S-3 and if the aggregate price of the shares offered to the public is at least $1,000,000. The holders may only require us to file one registration statement on Form S-3 per calendar year. These registration rights terminate when all of these shares may be sold under Rule 144 under the Securities Act during any 90-day period. All holders of these registration rights have waived their registration rights in connection with this offering. Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws and Delaware Law Some provisions of Delaware law and our certificate of incorporation and bylaws could make the following transactions more difficult: . acquisition of RightNow by means of a tender offer; . acquisition of RightNow by means of a proxy contest or otherwise; or . removal of our incumbent officers and directors. These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are designed to encourage persons seeking to acquire control of us first to negotiate with our board of directors, and also are intended to provide management with flexibility to enhance the likelihood of continuity and stability in the composition of RightNow if our board of directors determines that a takeover is not in the best interests of us and our stockholders. However, these provisions could have the effect of discouraging attempts to acquire us, which could deprive our stockholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices. We believe that the benefits of these provisions, including increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us, outweigh the disadvantages of discouraging takeover proposals because negotiation of takeover proposals could result in an improvement of their terms. Election and Removal of Directors Our board of directors is divided into three classes serving staggered three-year terms. This system of electing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us because generally at least two stockholders' meetings will be required for stockholders to effect a change in control of the board of directors. In addition, our bylaws contain provisions that establish specific procedures for appointing and removing members of the board of directors. Under our bylaws, vacancies and newly created directorships on the board of directors may be filled only by a majority of the directors then serving on the board, and directors may be removed by the stockholders only for cause. Stockholder Meetings Under our bylaws, only the board of directors, the Chairman of the Board, our President or stockholders holding 15% of the outstanding voting power may call special meetings of stockholders. Requirements for Advance Notification of Stockholder Nominations and Proposals Our bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. 56 Delaware Anti-Takeover Law We are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years following the date the person became an interested stockholder, unless the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a "business combination" includes a merger, asset or stock sale, or another transaction resulting in a financial benefit to the interested stockholder. Generally, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of the corporation's voting stock. The existence of this provision may have an anti- takeover effect with respect to transactions that are not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders. Elimination of Stockholder Action by Written Consent Our certificate of incorporation eliminates the right of stockholders to act by written consent without a meeting. No Cumulative Voting Our certificate of incorporation and bylaws do not provide for cumulative voting in the election of directors. Cumulative voting allows a minority stockholder to vote a portion or all of its shares for one or more candidates for seats on the board of directors. Without cumulative voting, a minority stockholder will not be able to gain as many seats on our board of directors based on the number of shares of our stock the stockholder holds as the stockholder would be able to gain if cumulative voting were permitted. The elimination of cumulative voting makes it more difficult for a minority stockholder to gain a seat on our board of directors to influence the board's decision regarding a takeover. Undesignated Preferred Stock The authorization of undesignated preferred stock makes it possible for the board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of RightNow. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of RightNow. Amendment of Charter Provisions The amendment of any of the above provisions requires approval by holders of at least two-thirds of the outstanding common stock. Listing on The Nasdaq Stock Market's National Market We have applied for quotation of our common stock on The Nasdaq Stock Market's National Market under the symbol "RTNW." Transfer Agent and Registrar The transfer agent and registrar for our common stock will be the American Stock Transfer and Trust Company. 57 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for our common stock, and we cannot assure you that a significant public market for our common stock will develop or be sustained after this offering. As described below, no shares currently outstanding will be available for sale immediately after this offering due to certain contractual and securities law restrictions on resale. Sales of substantial amounts of our common stock in the public market after the restrictions lapse could cause the prevailing market price to decline and limit our ability to raise equity capital in the future. Upon completion of this offering, we will have outstanding shares of common stock, assuming no exercise of the underwriters' over-allotment option and no exercise of options to purchase common stock that were outstanding as of March 31, 2000. Of these shares, the shares offered for sale through the underwriters will be freely tradeable without restriction under the Securities Act unless purchased by our affiliates or covered by a separate lock-up agreement. The remaining 26,301,438 shares of common stock held by existing stockholders are restricted securities. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration described below under Rule 144, 144(k) or 701 under the Securities Act. These provisions are described below. As a result of the lock-up agreements and the provisions of Rules 144, 144(k) and 701, these restricted shares will be available for sale in the public market as follows: . no shares may be sold prior to 180 days from the date of this prospectus; . beginning 181 days after the date of this prospectus, shares held by persons who are not our affiliates will have been held long enough to be sold under either Rule 701 or Rule 144, subject to the limitations described below; . beginning 181 days after the date of this prospectus, shares held by our affiliates will have been held long enough to be sold under Rule 144, subject to volume and other limitations described below; and . the remaining shares may be sold under Rule 144 or 144(k) once they have been held for the required time. Lock-up agreements. Our officers, directors and stockholders have agreed not to transfer or dispose of, directly or indirectly, any shares of our common stock, or any securities convertible into or exercisable or exchangeable for shares of our common stock, for a period of 180 days after the date of this prospectus, without the prior written consent of Credit Suisse First Boston Corporation. Rule 144. In general, under Rule 144, a person who has beneficially owned restricted securities for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: . 1% of the number of shares of our common stock then outstanding, which, immediately after this offering, will equal approximately shares; or . the average weekly trading volume of our common stock on The Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. Sales under Rule 144 also are limited by manner-of-sale provisions, notice requirements and requirements relating to the availability of current public information about us. Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell these shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144 discussed above. 58 Rule 701. In general, under Rule 701, our employees, consultants or advisors who purchase or receive shares from us under a compensatory stock purchase plan or option plan or other written agreement will be eligible to resell their shares beginning 90 days after the date of this prospectus. Nonaffiliates will be able to sell their shares subject only to the manner-of-sale provisions of Rule 144. Affiliates will be able to sell their shares without compliance with the holding period requirements of Rule 144. Registration rights. Upon completion of this offering, the holders of 5,554,853 shares of our common stock have rights to have their shares registered under the Securities Act. All shares are covered by lock-up agreements; following the expiration of the lock-up period, registration of these shares under the Securities Act would result in the shares becoming freely tradeable without restriction under the Securities Act immediately upon the effectiveness of the registration. Stock options. Prior to the expiration of the lock-up period, we intend to file a registration statement under the Securities Act covering shares of common stock reserved for issuance upon exercise of outstanding options under the 2000 Plan, the 1998 Option Plan and the Stock Purchase Plan. See "Management--Benefit Plans." Subject to the lock-up agreements, shares registered under that registration statement will be available for resale in the open market immediately upon the effectiveness of that registration statement, except with respect to Rule 144 volume limitations that apply to our affiliates. 59 UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement dated , 2000, we have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston Corporation, Dain Rauscher Incorporated, Thomas Weisel Partners LLC, Adams Harkness & Hill, Inc. and D.A. Davidson & Co. are acting as representatives, the following respective numbers of shares of common stock:
Number of Underwriter Shares ----------- --------- Credit Suisse First Boston Corporation............................. Dain Rauscher Incorporated......................................... Thomas Weisel Partners LLC......................................... Adams, Harkness & Hill, Inc. ...................................... D.A. Davidson & Co................................................. --- Total............................................................ ===
The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering, if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering of common stock may be terminated. We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to additional shares from us at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock. The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial public offering, the public offering price and concession and discount to broker/dealers may be changed by the representatives. The following table summarizes the compensation and expenses we will pay.
Per Share Total ----------------------------- ----------------------------- Without With Without With Over-Allotment Over-Allotment Over-Allotment Over-Allotment -------------- -------------- -------------- -------------- Underwriting discounts and commissions paid by us..................... $ $ $ $ Expenses payable by us.. $ $ $ $
The underwriters have informed us that they do not expect discretionary sales to exceed 5% of the shares of common stock being offered. We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any such offer, sale, pledge, 60 disposition or filing, without the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus, except issuances pursuant to the exercise of employee stock options outstanding on the date hereof. Our officers, directors and stockholders, including holders of shares of our common stock and preferred stock, have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into a swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of the above transactions is to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus. The underwriters have reserved for sale, at the initial public offering price, up to shares of the common stock for employees, directors and other persons associated with us who have expressed an interest in purchasing common stock in the offering. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase the reserved shares. Any reserved shares not purchased will be offered by the underwriters to the general public on the same terms as the other shares. We have agreed to indemnify the underwriters against liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make in respect of those liabilities. We have applied to list the shares of common stock on The Nasdaq Stock Market's National Market under the symbol "RTNW." Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiation between us and the representatives of the underwriters. The principal factors to be considered in determining the initial public offering price include the following: . the information set forth in this prospectus and otherwise available to the representatives; . market conditions for initial public offerings; . the history of and the prospects for the industry in which we will compete; . the ability of our management; . our prospects for future earnings; . the present state of our development and current financial condition; . the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; and . the general condition of the securities markets at the time of this offering. The representatives may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934. . Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. . Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified minimum. 61 . Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. . Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. These stabilizing transactions, syndicate covering transactions and penalty bids, may cause the price of the common stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on The Nasdaq Stock Market's National Market or otherwise and, if commenced, may be discontinued at any time. Thomas Weisel Partners LLC, one of the representatives of the underwriters, was organized and registered as a broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners has acted as a lead or co-manager on numerous public offerings of equity securities. Thomas Weisel Partners does not have any material relationship with us or any of our officers, directors or other controlling persons, except with respect to its contractual relationship with us under the underwriting agreement entered into in connection with this offering. 62 NOTICE TO CANADIAN RESIDENTS Resale Restrictions The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are effected. Accordingly, any resale of the common stock in Canada must be made in accordance with applicable securities laws, which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with available statutory exemptions or pursuant to a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock. Representations of Purchasers Each purchaser of common stock in Canada who receives a purchase confirmation will be deemed to represent to us and the dealer from whom the purchase confirmation is received that (i) the purchaser is entitled under applicable provincial securities laws to purchase the common stock without the benefit of a prospectus qualified under these securities laws, (ii) where required by law, the purchaser is purchasing as principal and not as agent, and (iii) the purchaser has reviewed the text above under "Resale Restrictions." Rights of Action (Ontario Purchasers) The securities being offered are those of a foreign issuer, and Ontario purchasers will not receive the contractual right of action prescribed by Ontario securities law. As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or rescission or rights of action under the civil liability provisions of the U.S. federal securities laws. Enforcement of Legal Rights All of the issuer's directors and officers as well as the experts named in this prospectus may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon the issuer or these persons. All or a substantial portion of the assets of the issuer and these persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or these persons in Canada or to enforce a judgment obtained in Canadian courts against the issuer or these persons outside of Canada. Notice to British Columbia Residents A purchaser of common stock to whom the Securities Act (British Columbia) applies is advised that the purchaser is required to file with the British Columbia Securities Commission a report within 10 days of the sale of any common stock acquired by the purchaser in this offering. This report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one report must be filed in respect of common stock acquired on the same date and under the same prospectus exemption. Taxation and Eligibility for Investment Canadian purchasers of common stock should consult their own legal and tax advisors with respect to tax consequences of an investment in the common stock in their particular circumstances and with respect to the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation. 63 LEGAL MATTERS Dorsey & Whitney LLP, Great Falls, Montana, and Minneapolis, Minnesota, will pass upon the validity of the shares of common stock offered by this prospectus for us. Shearman & Sterling, Menlo Park, California, will pass upon certain legal matters in connection with this offering for the underwriters. EXPERTS Ernst & Young LLP, independent auditors, have audited our financial statements as of December 31, 1998 and 1999 and for each of the three years in the period ended December 31, 1999, as set forth in their report. We have included our financial statements in this prospectus and elsewhere in the registration statement in reliance on the report of Ernst & Young LLP, which was given on their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act of 1933 with respect to the common stock offered by this prospectus. As permitted by the rules and regulations of the Commission, this prospectus, which is a part of the registration statement, omits certain information, exhibits, schedules and undertakings set forth in the registration statement. For further information about us and the common stock offered by this prospectus, you should review the registration statement and the exhibits and schedules thereto. Statements contained in this prospectus as to the contents or provisions of any contract or other document referred to in this prospectus are not necessarily complete, and in each instance reference is made to the copy of the contract or other document filed as an exhibit to the registration statement. All statements made in this prospectus concerning these contracts or documents are qualified in all respects by this reference. A copy of the registration statement, as well as other documents we file with the Commission, may be inspected without charge in the Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048. Please call the Commission at 1-800-SEC-0330 for further information about its public reference rooms. Copies of all or any part of the registration statement and other documents we file may be taken from the public reference rooms upon the payment of fees prescribed by the Commission. In addition, the registration statement and other documents we file with the Commission through its Electronic Data Gathering, Analysis and Retrieval, or "EDGAR," system are available to the public through the Commission's Web site at http://www.sec.gov. Upon completion of this offering, we will be required to file periodic reports, proxy statements and other information with the Commission. These periodic reports, proxy statements and other information will be available for inspection and copying at the Commission's public reference rooms and through the Web site of the Commission referred to above. 64 INDEX TO FINANCIAL STATEMENTS Report of Independent Auditors.............................................. F-2 Balance Sheets.............................................................. F-3 Statements of Operations.................................................... F-4 Statement of Changes in Stockholders' Equity (Deficit)...................... F-5 Statements of Cash Flows.................................................... F-6 Notes to Financial Statements............................................... F-7
F-1 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders RightNow Technologies, Inc. We have audited the accompanying balance sheets of RightNow Technologies, Inc. as of December 31, 1998 and 1999, and the related statements of operations, stockholders' deficit and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 RightNow Technologies, Inc. at December 31, 1998 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Minneapolis, Minnesota January 14, 2000 F-2 RIGHTNOW TECHNOLOGIES, INC. BALANCE SHEETS
Pro Forma Stockholders' December 31 Equity ---------------------- March 31, March 31, 1998 1999 2000 2000 --------- ----------- ----------- ------------- (Unaudited) Assets Current assets: Cash and cash equivalents.............. $ 86,436 $14,182,845 $12,374,291 Accounts receivable, net of allowance for doubtful accounts of $7,025 and $229,150 at December 31, 1998 and 1999 and $335,976 at March 31, 2000..................... 133,500 2,585,610 4,305,082 Notes receivable.......... -- -- 293,702 Prepaid expenses.......... 6,422 46,754 103,125 --------- ----------- ----------- Total current assets.... 226,358 16,815,209 17,076,200 Property and equipment...... 42,271 571,041 1,151,241 Less accumulated depreciation............... (4,305) (43,908) (94,220) --------- ----------- ----------- 37,966 527,133 1,057,021 Other assets................ -- 5,788 6,790 --------- ----------- ----------- Total assets............ $ 264,324 $17,348,130 $18,140,011 ========= =========== =========== Liabilities and stockholders' equity (deficit) Current liabilities: Accounts payable.......... $ 13,775 $ 235,302 $ 548,546 Stockholder distributions............ -- 330,000 330,000 Commissions payable....... 11,513 234,007 358,548 Other accrued liabilities.............. 3,589 205,419 498,100 Officer wages payable..... 60,000 25,000 -- Due to stockholder........ 100,000 -- -- Current portion of capital lease obligation......... -- 7,859 7,446 Current portion of deferred revenue......... 101,142 2,664,824 4,650,615 --------- ----------- ----------- Total current liabilities............ 290,019 3,702,411 6,393,255 Long-term capital lease obligation, net of current portion.................... -- 7,272 5,347 Deferred revenue, net of current portion............ 69,946 1,499,841 2,520,744 --------- ----------- ----------- Total liabilities....... 359,965 5,209,524 8,919,346 Redeemable convertible preferred stock: Series A, $.001 par value: Authorized and designated shares--5,554,853 Issued and outstanding shares--5,554,853....... -- 16,119,622 16,119,622 $ -- Stockholders' equity (deficit): Preferred stock, $.001 par value: Authorized and undesignated shares-- 9,445,147 Issued and outstanding shares--None Common stock, $.001 par value: Authorized shares-- 50,000,000 Issued and outstanding shares--1998-- 20,303,600; 1999-- 20,521,335; 2000-- 20,746,585; pro forma issued and outstanding shares--26,301,438...... 20,304 20,521 20,746 26,301 Additional paid-in capital.................. 11,286 (1,429,312) (1,319,056) 14,795,011 Accumulated deficit....... (127,231) (2,572,225) (5,600,647) (5,600,647) --------- ----------- ----------- ----------- Total stockholders' equity (deficit)....... (95,641) (3,981,016) (6,898,957) $ 9,220,665 --------- ----------- ----------- =========== Total liabilities and stockholders' equity (deficit).............. $ 264,324 $17,348,130 $18,140,011 ========= =========== ===========
See accompanying notes. F-3 RIGHTNOW TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS
Three Months ended Year ended December 31 March 31 ---------------------------------- ----------------------- 1997 1998 1999 1999 2000 ---------- ---------- ----------- ---------- ----------- (Unaudited) Revenue Revenue................. $ 79,064 $ 279,428 $ 2,024,541 $ 135,256 $ 1,443,110 Cost of revenue......... 797 3,756 63,418 2,668 166,096 ---------- ---------- ----------- ---------- ----------- Gross profit.......... 78,267 275,672 1,961,123 132,588 1,277,014 Operating expenses Sales and marketing..... 746 279,162 3,342,748 205,986 3,478,713 Research and development............ 42,656 74,098 603,283 71,713 633,576 General and administrative......... 18,208 85,772 492,752 38,435 361,016 ---------- ---------- ----------- ---------- ----------- Total operating expenses............. 61,610 439,032 4,438,783 316,134 4,473,305 ---------- ---------- ----------- ---------- ----------- Income (loss) from operations............. 16,657 (163,360) (2,477,660) (183,546) (3,196,291) Interest and other income, net............ 9,274 29 32,666 77 167,869 ---------- ---------- ----------- ---------- ----------- Net income (loss)....... $ 25,931 $ (163,331) $(2,444,994) $ (183,469) $(3,028,422) ========== ========== =========== ========== =========== Net income (loss) per common share--basic and diluted................ $ -- $ (.01) $ (.12) $ (.01) $ (.15) ========== ========== =========== ========== =========== Shares used in computing basic and diluted net income (loss) per common share........... 20,000,000 20,113,530 20,363,644 20,318,644 20,601,541 ========== ========== =========== ========== =========== Pro forma net loss per share--basic and diluted................ $ (.12) $ (.12) =========== =========== Shares used in computing basic and diluted pro forma net loss per share.................. 20,508,860 26,156,394 =========== ===========
See accompanying notes. F-4 RIGHTNOW TECHNOLOGIES, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Total Common Stock Additional Accumulated Stockholders' ------------------- Paid-In Equity Equity Shares Amount Capital (Deficit) (Deficit) ---------- ------- ----------- ----------- ------------- Balance at December 31, 1996................... 20,000,000 $20,000 $ (19,000) $ 10,169 $ 11,169 Net income............. -- -- -- 25,931 25,931 ---------- ------- ----------- ----------- ----------- Balance at December 31, 1997................... 20,000,000 20,000 (19,000) 36,100 37,100 Issuance of common stock for services rendered.............. 303,600 304 10,286 -- 10,590 Value of stock options granted for services rendered.............. -- -- 20,000 -- 20,000 Net loss............... -- -- -- (163,331) (163,331) ---------- ------- ----------- ----------- ----------- Balance at December 31, 1998................... 20,303,600 20,304 11,286 (127,231) (95,641) Exercise of stock options............... 522,500 522 15,635 -- 16,157 Issuance of common stock for services rendered.............. 15,235 15 3,772 -- 3,787 Issuance of common stock................. 80,000 80 3,920 -- 4,000 Repurchase of common stock................. (400,000) (400) (1,163,600) -- (1,164,000) Value of stock options granted for services rendered.............. -- -- 29,675 -- 29,675 Stockholder distributions......... -- -- (330,000) -- (330,000) Net loss............... -- -- -- (2,444,994) (2,444,994) ---------- ------- ----------- ----------- ----------- Balance at December 31, 1999................... 20,521,335 20,521 (1,429,312) (2,572,225) (3,981,016) Exercise of stock options............... 200,250 200 22,781 -- 22,981 Issuance of common stock for services rendered.............. 25,000 25 87,475 -- 87,500 Net loss............... -- -- -- (3,028,422) (3,028,422) ---------- ------- ----------- ----------- ----------- Balance at March 31, 2000 (unaudited)....... 20,746,585 $20,746 $(1,319,056) $(5,600,647) $(6,898,957) ========== ======= =========== =========== ===========
See accompanying notes. F-5 RIGHTNOW TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS
Three Months ended Year ended December 31 March 31 ------------------------------- ---------------------- 1997 1998 1999 1999 2000 ------- --------- ----------- --------- ----------- (Unaudited) Operating activities Net income (loss)....... $25,931 $(163,331) $(2,444,994) $(183,469) $(3,028,422) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation........... 981 3,324 39,603 4,850 50,312 Gain on sale of assets................ (7,961) -- -- -- -- Value of stock options granted for services rendered.............. -- 20,000 29,675 - 87,500 Issuance of common stock in lieu of cash compensation.......... -- 10,590 3,787 -- -- Changes in operating assets and liabilities: Accounts receivable... 1,190 (119,480) (2,452,110) (135,135) (1,719,472) Notes receivable...... -- -- -- -- (293,702) Prepaid expenses...... -- (6,422) (40,332) 3,500 (56,371) Accounts payable...... -- 13,775 221,527 (9,541) 313,244 Commissions payable... -- 11,513 222,494 13,156 124,541 Officer wages payable.............. -- 60,000 (35,000) 12,500 (25,000) Accrued liabilities... (269) 3,587 531,830 1,185 292,681 Deferred revenue...... (1,055) 171,090 3,993,577 291,421 3,006,694 Other................. -- 500 (5,788) -- (1,002) ------- --------- ----------- --------- ----------- Net cash provided by (used in) operating activities............. 18,817 5,146 64,269 (1,533) (1,248,997) Investing activities Purchases of property and equipment.......... (4,902) (37,369) (513,639) (16,548) (580,200) ------- --------- ----------- --------- ----------- Net cash used in investing activities... (4,902) (37,369) (513,639) (16,548) (580,200) Financing activities Proceeds (payment) on loan from stockholder.. -- 100,000 (100,000) (60,000) -- Proceeds from issuance of common stock........ -- -- 20,157 4,000 22,981 Proceeds from issuance of preferred stock..... -- -- 16,119,622 -- -- Payments on capital lease obligations...... -- -- -- -- (2,338) Stockholder distributions.......... -- -- (330,000) -- -- Repurchase of common stock.................. -- -- (1,164,000) -- -- ------- --------- ----------- --------- ----------- Net cash provided by (used in) financing activities............. -- 100,000 14,545,779 (56,000) 20,643 ------- --------- ----------- --------- ----------- Net increase (decrease) in cash and cash equivalents............ 13,915 67,777 14,096,409 (74,081) (1,808,554) Cash and cash equivalents at beginning of period.... 4,744 18,659 86,436 86,436 14,182,845 ------- --------- ----------- --------- ----------- Cash and cash equivalents at end of period................. $18,659 $ 86,436 $14,182,845 $ 12,355 $12,374,291 ======= ========= =========== ========= ===========
See accompanying notes. F-6 RIGHTNOW TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 1. Business Description and Summary of Significant Accounting Policies Business Description RightNow Technologies, Inc. (the Company) provides a comprehensive, Internet-based customer service software solution that integrates customer self-help, e-mail management, live interaction, issue tracking and customer satisfaction measurement capabilities. The Company was incorporated in Montana in September 1995 but had no significant operations until 1997. The Company considers its business activities as a single segment. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents are considered to be available for sale. Cash equivalents are carried at cost which approximates market value. Property and Equipment Property and equipment, including software purchased for internal use, are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to seven years. Leasehold improvements are amortized over the estimated life of the assets or the related lease term, whichever is less, on a straight-line basis. The Company evaluates long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Income Taxes In December 1999, as a result of the issuance of its Redeemable Convertible Series A Preferred Stock, the Company's legal status changed from an S corporation to a C corporation for U.S. federal and state income tax purposes. Income taxes for 1999 related to the period of time when the Company was a C corporation are recorded under the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Revenue Recognition The Company generates revenue from subscriptions for software, support and application service provider hosting services. The typical subscription term is 24 months, although terms range from six to 36 months. Support consists of maintenance and upgrades provided over the subscription term and is included in the price of term software subscriptions. Software is also sold on a perpetual basis, in which case subscriptions for support services are sold separately. Hosting services include providing data connections, equipment, maintenance and automatic upgrades to hosted customers and are priced on a subscription basis. Revenue is also generated by providing training and professional services to customers. F-7 RIGHTNOW TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) The Company recognizes revenue in accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition. SOP No. 97-2 requires that revenue recognized from software arrangements be allocated to each element of the arrangement based on the relative fair values of the elements, such as software products, upgrades, enhancements, post contract customer support, installation or training. Under SOP 97-2, the determination of fair value is based on objective evidence that is specific to the vendor. If evidence of fair value for each element of the arrangement does not exist, all revenue from the arrangement is deferred until such time as evidence of fair value does exist or until all elements of the arrangement are delivered. Revenue from subscriptions is recognized ratably on a monthly basis over the software, support or hosting term. Revenue from sales of perpetual software licenses is recognized when there is persuasive evidence of an arrangement and collectibility is considered probable. Professional service revenue is recognized when the services are performed and collectibility is reasonably certain. In 1997, the Company recorded $67,749 of revenue related to consulting services unrelated to its current product offerings. Research and Development Research and development expenditures are expensed as incurred. Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed, requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company's product development process, technological feasibility is established upon completion of a working model. To date, the period between achieving technological feasibility and general availability of such software has been short and software development costs qualifying for capitalization have been immaterial. Accordingly, the Company has not capitalized any software development costs. 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 and accompanying notes. Actual results could differ from those estimates. Stock-Based Compensation The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, but applies Accounting Principles Board Opinion No. 25 (APB 25) and related interpretations in accounting for its stock plans. Under APB 25, when the exercise price of an employee stock option equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Net Income (Loss) Per Share The Company follows the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). Basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of outstanding shares of common stock and, when dilutive, potential common shares from options and convertible securities using the F-8 RIGHTNOW TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) as-if converted basis. All potential common shares have been excluded from the computation of diluted net income (loss) per share for the applicable periods presented because the effect would have been anti-dilutive. Pro Forma Stockholders' Equity Upon the closing of the Company's planned initial public offering, all outstanding shares of Series A preferred stock will automatically convert into 5,554,853 shares of common stock. The pro forma effects of these transactions are unaudited and have been reflected in the accompanying pro forma stockholders' equity section at March 31, 2000. Pro Forma Net Loss Per Share Pro forma net loss per share for the year ended December 31, 1999 and the three months ended March 31, 2000 is computed using the weighted average number of common shares outstanding, including the pro forma effects of the automatic conversion of the Company's Redeemable Convertible Series A Preferred Stock into shares of the Company's common stock as if such conversion occurred at the date of original issuance. The resulting pro forma adjustments includes an increase in the weighted average shares used to compute basic and diluted net loss per share of 145,216 shares for the year ended December 31, 1999 and 5,554,853 shares for the three months ended March 31, 2000. The pro forma effects of these transactions are unaudited. Interim Financial Statements The interim financial statements for the three months ended March 31, 1999 and 2000 are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. In the opinion of the Company's management, the unaudited interim financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results of the entire year. 2. Property and Equipment Property and equipment as of December 31 are as follows:
1998 1999 ------- -------- Equipment............................................... $ -- $ 45,333 Computer equipment...................................... 38,658 303,982 Furniture and fixtures.................................. -- 154,401 Leasehold improvements.................................. -- 8,158 Purchased software...................................... 3,613 59,167 ------- -------- 42,271 571,041 Less accumulated depreciation........................... (4,305) (43,908) ------- -------- $37,966 $527,133 ======= ========
3. Long-Term Debt The Company has a line of credit with a bank under which it can borrow up to $500,000 at an interest rate of prime plus 1.5%. Any borrowings on the line of credit are secured by substantially all of the Company's assets. The line of credit expires on July 29, 2000. At December 31, 1999, there were no outstanding borrowings on this line of credit. F-9 RIGHTNOW TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) 4. Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) Redeemable Convertible Preferred Stock In December 1999, the Company authorized and issued Redeemable Convertible Series A Preferred Stock to two private investor groups and three members of the Board of Directors. As of December 31, 1999, there were 15,000,000 shares authorized to be designated as preferred stock. The Company issued 5,554,853 shares as Redeemable Convertible Series A Preferred Stock at a price of $2.91 per share. Under the provision of the stock purchase agreements, the holders of the Company's Series A Preferred Stock are entitled to: . Liquidation preference of $2.91 per share plus all declared but unpaid dividends on the Series A Preferred. After payment of this preference amount, remaining assets and funds of the Company legally available for distribution shall be distributed among the holders of the then outstanding common stock pro rata, in proportion to the full amount each such holder is otherwise entitled to receive. . Non-accruing, non-cumulative, right to dividends in an amount equal to $0.26 per annum for each share of Series A Preferred, if declared by the Board of Directors. . Voting rights equal to common stockholders. . Voting rights to elect one member of the Board of Directors. Each holder of Series A Preferred may at any time, convert any or all of such Series A Preferred into fully-paid and nonassessable shares of common stock at the applicable conversion price. Each share of Series A Preferred shall be convertible into the number of shares of common stock that results from dividing $2.91 by the Conversion Price in effect at the time of conversion. In addition, each share of Series A Preferred shall automatically be converted into common stock at the then effective conversion price in the event that holders of a majority of the shares consent to such conversion, or upon the closing of an underwritten public offering at a per share public offering price of not less than $8.73 and aggregate offering proceeds of at least $10,000,000. No dividends have been declared or paid on the Company's preferred stock. Common Stock Prior to 1999, the Company's common stock carried no par value. In conjunction with the preferred stock issuance, the Company's Board of Directors approved a par value for the Company's common stock of $.001 per share. Each share of common stock has one vote. In December 1999, in connection with the termination of the Company's S corporation status, the Company declared a distribution to its stockholders in an amount necessary solely to cover their income tax liabilities as a result of the prior S corporation status. Stock Splits In 1999, the Company's Board of Directors declared a 2-for-1 stock split and a 20-for-1 stock split payable in the form of a stock dividend. Accordingly, all share, per share, weighted average share and stock option information for periods prior to the splits, has been restated to reflect the splits. Stock Option Plan The Company's 1998 Long-Term Incentive and Stock Option Plan provides for stock options to be granted to employees, consultants, independent contractors, officers and directors. Options are generally granted F-10 RIGHTNOW TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) at an exercise price equivalent to the estimated fair market value per share at the date of grant, as determined by the Company's Board of Directors. All options are granted at the discretion of the Company's Board of Directors, with the term determined by the Board of Directors. Incentive Stock Options have a term not greater than ten years from the date of grant and options not qualifying as Incentive Stock Options have a term not greater than 15 years from the date of grant. Options generally vest over a period of four years in increments of 12.5% every six months, and are exercisable upon vesting. Options are generally granted to all full-time employees at the time of hire.
Weighted Average Exercise Shares Price Available Outstanding Per for Grant Options Share ---------- ----------- -------- Balance at December 31, 1997............. -- -- $ -- Shares authorized...................... 10,000,000 -- -- Granted................................ (3,320,000) 3,320,000 .04 Exercised.............................. -- -- -- Canceled............................... 1,010,000 (1,010,000) .03 ---------- ---------- Balance at December 31, 1998............. 7,690,000 2,310,000 .04 Granted................................ (5,379,700) 5,379,700 .33 Exercised.............................. -- (522,500) .03 Canceled............................... 764,750 (764,750) .05 ---------- ---------- Balance at December 31, 1999............. 3,075,050 6,402,450 $.29 ========== ==========
The weighted average fair value of options granted in 1998 and 1999 was $.01 and $.08 per share, respectively. The exercise prices are equal to the estimated fair value of the common stock, as determined by the Board of Directors on the grant dates. At December 31, 1998 and 1999, options to purchase 252,500 and 1,045,001 shares of common stock are exercisable, respectively, at weighted average exercise prices of $.025 and $.16, respectively. The 6,402,450 options outstanding as of December 31, 1999 include 2,038,750 options with exercise prices between $.025 and $.10 per share; 3,664,000 options with exercise prices between $.15 and $.30 per share; and 699,700 options with exercise prices between $1.20 and $2.91 per share. At December 31, 1999, the outstanding options had a weighted average contractual life of nine years. Pro forma information regarding net income (loss) and related per share data is required by Statement 123, and has been determined as if the Company had accounted for its stock options under the fair value method of Statement 123. The fair value for these options was estimated at the date of grant using the minimum value option pricing model with the following weighted average assumptions for 1998 and 1999: risk-free interest rate of 5.3%, dividend yield of 0% and a weighted average expected life of the option of five years. Had the Company recorded compensation cost in accordance with Statement 123, the net loss and loss per share would have been:
1998 1999 --------- ----------- Net loss as reported.............................. $(163,331) $(2,444,994) Pro forma net loss................................ $(164,293) $(2,462,889) Net loss per share as reported.................... $ (.01) $ (.12) Pro forma net loss per share...................... $ (.01) $ (.12)
F-11 RIGHTNOW TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) 5. Operating Lease Commitments The Company leases its office facilities and certain office equipment under various non-cancelable operating lease agreements with various expiration dates through December 31, 2003. Future minimum payments as of December 31, 1999, under these leases, are as follows: 2000............................................................ $112,192 2001............................................................ 75,628 2002............................................................ 69,840 2003............................................................ 4,932 -------- $262,592 ========
Rent expense was $200, $10,594 and $99,720 in 1997, 1998 and 1999, respectively. The Company is currently in negotiations with a development group, of which the Company's Chief Executive Officer is a 50% partner, for a long-term lease for two 9,000-square-foot buildings under construction and one 30,000-square- foot building in the planning stages. These negotiations are expected to result in a five- to ten-year lease commitment at market rates. 6. Income Taxes Prior to December 1999, the Company was an S corporation and as such was not subject to corporate federal or state income taxes. As a result of the issuance of preferred stock in December 1999, the Company became a C corporation and as such is subject to state and federal income tax in 1999. Upon conversion to C corporation status, the Company recorded deferred taxes for which it will be responsible resulting from the termination of S corporation status. The components of the deferred tax assets as of December 31, 1999 are as follows: Deferred tax assets: Deferred revenue.......................................... $ 1,576,600 Accounts receivable allowance............................. 87,000 Other..................................................... 30,300 ----------- 1,693,900 Valuation allowance....................................... (1,693,900) ----------- $ -- ===========
The Company has established a valuation allowance equal to the net deferred tax asset due to uncertainties regarding the realization of deferred tax assets based on the Company's lack of earnings and expected lack of near term future taxable earnings on which to recover these deferred tax assets. F-12 RIGHTNOW TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) The following summarizes the components of the pro forma income tax expense (benefit) assuming the Company had been a C corporation for all periods presented for the years ended December 31, 1997, 1998 and 1999:
1997 1998 1999 ------ -------- ----------- Current: Federal.................................... $8,800 $ -- $ 228,300 State...................................... 700 -- 37,500 Deferred: Federal.................................... -- (55,500) (1,425,000) State...................................... -- (4,300) (233,900) Valuation allowance........................ -- 59,800 1,658,900 ------ -------- ----------- $9,500 $ -- $ 265,800 ====== ======== ===========
A reconciliation from the federal statutory rate to the pro forma tax expense (benefit) for the years ended December 31, 1997, 1998 and 1999 is as follows:
1997 1998 1999 ---- ----- ----- Statutory federal tax rate........................... 34.0% (34.0)% (34.0)% State income taxes, net of federal benefit........... 2.6 (2.6) (2.6) Effect of S corporation termination.................. -- -- 10.9 Valuation allowance.................................. -- 36.6 36.6 ---- ----- ----- 36.6% --% 10.9% ==== ===== =====
7. Employee 401(k) Plan In October 1999, the Company established a voluntary defined contribution retirement plan qualifying under Section 401(k) of the Internal Revenue Code of 1986. The plan covers substantially all full-time employees. Under the terms of the plan, participants may contribute up to 12% of their salary to the plan. Employees are eligible after 90 days of service. At its discretion, the Company may make matching contributions. The Company made matching contributions during 1999 of $16,171. F-13 [Inside Back Cover] [Our artwork displays screens that a business's customer would see if the customer were using the self-service capability of RightNow Web, or if the customer elected to submit a question via e-mail or initiate a live interaction with a customer service representative. The screens depict a hypothetical Web site for Acme Washing Machines.] [RightNow Technologies, Inc. Logo] PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. Except as set forth below, the following fees and expenses will be paid by us in connection with the issuance and distribution of the securities registered hereby and do not include underwriting commissions and discounts. All expenses, except for the SEC registration, NASD filing and Nasdaq listing fees, are estimated. SEC registration fee............................................... $ NASD filing fee.................................................... $ 5,500 Nasdaq National Market listing fee................................. $ 95,000 Legal fees and expenses............................................ $ Accounting fees and expenses....................................... $ Transfer Agent's and Registrar's fees.............................. $ 3,500 Printing and engraving expenses.................................... $125,000 Miscellaneous...................................................... $ -------- Total............................................................ $ ========
Item 14. Indemnification of Directors and Officers. Section 145 of the Delaware General Corporation Law provides for the indemnification of officers, directors, and other corporate agents in terms sufficiently broad to indemnify directors, officers and corporate agents under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended. Section 3.14 of our bylaws provides for mandatory indemnification of our directors and executive officers and permissible indemnification of employees and other agents to the maximum extent and under the circumstances permitted by the Delaware General Corporation Law. Article IX of our certificate of incorporation provides that, subject to Delaware law, our directors will not be personally liable to us or our stockholders for monetary damages for breaches of their fiduciary duties as directors. This provision in the certificate of incorporation does not eliminate the directors' fiduciary duties, and in appropriate circumstances equitable remedies, such as injunctive or other forms of nonmonetary relief, will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. In addition to these provisions in our certificate of incorporation and bylaws, we have entered into indemnification agreements with each of our executive officers and directors, a form of which has been filed with the Securities and Exchange Commission as an exhibit to this registration statement. The indemnification agreements provide our directors and executive officers with further indemnification to the maximum extent permitted by the Delaware General Corporation Law. The Underwriting Agreement contained in Exhibit 1.1 to this registration statement provides that the underwriters are obligated, under certain circumstances, to indemnify our directors and officers against certain liabilities, including liabilities under the Securities Act of 1933, as amended. In addition, Section 2.7 of the Investors' Rights Agreement contained in Exhibit 4.2 to this registration statement provides for indemnification of certain of our stockholders against liabilities described in the Investors' Rights Agreement. II-1 Item 15. Recent Sales of Unregistered Securities Since March 31, 1997, we have issued and sold the following securities that were not registered under the Securities Act. All share numbers and per share prices are adjusted to reflect stock splits that occured prior to March 31, 2000. . On March 23, 1998, we issued 183,600 shares of our common stock to an employee at a price of $.025 per share. . On October 1, 1998, we issued 100,000 shares of common stock valued at $5,000 to a consultant in exchange for media relations services provided to us. . On December 1, 1998, we issued 20,000 shares of common stock to an employee at a price of $.05 per share. . On January 1, 1999, we issued 20,000 shares of our common stock to an employee at a price of $.05 per share. . On March 31, 1999, we issued 60,000 shares of our common stock to an employee at $.05 per share. . On November 15, 1999, we issued 15,235 shares of common stock valued at $3,787.50 to a consultant in exchange for consulting services provided to us. . In February 2000, we issued 25,000 shares of common stock valued at $87,500 to an executive search firm in exchange for services to us. . On December 13, 1999, we issued and sold 5,554,853 shares of Series A preferred stock for an aggregate of $16,164,622.23. Each share of our Series A preferred stock automatically will convert into one share of common stock upon the closing of this offering. . From February 1998 through March 2000, we granted stock options to our employees, directors and consultants under our 1998 stock option plan pursuant to which the optionees may purchase up to an aggregate of 9,634,450 shares of our common stock at exercise prices ranging from $.025 to $6.00 per share. Of the options we granted during this period, options to purchase a total of 2,224,150 shares of our common stock have been canceled, and options to purchase a total of 722,750 shares of common stock have been exercised, for an aggregate cash consideration of $39,137.50. The sale and issuance of these securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act, or (1) Regulation D promulgated thereunder as transactions by an issuer not involving a public offering, where the purchasers represented their intention to acquire securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof, and where the purchasers received or had access to adequate information about us, or (2) Rule 701 promulgated thereunder in that the securities were offered and sold either pursuant to written compensatory benefit plans or pursuant to a written contract relating to compensation. II-2 Item 16. Exhibits and Financial Statement Schedules (a) Exhibits
Number Description ------ ----------- 1.1* Form of Underwriting Agreement. 3.1* Form of Certificate of Incorporation of the Company. 3.2* Form of Bylaws of the Company. 4.1* Specimen of Common Stock Certificate. 4.2 Investors' Rights Agreement dated December 13, 1999, between RightNow Technologies, Inc. and the investors listed on Exhibit A thereto. 5.1* Opinion of Dorsey & Whitney LLP. 10.1* 2000 Employee Stock Purchase Plan. 10.2 1998 Long-Term Incentive and Stock Option Plan. 10.3* 2000 Stock Incentive Plan. 10.4 Lease Agreement dated April 4, 2000, between Genesis Partners, LLC, and RightNow Technologies, Inc. (relating to property at 77 Discovery Drive, Bozeman, Montana). 10.5 Lease Agreement dated April 4, 2000, between Genesis Partners, LLC, and RightNow Technologies, Inc. (relating to property at 45 Discovery Drive, Bozeman, Montana). 10.6 Employment Agreement dated August 15, 1999 between RightNow Technologies, Inc. and Jeffrey W. Honeycomb. 10.7* Form of Indemnification Agreement. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Ernst & Young LLP. 23.2* Consent of Dorsey & Whitney LLP (included in Exhibit 5.1 to the Registration Statement). 24.1 Powers of Attorney (included on signature page). 27.1 Financial Data Schedule.
- -------- * To be filed by amendment. (b) Financial Statement Schedules Item 17. Undertakings The undersigned registrant hereby undertakes that: The registrant will provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful II-3 defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, 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 Act and will be governed by the final adjudication of such issue. For purposes of determining any liability under the Securities Act of 1933, the registrant will treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Securities and Exchange Commission declared it effective. For the purpose of determining any liability under the Securities Act of 1933, the registrant will treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and will treat that offering of the securities at that time as the initial bona fide offering of those securities. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Bozeman, State of Montana, on April 20, 2000. RightNow Technologies, Inc. /s/ Greg R. Gianforte By: _________________________________ Greg R. Gianforte Chairman and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Greg R. Gianforte and Susan J. Carstensen, and each of them, his true and lawful attorneys-in-fact and agents, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all (i) amendments (including post-effective amendments) and additions to this registration statement and (ii) registration statements, and any and all amendments thereto (including post-effective amendments), relating to the offering contemplated pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorneys-in-fact and agents and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to 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 any of them 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 of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Greg R. Gianforte Chairman and Chief Executive April 20, 2000 ____________________________________ Officer (principal executive Greg R. Gianforte officer) /s/ Susan J. Carstensen Chief Financial Officer April 20, 2000 ____________________________________ (principal financial officer Susan J. Carstensen and principal accounting officer) /s/ Robert J. Ryan Director April 20, 2000 ____________________________________ Robert J. Ryan /s/ Roger L. Evans Director April 20, 2000 ____________________________________ Roger L. Evans /s/ William J. Lansing Director April 20, 2000 ____________________________________ William J. Lansing /s/ Margaret L. Taylor Director April 20, 2000 ____________________________________ Margaret L. Taylor
II-5 EXHIBIT INDEX
Number Description ------ ----------- 1.1* Form of Underwriting Agreement. 3.1* Form of Certificate of Incorporation of the Company. 3.2* Form of Bylaws of the Company. 4.1* Specimen of Common Stock Certificate. 4.2 Investors' Rights Agreement dated December 13, 1999, between RightNow Technologies, Inc. and the investors listed on Exhibit A thereto. 5.1* Opinion of Dorsey & Whitney LLP. 10.1* 2000 Employee Stock Purchase Plan. 10.2 1998 Long-Term Incentive and Stock Option Plan. 10.3* 2000 Stock Incentive Plan. 10.4 Lease Agreement dated April 4, 2000, between Genesis Partners, LLC, and RightNow Technologies, Inc. (relating to property at 77 Discovery Drive, Bozeman, Montana). 10.5 Lease Agreement dated April 4, 2000, between Genesis Partners, LLC, and RightNow Technologies, Inc. (relating to property at 45 Discovery Drive, Bozeman, Montana). 10.6 Employment Agreement dated August 15, 1999 between RightNow Technologies, Inc. and Jeffrey W. Honeycomb. 10.7* Form of Indemnification Agreement. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Ernst & Young LLP. 23.2* Consent of Dorsey & Whitney LLP (included in Exhibit 5.1 to the Registration Statement). 24.1 Powers of Attorney (included on signature page). 27.1 Financial Data Schedule.
- -------- * To be filed by amendment. EX-4.2 2 INVESTORS' RIGHTS AGREEMENT DATED 12-13-1999 Exhibit 4.2 RIGHT NOW TECHNOLOGIES, INC. INVESTORS' RIGHTS AGREEMENT December 13, 1999 TABLE OF CONTENTS
Page ---- 1. DEFINITIONS............................................................ 1 2. REGISTRATION RIGHTS.................................................... 2 2.1 Demand Registration.............................................. 2 2.2 Company Registration............................................. 3 2.3 Form S-3 Registration............................................ 4 2.4 Obligations of the Company....................................... 5 2.5 Termination of Registration Rights............................... 6 2.6 Furnish Information.............................................. 6 2.7 Indemnification.................................................. 6 2.8 Rule 144 Reporting............................................... 9 2.9 Assignment of Registration Rights................................ 9 2.10 Amendment of Registration Rights................................. 9 2.11 Limitations on Subsequent Registration Rights.................... 9 2.12 "Market Stand-Off" Agreement..................................... 10 3. COVENANTS OF THE COMPANY............................................... 10 3.1 Basic Financial Information and Reporting........................ 10 3.2 Inspection Rights................................................ 11 3.3 Confidentiality of Records....................................... 11 3.4 Employee Agreements.............................................. 12 3.5 Insurance........................................................ 12 3.6 Internal Revenue Code Section 1202............................... 12 3.7 Vesting of Stock Options......................................... 12 3.8 Termination of Covenants......................................... 12 4. RIGHTS OF FIRST REFUSAL................................................ 12 4.1 Subsequent Offerings............................................. 12 4.2 Exercise of Rights............................................... 13 4.3 Issuance of Equity Securities to Other Persons................... 13 4.4 Termination of Rights of First Refusal........................... 13 4.5 Transfer of Rights of First Refusal.............................. 13 4.6 Excluded Securities.............................................. 13 5. LEGENDS................................................................ 14 5.1 Legends.......................................................... 14 6. MISCELLANEOUS.......................................................... 15 6.1 Governing Law.................................................... 15 6.2 Survival......................................................... 15 6.3 Successors and Assigns........................................... 15 6.4 Severability..................................................... 15
-ii- TABLE OF CONTENTS (continued)
Page ---- 6.5 Amendment and Waiver............................................. 15 6.6 Delays or Omissions.............................................. 16 6.7 Notices, etc..................................................... 16 6.8 Attorneys' Fees.................................................. 16 6.9 Titles and Subtitles............................................. 16 6.10 Counterparts..................................................... 16
-iii- RIGHT NOW TECHNOLOGIES, INC. INVESTORS' RIGHTS AGREEMENT This Investors' Rights Agreement (the "Agreement") is entered into as of December 13, 1999, by and among Right Now Technologies, Inc., a Montana corporation (the "Company"), and the parties listed on Exhibit A hereto --------- (collectively the "Investors" and individually an "Investor"). Recitals -------- A. The Company proposes to sell and issue 5,554,853 shares of Series A Preferred Stock pursuant to that certain Series A Preferred Stock Purchase Agreement dated of even date herewith, by and among the Company and the Investors (the "Series A Agreement"); B. The execution of this Agreement is a condition to the closing of the transactions contemplated by the Series A Agreement. C. The Company desires to enter into this Agreement and grant the Investors the rights contained herein in order to fulfill such condition. Now, Therefore, in consideration of the mutual promises and covenants contained herein, the parties hereby agree as follows: 1. DEFINITIONS 1.1 The term "Holder" means any Investor owning of record Registrable Securities that have not been sold to the public or any assignee of record of such Registrable Securities in accordance with Section 2.9 hereof. 1.2 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 effectiveness of such registration statement. 1.3 The term "Registrable Securities" means (a) Common Stock of the Company issued or issuable upon conversion of the Series A Preferred Stock held by the Holders (the "Preferred Stock"); (b) shares of Common Stock purchased by the Holders or issued or issuable to Holders upon conversion of other securities purchased by Holders pursuant to their right of first refusal in Section 4 of this Agreement; and (c) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such above-described securities. Notwithstanding the foregoing, Registrable Securities shall not include any securities sold by a person either pursuant to an effective registration statement, Rule 144 or in a private transaction in which the transferor's rights under Section 2 of this Agreement with respect to such registration rights are not assigned. 1.4 "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar United States federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. 1.5 The term "Form S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. 1.6 The term "SEC" or "Commission" means the Securities and Exchange Commission. 2. REGISTRATION RIGHTS. 2.1 Demand Registration. (a) Subject to the conditions of this Section 2.1, if the Company shall receive at any time after the earlier of (i) six (6) months after the effective date of the Company's first registered public offering of its stock, or (ii) December 13, 2002, a written request from the Holders of not less than fifty percent (50%) of the Registrable Securities (the "Initiating Holders") that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities which will have an aggregate offering price of at least $7,500,000 then the Company shall, within ten (10) days of the effective date of such notice as defined in Section 6.7 of this Agreement, give written notice of such request to all Holders, and, subject to the limitations of Section 2.1(b), effect as soon as practicable the registration under the Securities Act of all Registrable Securities that the Holders request to be registered within twenty (20) days of the effective date of such notice by the Company in accordance with Section 6.7. (b) In the event that a registration pursuant to Section 2.1 is for a registered public offering involving an underwriting, the Initiating Holders will so advise the Company as part of the written request given by such Initiating Holders and the Company shall in turn so advise the Holders in the written notice referred to in Section 2.1(a). The right of any Holder to include his or her Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters. Notwithstanding any other provision of this Section 2.1, if the underwriter advises the Company in writing that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities), then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated, first, to the Holders of Registrable Securities on a pro rata basis based on the number of Registrable Securities held by all such Holders (including the Initiating Holders); second, to shares to be registered and sold for the Company's own account; and third, to the stockholders (other than the Holders) invoking contractual rights to have their securities registered, if any, on a pro rata basis. 2 (c) The Company is obligated to effect only two (2) such registrations pursuant to this Section 2.1. A registration pursuant to this Section 2.1 may be the first public offering of the Company's securities (the "Initial Offering"). (d) Notwithstanding the foregoing, the Company may delay initiating the preparation and filing of any registration statement requested pursuant to Section 2.1(a) if (i) in the good faith judgment of the Company's Board of Directors effecting the registration would adversely affect or would require the premature disclosure of any financing, acquisition, disposition or assets or stock, merger or other comparable transaction or would require the Company to make public disclosure of information the public disclosure of which would have a material adverse effect on the Company or (ii) a request for registration is received during the period starting with the date thirty (30) days prior to the Company's good faith estimate of the date of the filing of, and ending on a date one hundred fifty (150) days following the effective date of, a Company- initiated registration subject to Section 2.2 relating to the Initial Offering, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective. (e) All expenses incurred in connection with each registration by the Holders pursuant to this Section 2.1 (excluding underwriters' discounts and commissions, which shall be paid by the selling Holders pro rata and the fees and disbursements of counsel for the selling Holders), including without limitation all registration, filing, qualification, printers' and accounting fees, and fees and disbursements of counsel for the Company shall be borne by the Company; provided, however, that the Company shall not be required to pay -------- ------- for any expenses of any registration proceeding begun pursuant to Section 2.1 if the registration request is subsequently withdrawn by the Initiating Holders, unless the withdrawal of the registration request results from either (i) intentional actions by the Company outside the normal course of business, or (ii) the discovery of information about the Company which was not known at the time of the Initiating Holders' request made pursuant to Section 2.1(a), that materially reduces the feasibility of the registration proceeding. 2.2 Company Registration. The Company shall promptly notify all Holders of Registrable Securities in writing at least thirty (30) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of equity securities of the Company (including, but not limited to, registration statements relating to secondary offerings of equity securities of the Company, but excluding registration statements relating to employee benefit plans or a transaction covered by Rule 145 under the Securities Act) and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within fifteen (15) days after the effective date of the above-described notice from the Company as defined in Section 6.7, so notify the Company in writing. Such notice shall state the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent 3 registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. (a) If the registration statement under which the Company gives notice under this Section 2.2 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. If the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company for its own account; second, to the Holders on a pro rata basis based on the total number of Registrable Securities held by the Holders; and third, to any stockholder (other than a Holder) invoking contractual rights to have their securities registered, if any, on a pro rata basis; provided, in the Initial Offering, the underwriters and the Company, may exclude all of the Registrable Securities held by the Holders. 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 underwriter. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. (b) The Company shall bear all fees and expenses incurred in connection with any registration under this Section 2.2, including without limitation all registration, filing, qualification, printers' and accounting fees, fees and disbursements of counsel to the Company, except that each participating Holder shall bear its proportionate share of all amounts payable to underwriters in connection with such offering for discounts and commissions and the fees and disbursements of counsel to the selling Holders. 2.3 Form S-3 Registration. In case the Company shall receive from any Holder or Holders of Registrable Securities a written request or requests that the Company effect a registration on Form S-3 with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (i) promptly give written notice of the proposed registration to all other Holders of Registrable Securities; and (ii) as soon as practicable, effect such registration as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after the effective date of such written notice from the Company as defined in Section 6.7; provided, however, that the Company shall not be obligated to effect any -------- ------- such registration pursuant to this Section 2.3: (a) if Form S-3 is not available for such offering by the Holders, (b) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities at an 4 aggregate price to the public of less than $1,000,000, (c) if the Company shall furnish to the Holders a certificate signed by the Chief Executive Officer or President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than one hundred and twenty (120) days after receipt of the request of the Holder or Holders under this Section 2.3, or (d) if the Company has, within the twelve (12) month period preceding the date of such request, already effected one (1) registration on Form S-3 for the Holders pursuant to this Section 2.3. (iii) Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. The Company shall pay all expenses incurred in connection with any registrations requested pursuant to this Section 2.3 (excluding underwriters' discounts and commissions, which shall be paid by the selling Holders pro rata and any fees and disbursements of counsel for the selling Holders), including without limitation all registration, filing, qualification, printers' and accounting fees, and fees and disbursements of counsel for the Company. 2.4 Obligations of the Company. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its reasonable best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to ninety (90) days. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing 5 underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Use its reasonable best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 2.5 Termination of Registration Rights. All registration rights granted under this Section 2 shall terminate and be of no further force and effect as to any Holder upon the earlier of (a) the date five (5) years following the closing of the Initial Offering or (b) such time as such Holder could sell all of the Registrable Securities held by such Holder in any one three-month period under the terms of Rule 144 under the Securities Act, provided that the Company is subject to the reporting requirements of the 1934 Act (as defined below). 2.6 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to Sections 2.1, 2.2 or 2.3 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them, and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. 2.7 Indemnification. In the event any Registrable Securities are included in a registration statement under Sections 2.1, 2.2 or 2.3. (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as 6 amended (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation") by the Company (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Securities Act, the 1934 Act or any state securities law in connection with the offering covered by such registration statement; and the Company will reimburse each such Holder, partner, officer or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, -------- however, that the indemnity agreement contained in this Section 2.7(b) - ------- shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further, that in no event shall any indemnity under this Section 2.7(b) exceed the net proceeds from the offering received by such Holder. 7 (c) Promptly after receipt by an indemnified Party under this Section 2.7 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party -------- ------- shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.7, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.7. (d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The foregoing indemnity agreements of the Company and Holders are subject to the condition that, insofar as they relate to any Violation made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement in question becomes effective or the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the benefit of any person if a copy of the Final Prospectus was furnished to the indemnified party and was not furnished by the indemnified party to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act. (f) The obligations of the Company and Holders under this Section 2.7 shall survive the completion of any offering of Registrable Securities in a registration statement, and otherwise. 8 2.8 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 reasonable 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 of 1934, as amended. (b) Use its reasonable best efforts to 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); (c) Furnish to any Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of 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 1934 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 such Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such Holder to sell any such securities without registration. 2.9 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by a Holder to a transferee or assignee of Registrable Securities; provided, however, -------- ------- that no such transferee or assignee shall be entitled to registration rights under Sections 2.1, 2.2 or 2.3 hereof unless it owns a minimum of 100,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits and similar events), and the Company shall promptly be furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned. Notwithstanding the foregoing, rights to cause the Company to register securities may be assigned to any subsidiary or parent company of a Holder or any partner of any Holder. 2.10 Amendment of Registration Rights. Any provision of this Section 2 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders of a majority of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 2.10 shall be binding upon each Holder and the Company. By acceptance of any benefits under this Section 2, Holders of Registrable Securities hereby agree to be bound by the provisions hereunder. 2.11 Limitations on Subsequent Registration Rights. After the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the 9 Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company that would permit such holder or prospective holder (a) to include such securities in any registration filed under Section 2.1 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his or her securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in subsection 2.1 or within one hundred twenty (120) days of the effective date of any registration effected pursuant to Section 2.1. 2.12 "Market Stand-Off" Agreement. Each Holder hereby agrees that during the one hundred eighty (180)-day following the effective date of a registration statement of the Company filed under the 1933 Act, it shall not, to the extent requested by the Company and the managing underwriter, sell or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any Common Stock of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that: -------- ------- (a) Such agreement shall be applicable only to the first such registration statement of the Company which covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering; and (b) All officers and directors of the Company and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop- transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. 3. COVENANTS OF THE COMPANY 3.1 Basic Financial Information and Reporting. (a) The Company will maintain true books and records of account in which full and correct entries will be made of all its business transactions pursuant to a system of accounting established and administered in accordance with generally accepted accounting principles consistently applied, and will set aside on its books all such proper accruals and reserves as shall be required under generally accepted accounting principles consistently applied. (b) As soon as practicable after the end of each fiscal year of the Company, and in any event within ninety (90) days thereafter, the Company will furnish each Holder of at least 250,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits and similar events) an audited consolidated balance sheet of the Company, as at the end of such fiscal year, and an audited consolidated statement of income and an audited consolidated statement of cash flows of the Company, for such year, all prepared in accordance with generally accepted accounting principles 10 and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail. Such financial statements shall be accompanied by a report and opinion thereon by independent public accountants of national standing selected by the Company's Board of Directors. (c) So long as a Holder shall own at least 250,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits and similar events), as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within forty-five (45) days thereafter, the Company will furnish each such Holder a consolidated balance sheet of the Company as of the end of each such quarterly period, and a consolidated statement of income and a consolidated statement of cash flows of the Company for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles, with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made. (d) So long as a Holder shall own at least 250,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits and similar events), the Company will furnish each such Holder (i) at least thirty (30) days prior to the beginning of each fiscal year an annual budget and operating plans for such fiscal year, beginning with the Company's fiscal year ended December 31, 2001; and (ii) within thirty (30) days after the end of each month, an unaudited balance sheet and statements of income and cash flows, prepared in accordance with generally accepted accounting principles (other than for accompanying notes). 3.2 Inspection Rights. So long as a Holder shall own at least 250,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits and similar events), each such Holder (at such Holder's expense) shall have the right to visit and inspect any of the properties of the Company or any of its subsidiaries, and to discuss the affairs, finances and accounts of the Company or any of its subsidiaries with its officers, all at such reasonable times and as often as may be reasonably requested; provided, however, that the Company -------- ------- shall not be obligated under this Section 3.2 with respect to a competitor of the Company or with respect to information which the Board of Directors determines in good faith is confidential and should not, therefore, be disclosed. 3.3 Confidentiality of Records. Each Holder agrees to use, and to use its reasonable best efforts to insure that its authorized representatives use, the same degree of care as such Holder uses to protect its own confidential information to keep confidential any information furnished to it which the Company identified or marked as being confidential or proprietary (so long as such information is not in the public domain), except that such Holder may disclose such proprietary or confidential information to any partner, subsidiary or parent of such Holder for the purpose of evaluating its investment in the Company as long as such partner, subsidiary or parent is advised of the confidentiality provisions of this Section 3.3. 11 3.4 Employee Agreements. All future employees of the Company and consultants to the Company shall be required to execute an Employee Inventions and Proprietary Rights Assignment Agreement substantially in the form attached as Exhibit G to the Series A Agreement, with such amendments thereto or --------- deviations therefrom as the Board of Directors may from time to time deem appropriate. 3.5 Insurance. The Company agrees to maintain valid policies of workers' compensation insurance and, to the extent such insurance is available on commercially reasonable terms, insurance with respect to its properties and business of the kinds and in the amounts not less than is customarily obtained by corporations engaged in the same or similar business and similarly situated, including, without limitation, insurance against loss, damage, fire, theft, public liability and other risks. In addition, as soon as practicable following the closing of the transaction contemplated by the Series A Agreement, the Company agrees to procure and maintain a key man life insurance policy on Greg Gianforte in an amount to be determined by the Board of Directors. 3.6 Internal Revenue Code Section 1202. The Company shall furnish to each Purchaser, and shall make such filings with the Internal Revenue Service, as shall from time to time be required pursuant to Section 1202(d)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). In addition, the Company agrees that it will not make any purchases of its stock within the meaning of and which would exceed the limitation contained in Section 1202(c)(3)(B) of the Code, unless such purchases (i) have been consented to by holders of a majority of the Series A Preferred or (ii) are required by contractual obligations entered into prior to the closing of the transaction contemplated by the Series A Agreement. Any such information provided to the Purchaser under this Section 3.6 shall not be disclosed by any Purchaser to any party except as required and solely in order for such Purchaser to claim any benefits under Section 1202 of the Code. 3.7 Vesting of Stock Options. After the closing of the transaction contemplated by the Series A Agreement, the standard vesting schedule for options to purchase shares of Common Stock of the Company granted to employees and directors of the Company under the Company's 1998 Long-Term Incentive and Stock Option Plan and any other stock option plans of the Company shall provide for vesting over a four (4)-year period, although alternative vesting schedules may be used with respect to certain options if deemed by the Board of Directors of the Company to be in the best interest of the Company. All stock options or rights to purchase stock of the Company granted to employees, officers, directors or consultants shall grant to the Company a right of first refusal to purchase any and all stock acquired on exercise of the option or other right to purchase such stock. 3.8 Termination of Covenants. All covenants of the Company contained in Section 3 of this Agreement shall expire and terminate as to each Holder upon the date that the Company first becomes subject to the reporting obligations of the 1934 Act. 4. RIGHTS OF FIRST REFUSAL. 4.1 Subsequent Offerings. Each Holder shall have a right of first refusal to purchase its pro rata share of all Equity Securities (as defined below) that the Company may, from time to time, propose to sell and issue after the date of this Agreement, other than the Equity Securities excluded 12 by Section 4.6 hereof. Each Holder's pro rata share is equal to the ratio of the number of shares of Preferred Stock (or Common Stock issuable upon conversion thereof) with respect to which such Holder is deemed to be a holder immediately prior to the issuance of such Equity Securities to the total number of outstanding shares of Preferred Stock or Common Stock of the Company. Greylock IX Limited Partnership (assuming it is then entitled to the rights granted pursuant to this Section 4.1), shall have a right of first refusal to purchase up to 250,000 shares of Common Stock in the Initial Offering. Equity Securities shall mean shares of, or securities convertible into or exercisable for any shares of, any class of the Company's capital stock. 4.2 Exercise of Rights. If the Company proposes to issue any Equity Securities, it shall give each Holder written notice of its intention, describing the Equity Securities, the price, and the terms and conditions upon which the Company proposes to issue the same. Each Holder shall have fifteen (15) days from the effective date of such notice as defined in Section 6.7 to agree to purchase its pro rata share of the Equity Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the Company and stating therein the quantity of Equity Securities to be purchased. Notwithstanding the foregoing, the Company shall not be required to offer or sell such Equity Securities to any Holder who would cause the Company to be in violation of applicable federal securities laws by virtue of such offer or sale. 4.3 Issuance of Equity Securities to Other Persons. If the Holders fail to exercise in full the rights of first refusal within such fifteen (15)-day period, the Company shall have ninety (90) days thereafter to sell the Equity Securities in respect of which the Holders' rights were not exercised, at a price and upon terms and conditions no more favorable to the purchasers thereof than specified in the Company's notice to the Holders pursuant to Section 4.2 hereof. If the Company has not sold such Equity Securities within such ninety (90) days, the Company shall not thereafter issue or sell any Equity Securities, without first offering such securities to the Holders in the manner provided above. 4.4 Termination of Rights of First Refusal. The rights of first refusal established by this Section 4 shall terminate upon the closing of an underwritten public offering of Common Stock of the Company made pursuant to an effective registration statement under the Securities Act. 4.5 Transfer of Rights of First Refusal. The rights of first refusal of each Holder under this Section 4 may be transferred (a) to any subsidiary or parent company of such Holder, to any partner of such Holder or to any successor in interest to all or substantially all the assets of such Holder, or (b) with respect to at least 100,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits and similar events), to a transferee other than a direct competitor of the Company, provided that the Company is given written notice by the Holder stating the name and address of the transferee and identifying the Registrable Securities with respect to which the rights under this Section 4 are being assigned. 4.6 Excluded Securities. The rights of first refusal established by this Section 4 shall have no application to any of the following Equity Securities: 13 (a) Shares of Common Stock (and/or options, warrants or other Common Stock purchase rights issued pursuant to such options, warrants or other rights) issued or to be issued to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary, pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board of Directors of the Company; (b) any Equity Securities issued pursuant to any rights or agreements outstanding as of the date of this Agreement, including without limitation convertible securities, options and warrants; and any Equity Securities issued pursuant to any such rights or agreements granted after the date of this Agreement, provided that the rights of first refusal established by this Section 4 applied with respect to the initial sale or grant by the Company of such rights or agreements; (c) any Equity Securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination; (d) except for the right granted to Greylock IX Limited Partnership pursuant to Section 4.1, any Equity Securities that are issued by the Company as part of an underwritten public offering referred to in Section 4.4 hereof; (e) shares of Common Stock issued in connection with any stock split, stock dividend or recapitalization by the Company; and (f) shares of Common Stock issued upon conversion of the Preferred Stock. (g) any Equity Securities issued to financial institutions or lessors in connection with commercial credit arrangements, equipment financings, or similar transactions as approved by the Board of Directors; or (h) any Equity Securities issued to an entity as an integral component of a strategic partnering transaction with such entity as approved by the Board of Directors. 5. LEGENDS. 5.1 Legends. Each Investor understands that the share certificates evidencing any Registrable Securities shall be endorsed with the following legends (in addition to any legends required under applicable state securities laws): (a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933." 14 (b) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF AN INVESTORS' RIGHTS AGREEMENT WHICH PLACES CERTAIN RESTRICTIONS ON THE SHARES REPRESENTED HEREBY. ANY PERSON ACCEPTING ANY INTEREST IN SUCH SHARES SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SUCH AGREEMENT. A COPY OF SUCH INVESTORS' RIGHTS AGREEMENT WILL BE FURNISHED TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS." (c) Any legend required to be placed thereon by any applicable state securities laws. 6. MISCELLANEOUS. 6.1 Governing Law. This Agreement shall be governed in all respects by the laws of California. 6.2 Survival. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Holder and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 6.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities from time to time; provided, however, that -------- ------- prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price. 6.4 Severability. In case any provision of the Agreement shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 6.5 Amendment and Waiver. (a) Except as otherwise expressly provided, this Agreement may be amended or modified only upon the written consent of the Company and the holders of not less than a majority of the Registrable Securities. 15 (b) Except as otherwise expressly provided, the obligations of the Company and the rights of the Holders under this Agreement may be waived only with the written consent of the holders of not less than a majority of the Registrable Securities. 6.6 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any Holder's part of any breach, default or noncompliance under the Agreement or any waiver on such Holder's part 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, by law, or otherwise afforded to Holders, shall be cumulative and not alternative. 6.7 Notices, etc. Any notice required or permitted by this Agreement shall be in writing and shall be deemed effective on the date of delivery, when delivered personally or by overnight courier, upon electronic confirmation of receipt when or sent by telegram or fax, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address or fax number as set forth on Exhibit A, or as subsequently modified by written notice. 6.8 Attorneys' Fees. If legal action is brought to enforce or interpret this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees and legal costs in connection therewith. 6.9 Titles and Subtitles. The titles of the paragraphs and subparagraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 6.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth in the first paragraph hereof. COMPANY: RIGHT NOW TECHNOLOGIES, INC. By: /s/ Greg Gianforte --------------------------------------- Greg Gianforte, Chief Executive Officer 16 INVESTORS: GREYLOCK IX LIMITED PARTNERSHIP By: Greylock IX GP Limited Partnership, its general partner By: /s/ Roger Evans --------------------------------------- General Partner SUMMIT ACCELERATOR FUND, L.P. By: SUMMIT ACCELERATOR PARTNERS, L.L.C. Its General Partner By: Summit Accelerator Management, L.P. A Member By: Summit Accelerator Management, L.L.C. Its General Partner By: /s/ Kip Sheeline -------------------- A Managing Member /s/ Robert Ryan - ---------------------------------- Robert Ryan /s/ Greg Gianforte - ---------------------------------- Greg Gianforte /s/ Susan Carstensen - ---------------------------------- Susan Carstensen 17 EXHIBIT A --------- INVESTORS - --------- GREYLOCK IX LIMITED PARTNERSHIP Address: 755 Page Mill Road, Bldg. A, Suite 100 Palo Alto, California 94304 Fax: 650-493-5575 GREG GIANFORTE Address: c/o Right Now Technologies, Inc. 601 Haggerty Lane, Suite D Bozeman, Montana 59715 Fax: 406-522-4208 ROBERT RYAN Address: 77 Storm King Road Hamilton, Montana 59840 Fax: 406 363-0155 SUSAN CARSTENSEN Address: c/o Right Now Technologies, Inc. 601 Haggerty Lane, Suite D Bozeman, Montana 59715 Fax: 406-522-2908 SUMMIT ACCELERATOR FUND, L.P. Address: 499 Hamilton Ave., Suite 200 Palo Alto, California 94301 Attention: Kip Sheeline Fax: 650 321-1188 18 EX-10.2 3 1998 LONG-TERM INCENTIVE & STOCK OPTION PLAN Exhibit 10.2 Exhibit A --------- 1998 LONG-TERM INCENTIVE AND STOCK OPTION PLAN 1. Purpose of the Plan. This Plan shall be known as the "1998 Long-Term ------------------- Incentive and Stock Option Plan" and is hereinafter referred to as the "Plan." The purpose of the Plan is to aid in maintaining and developing personnel capable of assuring the future success of Net Profit, Inc., a Montana corporation, doing business as Right Now Technologies (the "Company"), to offer such personnel additional incentives to put forth maximum efforts for the success of the business, and to afford them an opportunity to acquire a proprietary interest in the Company through stock options and other long-term incentive awards as provided herein. Options granted under this Plan may be either incentive stock options ("Incentive Stock Options") or options which do not qualify as Incentive Stock Options. Awards under this Plan shall be performance awards as hereinafter described. 2. Stock Subject to Plan. Subject to the provisions of Section 13 hereof, --------------------- the stock to be subject to options or other awards under the Plan shall be the Company's authorized Common Shares, no par value per share. Such shares may be either authorized but unissued shares, or issued shares which have been reacquired by the Company. Subject to adjustment as provided in Section 13 hereof, the maximum number of shares on which options may be exercised or other awards issued under this Plan shall be 250,000 shares. If an option or award under the Plan expires, or for any reason is terminated or unexercised with respect to any shares, such shares shall again be available for options or awards thereafter granted during the term of the Plan. 3. Administration of Plan. (a) The Plan shall be administered by the ---------------------- Board of Directors of the Company or a committee thereof. The members of any such committee shall be appointed by and serve at the pleasure of the Board of Directors and shall include only "non-employee directors" within the meaning of Rule 16b-3 promulgated under the Securities and Exchange Act of 1934. (The group administering the Plan shall hereinafter be referred to as the "Committee.") In addition, to the extent required by Section 162(m) of the Internal Revenue Code of 1986, as amended (such statute, as it may be amended from time to time and all proposed temporary or final Treasury Regulations promulgated thereunder shall be referred to as the "Code"), at all times following the 1998 Annual Meeting of Shareholders of the Company, all members of the Committee shall be "outside directors" within the meaning of Section 162(m) of the Code. (b) The Committee shall have plenary authority in its discretion, but subject to the express provisions of the Plan: (i) to determine the purchase price of the Common Stock covered by each option or award, (ii) to determine the employees to whom and the time or times at which such options and awards shall be granted and the number of shares to be subject to each, (iii) to determine the form of payment to be made in connection with performance awards, either cash, Common Shares of the Company, or a combination thereof, (iv) to determine the terms of exercise of each option and award, (v) to accelerate the time at which all or any part of an option or award may be exercised, (vi) to amend or modify the terms of any option or award with the consent of the optionee, (vii) to interpret the Plan, (viii) to prescribe, amend, and rescind rules and regulations relating to the Plan, (ix) to determine the terms and provisions of each option and award agreement under the Plan (which agreements need not be identical, including the designation of those options intended to be Incentive Stock Options, and (x) to make all other determinations necessary or advisable for the administration of the Plan, subject to the exclusive authority of the Board of Directors under Section 14 herein to amend or terminate the Plan. The Committee's determinations on the foregoing matters, unless otherwise disapproved by the Board of Directors of the Company, shall be final and conclusive. (c) The Committee shall select one of its members as its Chair and shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by not less than a majority of its members. Any decision or determination reduced to writing and signed by all of the members of the Committee shall be fully effective as if it had been made by a majority vote at a meeting duly called and held. The grant of an option or award shall be effective only if a written agreement shall have been duly executed and delivered by and on behalf of the Company following such grant. The Committee may appoint a Secretary and may make such rules and regulations for the conduct of its business as it shall deem advisable. 4. Eligibility. Incentive Stock Options may only be granted under this Plan to any full or part-time employee (which term as used herein includes, but is not limited to, officers and directors who are also employees) of the Company and of its present and future subsidiary corporations within the meaning of Section 424(f) of the Code (hereinafter called "subsidiaries"). Full or part- time employees, consultants, or independent contractors to the Company or one of its subsidiaries shall be eligible to receive options which do not qualify as Incentive Stock Options and awards. In determining the persons to whom options and awards shall be granted and the number of shares subject to each, the Committee may take into account the nature of services rendered by the respective employees or consultants, their present and potential contributions to the success of the Company and such other factors as the Committee in its discretion shall deem relevant. A person who has been granted an option or award under this Plan may be granted additional options or awards under the Plan if the Committee shall so determine; provided, however, that for Incentive Stock Options granted after December 31, 1986, to the extent the aggregate fair market value (determined at the time the Incentive Stock Option is granted) of the Common Shares with respect to which all Incentive Stock Options are exercisable for the first time by an employee during any calendar year (under all 2 plans described in subsection (d) of Section 422 of the Code of his employer corporation and its parent and subsidiary corporations) exceeds $100,000, such options shall be treated as options which do not qualify as Incentive Stock Options. Nothing in the Plan or in any agreement thereunder shall confer on any employee any right to continue in the employ of the Company or any of its subsidiaries or affect, in any way, the right of the Company or any of its subsidiaries to terminate his or her employment at any time. 5. Price. The option price for all Incentive Stock Options granted under ----- the Plan shall be determined by the Committee but shall not be less than 100% of the fair market value of the Common Shares at the date of grant of such option. The option price for options granted under the Plan which do not qualify as Incentive Stock Options, and, if applicable, the price for all awards shall also be determined by the Committee. For purposes of the preceding sentence and for all other valuation purposes under the Plan, the fair market value of the Common Shares shall be as reasonably determined by the Committee. If on the date of grant of any option or award hereunder the Common Shares are not traded on an established securities market, the Committee shall make a good faith attempt to satisfy the requirements of this Section 5 and in connection therewith shall take such action as it deems necessary or advisable. 6. Term. Each option and award and all rights and obligations thereunder ---- shall expire on the date determined by the Committee and specified in the option or award agreement. The Committee shall be under no duty to provide terms of like duration for options or awards granted under the Plan, but the term of an Incentive Stock Option may not extend more than ten (10) years from the date of grant of such option and the term of options granted under the Plan which do not qualify as Incentive Stock Options may not extend more than fifteen (15) years from the date of granting such option. 7. Exercise of Option or Award. (a) The Committee shall have full and --------------------------- complete authority to determine whether an option or award will be exercisable in full at any time or from time to time during the term thereof, or to provide for the exercise thereof in such installments, upon the occurrence of such events (such as termination of employment for any reason) and at such times during the term of the option as the Committee may determine and specify in the option or award agreement. (b) The exercise of any option or award granted hereunder shall only be effective at such time that the sale of Common Shares pursuant to such exercise will not violate any state or federal securities or other laws. (c) An optionee or grantee electing to exercise an option or award shall give written notice to the Company of such election and of the number of shares subject to such exercise. The full purchase price of such shares shall be tendered with such notice of exercise. Payment shall be made to the Company in 3 cash (including bank check, certified check, personal check, or money order), or, at the discretion of the Committee and as specified by the Committee, (i) by delivering certificates for the Company's Common Shares already owned by the optionee or grantee having a fair market value as of the date of grant equal to the full purchase price of the shares, or (ii) by delivering the optionee's or grantee's promissory notes, which shall provide for interest at a rate not less than the minimum rate required to avoid the imputation of income, original issue discount, or below-market-rate loan pursuant to Sections 483, 1274, or 7872 of the Code or any successor provisions thereto, or (iii) a combination of cash, the optionee's or grantee's promissory note and such shares. The fair market value of such tendered shares shall be determined as provided in Section 5 herein. The optionee's or grantee's promissory note shall be a full recourse liability of the optionee and may, at the discretion of the Committee, be secured by a pledge of the shares being purchased. Until such person has been issued the shares subject to such exercise, he or she shall possess no rights as a shareholder with respect to such shares. 8. Performance Awards. The Committee is further authorized to grant ------------------ Performance awards. Subject to the terms of this Plan and any applicable award agreement, Performance awards granted under the Plan (i) may be denominated or payable in cash, Common Shares (including, without limitation, restricted stock), other securities, other awards, or other property and (ii) shall confer on the holder thereof rights valued as determined by the Committee, in its discretion, and payable to, or exercisable by, the holder of the Performance awards, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee, in its discretion, shall establish. Subject to the terms of this Plan and any applicable award agreement, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance award granted, and the amount of any payment or transfer to be made by the grantee and by the Company under any Performance award shall be determined by the Committee. 9. Income Tax Withholding and Tax Bonuses. In order to comply with all -------------------------------------- applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal or state payroll, withholding, income, or other taxes, which are the sole and absolute responsibility of an optionee or grantee under the Plan, are withheld or collected from such optionee or grantee. In order to assist an optionee or grantee in paying all federal and state taxes to be withheld or collected upon exercise of an option or award which does not qualify as an Incentive Stock Option hereunder, the Committee, in its absolute discretion and subject to such additional terms and conditions as it may adopt, shall permit the optionee or grantee to satisfy such tax obligations by (i) electing to have the Company withhold a portion of the shares otherwise to be delivered upon exercise of such option or award with a fair market value, determined in accordance with Section 5 herein, equal to such taxes or (ii) delivering to the Company Common Shares other than the shares 4 issuable upon exercise of such option or award with a fair market value, determined in accordance with Section 5, equal to such taxes. 10. Additional Restrictions. The Committee shall have full and complete ----------------------- authority to determine whether all or any part of the Common Shares of the Company acquired upon exercise of any of the options or awards granted under the Plan shall be subject to restrictions on the transferability thereof or any other restrictions affecting in any manner the optionee's or grantee's rights with respect thereto, but any such restriction shall be contained in the agreement relating to such options or awards. 11. Ten Percent Shareholder Rule. Notwithstanding any other provision in ---------------------------- the Plan, if at the time an option is otherwise to be granted pursuant to the Plan the optionee owns directly or indirectly (within the meaning of Section 424(d) of the Code) Common Shares of the Company possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporations, if any (within the meaning of Section 422(b)(6) of the Code), then any Incentive Stock Option to be granted to such optionee pursuant to the Plan shall satisfy the requirements of Section 422(c)(5) of the Code, and the option price shall not be less than 110% of the fair market value of the Common Shares of the Company determined as described herein, and such option by its terms shall not be exercisable after the expiration of five (5) years from the date such option is granted. 12. Non-Transferability. No option or award granted under the Plan shall ------------------- be transferable by an optionee or grantee, otherwise than by will or the laws of descent or distribution. Except as otherwise provided in an option or award agreement, during the lifetime of an optionee or grantee, the option shall be exercisable only by such optionee or grantee. 13. Dilution or Other Adjustments. If there shall be any change in the ----------------------------- Common Shares through merger, consolidation, reorganization, recapitalization, dividend in the form of stock (of whatever amount), stock split, or other change in the corporate structure, appropriate adjustments in the Plan and outstanding options and awards shall be made by the Committee. In the event of any such changes, adjustments shall include, where appropriate, changes in the aggregate number of shares subject to the Plan, the number of shares and the price per share subject to outstanding options and awards and the amount payable upon exercise of outstanding awards, in order to prevent dilution or enlargement of option or award rights. 14. Amendment or Discontinuance of Plan. The Board of Directors may amend ----------------------------------- or discontinue the Plan at any time. Subject to the provisions of Section 13 no amendment of the Plan, however, shall without shareholder approval: (i) increase the maximum number of shares under the Plan as provided in Section 2 herein, (ii) decrease the minimum price provided in Section 5 herein, (iii) extend 5 the maximum term under Section 6, or (iv) modify the eligibility requirements for participation in the Plan. The Board of Directors shall not alter or impair any option or award theretofore granted under the Plan without the consent of the holder of the option. 15. Time of Granting. Nothing contained in the Plan or in any resolution ---------------- adopted or to be adopted by the Board of Directors or by the shareholders of the Company, and no action taken by the Committee or the Board of Directors (other than the execution and delivery of an option or award agreement), shall constitute the granting of an option or award hereunder. 16. Effective Date and Termination of the Plan. (a) The Plan was approved ------------------------------------------ by the Board of Directors on February 20, 1998, and shall be approved by the shareholders of the Company within twelve (12) months thereof. (b) Unless the Plan shall have been discontinued as provided in Section 14 hereof, the Plan shall terminate December 31, 2008. No option or award may be granted after such termination, but termination of the Plan shall not, without the consent of the optionee or grantee, alter or impair any rights or obligations under any option or award theretofore granted. 6 EX-10.4 4 LEASE AGREEMENT DATED 4-4-2000 EXHIBIT 10.4 LEASE AGREEMENT THIS LEASE (this "Lease") is made as of April 4, 2000 by and between Genesis Partners, LLC of Bozeman, Montana, herein referred to as "Landlord", and Right Now Technologies, Inc., a Montana corporation, of Bozeman, Montana, hereinafter referred to as "Tenant". WITNESSETH: 1. Leased Property. Landlord hereby leases to Tenant the office building --------------- located on the real property in Gallatin County, Montana more particularly described on attached Exhibit A whose address is 77 Discovery Drive, Bozeman, Montana, consisting of approximately 9184 square feet together with (i) the non- exclusive right of ingress and egress for Tenant and its employees, agents, invitees and contractors between the building and the nearest public streets as depicted on attached Exhibit B, and (ii) the right to use the parking as depicted on attached Exhibit B for its employees, agents, invitees and contractors in common with others (the "premises"). Landlord represents and agrees that the parking lot will provide, at all times during the term of this Lease, a parking ratio of not less than six spaces per 1000 square feet of rentable square footage in buildings whose tenants are or will be using the parking lot. 2. Terms of Lease. The primary term of this Lease shall be for sixty (60) -------------- months commencing on the 1st day of April, 2000, and ending on the 31st day of March, 2005, both dates inclusive, unless sooner terminated as herein provided. 3. Option to Extend. Upon expiration of the primary term of this Lease, ---------------- Tenant is granted an option to extend the term of this Lease for three (3) additional sixty (60) month periods, each (each an "extension term") upon the same terms and conditions as are included in this Lease, subject, however, to renegotiation of the rent provided in paragraph 4 of this Lease. The primary term and the extension terms will be collectively referred to in this Lease as the "term." Tenant shall notify Landlord within not less than one hundred twenty (120) days prior to the expiration of the primary term of this Lease or prior to the expiration of each extension term of Tenant's exercise of its option to extend this Lease, provided that in the circumstances described in paragraph 13, the options to extend the term may be exercised earlier as provided in paragraph 13, and if the option to extend is exercised earlier as provided in paragraph 13, nevertheless, the rental payable as provided in paragraph 4 shall be determined at the time and in the manner provided in paragraph 4 and this paragraph 3. During the following sixty (60) day period, Tenant and Landlord shall negotiate and arrive at an agreement or disagreement of the amount of rent to be paid during the applicable extension term. If Landlord and Tenant agree upon the rent to be paid during the applicable extension term, Landlord and Tenant shall at the end of the sixty (60) day period enter into a new written lease or an amendment agreement setting forth the amount of rental Tenant shall be required to pay pursuant paragraph 4 for the applicable extension term and any other additional terms to which Landlord and Tenant have agreed. If Tenant and Landlord fail to agree upon the rent to be paid during the applicable extension term during the sixty (60) day period of negotiations, a fair market appraisal comparison of comparable properties will be completed by an independent party upon which the Landlord and Tenant may use to negotiate the amount of rent to be paid during the applicable extension term. If Tenant and Landlord fail to agree upon the rent to be paid during the applicable extension term during the sixty (60) day period of negotiations, either Landlord or Tenant may, by written notice to the other party given within the ensuing thirty (30) day period, elect to invoke the arbitration provisions of this Lease to determine the rent Tenant shall be required to pay pursuant to paragraph 4 for the applicable extension term. 4. Rent. Tenant shall pay as rental for the premises for the first year ---- of the primary term of the Lease the sum of $123,984.00; computed at the rate of $13.50 per square foot on 9184 square feet of office space, payable monthly, in advance on the first day of each month (beginning on May 1st, 2000), in installments of $10,332.00 per month. On each anniversary date of this Lease during the primary term, the annual rent shall be adjusted by the percentage increase or decrease in the Base Index as compared to the Comparison Index. The Base Index shall be the Consumer Price Index for December 1999, and the Comparison Index shall be the Consumer Price Index for each December during the primary term of this Lease. For purposes of this paragraph 4, "Consumer Price Index means United States Department of Labor, Bureau of Labor Statistics Consumer Price Index, All Urban Consumers, All Items, 1982-1984=100, or if discontinued, any successor index which, in Landlord's reasonable opinion, is most nearly equivalent to the Consumer Price Index. During any extension term, the rental shall be determined as provided in paragraph 3. Rent shall be paid without 2 notice or demand by Landlord to Landlord at 895 Technology Blvd, Suite 101, Bozeman, Montana 59718 or at such other place as Landlord may direct in writing. 5. Covenants. Tenant hereby acknowledges and agrees: --------- A. Tenant is familiar with the premises. Tenant's taking of possession of the premises shall be conclusive evidence that the premises were in good, clean and sanitary condition, are in all respects satisfactory and acceptable to Tenant, and are in the condition in which Landlord represented the premises to be. B. Tenant will keep the premises in a clean and sanitary condition during the term of this Lease. Landlord shall have no obligation to make any alterations or improvements of any kind in or about the premises other than as set forth in this Lease. Tenant shall repair or replace promptly all damages to the premises due to acts of Tenant, its agents, employees, invitees, or subtenants, reasonable wear and tear excepted. Tenant also shall not cause any waste to be committed in or about the premises; Tenant will keep the premises free and clear of any and all refuse and debris; and Tenant agrees to observe all rules and regulations of the County of Gallatin and State of Montana in any way relating to maintenance, use and occupancy of the premises. C. Tenant will not use or permit anything to be used upon the premises which is likely to deface or damage the premises, or do anything that will increase the rate of insurance thereof (unless Tenant first agrees to pay any increased premiums), or permit anything to be done upon the premises or in the areas, sidewalk or streets adjacent to the premises, which will amount to or create a nuisance. D. Tenant shall make no alterations in or additions to the premises without first obtaining Landlord's written consent, which consent will not be unreasonably withheld, delayed or conditioned. Tenant shall not erect or permit to be erected upon the premises any signs without written consent of Landlord, which consent will not be unreasonably withheld, delayed or conditioned. E. Tenant agrees, with respect to all alterations or improvements to the premises or any part thereof, which Tenant undertakes with written consent of Landlord, that Tenant shall in all instances save Landlord and the premises forever harmless and free from all damages, loss and liability of every kind and character which may be claimed, asserted or charged, including liability to adjacent 3 owners or tenants, based upon the acts or negligence of Tenant or its agents, contractors or employees, for any negligence, or for the failure of any of them to observe and comply with the requirements of the law, including the regulations and the authorities in the City of Bozeman, and Tenant will preserve and hold Landlord and the premises free and clear from all liens or encumbrances for labor and materials furnished. Any and all alterations, additions, and improvements made by Tenant to or upon the premises (with the exception of furnishings, equipment, and removable trade fixtures installed by Tenant) shall, upon installation, be deemed attached and part of the premises, provided however, that if prior to termination of this Lease, or within fifteen (15) days thereafter, Landlord so directs by written notice to Tenant, promptly following said termination of this Lease, Tenant shall remove such of the said additions, improvements, fixtures, and installations placed upon the demised premises by Tenant as shall by designated in said notice from Landlord, and Tenant shall repair any damages occasioned by such removal. Further, in this regard, Tenant hereby agrees that it will, during the continuance of this Lease, keep the premises and interior of the premises in good condition and repair, reasonable wear and tear excepted. F. Tenant may use and occupy the premises for the purpose of a business office and all activities incidental thereto, including the manufacture of software, and not otherwise. Tenant shall not use or knowingly permit any part of the premises to by used for any unlawful purposes and shall comply with all applicable laws and regulations of the County of Gallatin, State of Montana, and the United States of America. G. Tenant agrees that Landlord shall not be liable for any damage or injury to persons or property or for the loss of property sustained by Tenant or by any other person or persons on the premises due to any act of negligence of Tenant. H. Tenant agrees that it will not assign this Lease or sublease any portion of the premises or permit this Lease to transferred by operation of law or otherwise without the written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned; provided, however, that any merger and reorganization of Tenant for the purpose of incorporating under another state law shall not be deemed to be an assignment for purposes of this paragraph and shall not require Landlord's consent, or that any merger or change in control of the Tenant shall not be 4 deemed to be an assignment for purposes of this paragraph and shall not require Landlord's consent. Tenant shall remain responsible under this Lease for any portion of the premises sublet by Tenant (even if Landlord approved the subletting), unless Landlord shall agree otherwise. Any subtenant to whom any portion of the property is sublet shall agree to abide by the provisions of this Lease which are applicable to the sublet portion of the premises, before Landlord will be required to consent to the proposed subleasing of any portion of the premises. I. Tenant will permit Landlord, at all reasonable times and after reasonable notice to Tenant at Landlord's sole risk and expense and in a manner that causes the least practical disruption to Tenant, to enter upon the premises (i) to inspect their condition and to make reasonable and necessary repairs for the protection and preservation of the premises, (ii) to ascertain whether Tenant has performed its covenants under this Lease, and (iii) to show the premises to persons who may wish to rent the premises after the expiration of the term of this Lease or to purchase the premises, provided that any showing of the premises to persons who may wish to rent the premises shall be only during the last year of the term of the Lease. J. Tenant, upon leaving the premises, shall at its own expense, remove all dirt, rubbish, and refuse and upon failure to do so, Landlord may immediately, without further notice, do so at Tenant's expense. Tenant shall immediately pay Landlord's expenses upon receipt of a bill for the same from Landlord. 6. Default and Landlord's Rights. If the premises shall be deserted or ----------------------------- vacated, or if proceedings are commenced against Tenant for the appointment of a trustee or receiver of a substantial portion of Tenant's property, or there shall be a default in payment of any rent for more than five (5) days after written notice of such default from Landlord, or there shall be a default in the performance or any other covenant, agreement, condition, rule or regulation herein contained, or hereafter established with Tenant's consent, which shall continue for more than thirty (30) days (or, if the default is not curable within thirty (30) days and if Tenant begins to cure the default within such thirty (30) day period and diligently pursues curing the same, then for such for additional period as shall be reasonably necessary to cure the default) after Tenant's receipt of written notice of such default from Landlord, Tenant's rights in this Lease (if Landlord so elects, and such election is reserved) shall thereupon terminate and end without the necessity for any further notice, and 5 Landlord shall have the right to re-enter and repossess the premises in the manner permitted by law and dispossess or remove there from Tenant or other occupants thereof and their effects without being liable to any prosecution or action therefore. Landlord may likewise, at Landlord's option, and in addition to any other remedies which Landlord may have upon default, let and relet the premises in whole or in part, altering, changing or subdividing the same as in its reasonable judgment may accomplish the best rental results, and upon such terms and for such length of time, whether lesser or greater than the unexpired portion of the term of this Lease, as Landlord may reasonably see fit, and Tenant shall be liable to Landlord for any deficiency between the remaining unpaid rental and the rental so procured by Landlord for the period of said letting or reletting which is during the remaining term of this Lease and shall further be liable for the reasonable costs of reletting and alterations or changes required to enable Landlord to let and relet the premises, the deficiency and costs not to exceed, however, the balance of the unpaid rental due from tenant for the remaining term of the Lease. Landlord any institute action for the whole of any such deficiency immediately upon effecting a letting or reletting and shall not thereafter be precluded from further like action in the event such letting or reletting shall not cover the entire unexpired portion of the term hereof, or Landlord may monthly, or at such greater intervals as it may see fit, require Tenant to pay said deficiency then existing, and Tenant agrees to pay said deficiency to Landlord from time to time when called upon by Landlord to do so. Should this Lease not be terminated, Landlord may, notwithstanding such letting or reletting, at any time thereafter elect to terminate it. Tenant, upon termination as herein provided, will yield quiet and peaceful possession to Landlord, subject to any letting or reletting Landlord has effected of the premises. If Landlord shall give the notice of termination as herein provided, then, at the expiration of such period, this Lease shall terminate as completely as if that were the date herein fixed for the expiration of the term of this Lease, and Tenant shall then surrender the premises to Landlord. 7. No Waiver of Breach. Tenant agrees that no consent, expressed or ------------------- implied, by Landlord to any breach of Tenant's covenants or agreements shall be deemed a waiver of any succeeding breach. 8. Notice. It is agreed that all notices herein required to be given shall ------ be effective upon mailing, postage prepaid, addressed to Landlord at 895 Technology Blvd, Suite 101 Bozeman, Montana 59718 or addressed to Tenant at 77 Discovery Drive, Bozeman, 6 Montana or such other place as either may designate in writing to the other. In addition, any notice from Landlord to Tenant relating to this Lease or the premises shall be deemed duly served if personally delivered to an officer of Tenant at the premises. 9. Surrender Upon Termination. Tenant shall, upon termination of the -------------------------- term, peacefully and quietly surrender the premises to Landlord in as good condition as it was at the beginning, reasonable use and wear and damage by the elements excepted. Tenant shall remove all of its personal property and trade fixtures (repairing any damage to the premises such removal causes) so that Landlord can repossess and enjoy the premises not later than noon on the day upon which the term ends, whether upon notice or by holdover or otherwise. Landlord shall have the right to enforce this covenant by ejectment, for damages, or for breach of any other condition or covenant of this Lease. 10. Peaceful Possession. Landlord covenants and agrees, at its sole ------------------- expense, that the exterior, structure, the roof and the heating, ventilating, air conditioning, electrical, plumbing and all utility systems on or in the premises shall be maintained in good repair and tenantable condition, excepting damage resulting from neglect or intentional acts of Tenant, its agents, employees, contractors and invitees. So long as Tenant pays the rent and performs the covenants and agreements herein contained, Tenant shall peacefully and quietly hold the premises for the primary term and any extensions thereof. 11. Time of Essence. Time is of the essence of this Lease with respect to --------------- the performance by Tenant and Landlord of their obligations hereunder. 12. Attorney's Fees. In the event any action to enforce any of the terms --------------- of this Lease is brought, the prevailing party shall be entitled to its reasonable attorney's fees as provided in paragraph 25. 13. Liability - Premises. Landlord shall not be responsible or liable (i) -------------------- for any personal injury to Tenant or any other person on the premises, or for injury or damage to personal property or improvements of Tenant or of any third party on the premises unless such injury or damage is caused by the neglect or omissions of Landlord, its agents or employees; (ii) for injury or damage caused by the neglect or omissions of Tenant or its agents, contractors, invitees or employees; or (iii) on account of any inconvenience or annoyance or damage caused by fire, explosion, earthquake, 7 flood or other causes beyond the control of Landlord. Tenant will obtain general liability insurance in an amount of not less than $1,000,000 on which Landlord shall be named as an additional insured. If Tenant shall sublet any portion of the premises, the subtenant shall also furnish the general liability insurance required of Tenant or be covered under Tenant's policy. In addition, Tenant will at all times hold Landlord harmless from any claim or damages by reason of any personal injury, property damage, or otherwise, arising from its operation or use of the premises or any of Tenant's equipment used in connection therewith, provided the claim or damage is not caused by negligence or omission of Landlord, its agents, contractors or employees. Landlord shall carry, at its sole expense, all risk casualty insurance, covering the premises, in the amount equal to the full replacement cost of the premises. The policy shall be endorsed so that it may be terminated or amended only upon not less than thirty (30) days prior written notice to Tenant. The policy shall contain no co-insurance clause, a deductible amount not exceeding $5,000, and the insurance company's consent to the waivers of subrogation set forth in the next sentence. Landlord waives any claims it may have against Tenant and any rights to grant subrogation rights to others for any loss, damage or claim which is covered by Landlord's insurance. In the event that the premises shall be rendered wholly or partially untenantable by fire, explosion, earthquake, Act of God, or any other cause beyond the control of Landlord (collectively, the "casualties"), Landlord (i) shall rebuild and restore the premises as soon as reasonably practicable to the premises' former condition and use but only (A) to the extent of the insurance proceeds Landlord receives, and (B) if the casualties do not occur during the last two (2) years of the term (and for this purpose the term shall include all extension terms Tenant notifies Landlord it will exercise on or before thirty (30) days after the occurrence of any of the casualties), or (ii) in circumstances not described in clause (ii) may, at its option, either terminate this Lease by written notice given to Tenant within sixty (60) days after the casualty or commence to repair the premises within sixty (60) days after the casualty. If Landlord shall elect or be required to repair the premises, the rental hereunder shall be abated in proportion to the part of the premises that are untenantable, and no rental shall be payable hereunder for the period that said premises shall be wholly untenantable, provided that in the event any of the casualties is caused by the carelessness, negligence or improper conduct of Tenant, or of Tenant's agents, employees, contractors or invitees, the rental shall not be so abated. 8 All fixtures or improvements placed on the premises by Tenant, which shall be damaged or destroyed, shall be repaired and replaced by Tenant at its own expense and not at the expense of Landlord. If any of the glass or plate glass in the premised shall be damaged or become broken from the inside, Tenant shall replace, at Tenant's own cost and expense, all such glass or plate glass broken. If the glass is damaged or broken from the outside, Landlord shall replace the same at its own cost and expense. 14. Repairs and Maintenance. Landlord shall bear the entire expense of all ----------------------- repairs, maintenance, alterations, or improvements to the basic structure (exterior walls, roof, heating, ventilating, air conditioning, electrical, plumbing and other systems on the premises). Landlord shall, in addition, bear the entire expense for the repair and maintenance of the parking area, including landscaping and keeping the parking area free of rubbish, ice and snow. Tenant shall pay at its own expense, all repairs, maintenance, and alterations of Tenant installed fixtures or improvements and utilities. 15. Utilities, Taxes Etc. Tenant shall pay for all telephone, water/sewer, -------------------- electricity, natural gas, fire system monitoring, and janitorial services used in the operation of the premises. Tenant agrees to pay for replacement of light bulbs. Landlord shall pay for all real property taxes and assessments levied and assessed against the premises and for snow removal and lawn maintenance. 16. No Smoking Policy. There will be no smoking allowed anywhere in the ----------------- premises by anyone. It will be Tenant's responsibility to convey to and enforce this policy by its employees, agents and all other invitees. 17. Paragraph Headings. The paragraph headings in this instrument are for ------------------ convenience only and do not limit or construe the contents or any paragraphs. 18. Severability. It is the intent of the parties that if a part of this ------------ Lease is invalid, all valid parts that are severable from the invalid part shall remain in effect. If a part of this Lease is invalid in one or more of it applications, that part remains in effect in all valid applications that are severable from the invalid applications. 19. Landlord's Liability. The term "Landlord" as used herein shall mean -------------------- only the owner or owners at the time in question of the premises. In the event of any transfer of such title or interest, 9 Landlord herein named (and in case of any subsequent transfers the then grantor) shall be relieved from and after the date of such transfer of all liabilities as respects Landlord's obligations thereafter to be performed, provided that any funds in the hands of Landlord or the then grantor at time of such transfer in which Tenant has an interest shall be delivered to the grantee, who shall assume the obligations of Landlord or the then grantor to Tenant with respect to those funds. The obligations contained in this Lease to be performed by Landlord shall, subject to the foregoing provisions of this paragraph 19, be binding on Landlord's successors and assigns. 20. Supersedes. This Lease supersedes all prior agreements between the ---------- parties. 21. Exercise of Rights. The omission of Landlord or Tenant to exercise any ------------------ right provided for on the default of the other at any time shall not preclude Landlord or Tenant from the exercise of such right at any subsequent default of the other or be deemed a waiver thereof or the right to do so. 22. Binding Effect. This Lease shall be binding upon and inure to the -------------- benefit of the heirs, successors, administrators, and permitted assigns of the parties hereto. 23. Security Deposit. At the execution of this Lease, Tenant will pay ---------------- Landlord the sum of $10,000 as a security deposit. Landlord shall hold and use the security deposit as security for Tenant's performance of its obligations under this Lease. At the termination of this Lease and if at that time Tenant has fully complied with all of its obligations under this Lease, Landlord shall return the security deposit, without interest (or the part of the security deposit which Landlord has not applied to satisfy Tenant's obligations under this Lease), to Tenant 24. Governing Law. This Agreement and all matters relating thereto shall ------------- be governed by the laws of Montana.. 25. Arbitration. Any dispute under this Lease shall be decided by binding ----------- arbitration initiated and conducted in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA"). The parties shall decide upon the arbitrator. If the parties are unable to decide upon the arbitrator within ten (10) days after a notice from one party to the other that a dispute exists under this Lease, the AAA shall select the arbitrator. The decision of the arbitrator shall be binding. All costs of arbitration shall be borne by the party the arbitrator 10 determines to be the non-prevailing party. Such costs shall include the costs and reasonable attorneys' fees of the prevailing party. 11 IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date and year first written above. GENESIS PARTNERS, LLC - Landlord By:_________________________________________ /s/ Steve Daines 4/4/00 - -------------------------------------------- Steve Daines, member - Landlord date /s/ Clair Daines 4/4/00 - -------------------------------------------- Clair Daines, member - Landlord date /s/ Greg Gianforte 4/6/00 - -------------------------------------------- Greg Gianforte, member - Landlord date Right Now Technologies, Inc. - Tenant By /s/ Susan Carstensen 4/6/00 ----------------------------------------- Susan Carstensen date Chief Financial Officer 12 Addendum to Lease Landlord will provide a $2,500 budget per building for inside telecommunications and computer wiring to each building 1 and building 2. Any overage to be paid by Tenant. Roger's telephone should bill Landlord and Landlord will bill Tenant for any overage. Other items considered Tenant improvements and to be billed separately to Tenant include: 1. Security system 2. Larger internal windows in building 1 3. Movement of the wiring closet doors after the design was completed 4. Upgraded doors on wiring closets 5. Adding and removing the false floor in the computer room 6. Any future design changes as of March 22, 2000 Items not considered Tenant improvements and to be paid for by Landlord include: 1. Expanded second floor bathrooms 2. Reception area for building 2 13 EX-10.5 5 LEASE AGREEMENT DATED 4-4-2000 Exhibit 10.5 LEASE AGREEMENT THIS LEASE (this "Lease") is made as of April 4, 2000 by and between Genesis Partners, LLC of Bozeman, Montana, herein referred to as "Landlord", and Right Now Technologies, Inc., a Montana corporation, of Bozeman, Montana, hereinafter referred to as "Tenant". WITNESSETH: 1. Leased Property. Landlord hereby leases to Tenant the office building --------------- located on the real property in Gallatin County, Montana more particularly described on attached Exhibit A whose address is 45 Discovery Drive, Bozeman, Montana, consisting of approximately 9184 square feet together with (i) the non- exclusive right of ingress and egress for Tenant and its employees, agents, invitees and contractors between the building and the nearest public streets as depicted on attached Exhibit B, and (ii) the right to use the parking as depicted on attached Exhibit B for its employees, agents, invitees and contractors in common with others (the "premises"). Landlord represents and agrees that the parking lot will provide, at all times during the term of this Lease, a parking ratio of not less than five spaces per 1000 square feet of rentable square footage in buildings whose tenants are or will be using the parking lot. 2. Terms of Lease. The primary term of this Lease shall be for sixty (60) -------------- months commencing on the 1st day of May, 2000, and ending on the 30th day of April, 2005, both dates inclusive, unless sooner terminated as herein provided. 3. Option to Extend. Upon expiration of the primary term of this Lease, ---------------- Tenant is granted an option to extend the term of this Lease for three (3) additional sixty (60) month periods, each (each an "extension term") upon the same terms and conditions as are included in this Lease, subject, however, to renegotiation of the rent provided in paragraph 4 of this Lease. The primary term and the extension terms will be collectively referred to in this Lease as the "term." Tenant shall notify Landlord within not less than one hundred twenty (120) days prior to the expiration of the primary term of this Lease or prior to the expiration of each extension term of Tenant's exercise of its option to extend this Lease, provided that in the circumstances described in paragraph 13, the options to extend the term may be exercised earlier as provided in paragraph 13, and if the option to extend is exercised earlier as provided in paragraph 13, nevertheless, the rental payable as provided in paragraph 4 shall be determined at the time and in the manner provided in paragraph 4 and this paragraph 3. During the following sixty (60) day period, Tenant and Landlord shall negotiate and arrive at an agreement or disagreement of the amount of rent to be paid during the applicable extension term. If Landlord and Tenant agree upon the rent to be paid during the applicable extension term, Landlord and Tenant shall at the end of the sixty (60) day period enter into a new written lease or an amendment agreement setting forth the amount of rental Tenant shall be required to pay pursuant paragraph 4 for the applicable extension term and any other additional terms to which Landlord and Tenant have agreed. If Tenant and Landlord fail to agree upon the rent to be paid during the applicable extension term during the sixty (60) day period of negotiations, a fair market appraisal comparison of comparable properties will be completed by an independent party upon which the Landlord and Tenant may use to negotiate the amount of rent to be paid during the applicable extension term. If Tenant and Landlord fail to agree upon the rent to be paid during the applicable extension term during the sixty (60) day period of negotiations, either Landlord or Tenant may, by written notice to the other party given within the ensuing thirty (30) day period, elect to invoke the arbitration provisions of this Lease to determine the rent Tenant shall be required to pay pursuant to paragraph 4 for the applicable extension term. 4. Rent. Tenant shall pay as rental for the premises for the first year ----- of the primary term of the Lease the sum of $123,984.00; computed at the rate of $13.50 per square foot on 9184 square feet of office space, payable monthly, in advance on the first day of each month (beginning on May 1st, 2000), in installments of $10,332.00 per month. On each anniversary date of this Lease during the primary term, the annual rent shall be adjusted by the percentage increase or decrease in the Base Index as compared to the Comparison Index. The Base Index shall be the Consumer Price Index for December 1999, and the Comparison Index shall be the Consumer Price Index for each December during the primary term of this Lease. For purposes of this paragraph 4, "Consumer Price Index means United States Department of Labor, Bureau of Labor Statistics Consumer Price Index, All Urban Consumers, All Items, 1982-1984=100, or if discontinued, any successor index which, in Landlord's reasonable opinion, is most nearly equivalent to the Consumer Price Index. During any extension term, the rental shall be determined as provided in paragraph 3. Rent shall be paid without 2 notice or demand by Landlord to Landlord at 895 Technology Blvd, Suite 101, Bozeman, Montana 59718 or at such other place as Landlord may direct in writing. 5. Covenants. Tenant hereby acknowledges and agrees: --------- A. Tenant is familiar with the premises. Tenant's taking of possession of the premises shall be conclusive evidence that the premises were in good, clean and sanitary condition, are in all respects satisfactory and acceptable to Tenant, and are in the condition in which Landlord represented the premises to be. B. Tenant will keep the premises in a clean and sanitary condition during the term of this Lease. Landlord shall have no obligation to make any alterations or improvements of any kind in or about the premises other than as set forth in this Lease. Tenant shall repair or replace promptly all damages to the premises due to acts of Tenant, its agents, employees, invitees, or subtenants, reasonable wear and tear excepted. Tenant also shall not cause any waste to be committed in or about the premises; Tenant will keep the premises free and clear of any and all refuse and debris; and Tenant agrees to observe all rules and regulations of the County of Gallatin and State of Montana in any way relating to maintenance, use and occupancy of the premises. C. Tenant will not use or permit anything to be used upon the premises which is likely to deface or damage the premises, or do anything that will increase the rate of insurance thereof (unless Tenant first agrees to pay any increased premiums), or permit anything to be done upon the premises or in the areas, sidewalk or streets adjacent to the premises, which will amount to or create a nuisance. D. Tenant shall make no alterations in or additions to the premises without first obtaining Landlord's written consent, which consent will not be unreasonably withheld, delayed or conditioned. Tenant shall not erect or permit to be erected upon the premises any signs without written consent of Landlord, which consent will not be unreasonably withheld, delayed or conditioned. E. Tenant agrees, with respect to all alterations or improvements to the premises or any part thereof, which Tenant undertakes with written consent of Landlord, that Tenant shall in all instances save Landlord and the premises forever harmless and free from all damages, loss and liability of every kind and character which may be claimed, asserted or charged, including liability to adjacent 3 owners or tenants, based upon the acts or negligence of Tenant or its agents, contractors or employees, for any negligence, or for the failure of any of them to observe and comply with the requirements of the law, including the regulations and the authorities in the City of Bozeman, and Tenant will preserve and hold Landlord and the premises free and clear from all liens or encumbrances for labor and materials furnished. Any and all alterations, additions, and improvements made by Tenant to or upon the premises (with the exception of furnishings, equipment, and removable trade fixtures installed by Tenant) shall, upon installation, be deemed attached and part of the premises, provided however, that if prior to termination of this Lease, or within fifteen (15) days thereafter, Landlord so directs by written notice to Tenant, promptly following said termination of this Lease, Tenant shall remove such of the said additions, improvements, fixtures, and installations placed upon the demised premises by Tenant as shall by designated in said notice from Landlord, and Tenant shall repair any damages occasioned by such removal. Further, in this regard, Tenant hereby agrees that it will, during the continuance of this Lease, keep the premises and interior of the premises in good condition and repair, reasonable wear and tear excepted. F. Tenant may use and occupy the premises for the purpose of a business office and all activities incidental thereto, including the manufacture of software, and not otherwise. Tenant shall not use or knowingly permit any part of the premises to by used for any unlawful purposes and shall comply with all applicable laws and regulations of the County of Gallatin, State of Montana, and the United States of America. G. Tenant agrees that Landlord shall not be liable for any damage or injury to persons or property or for the loss of property sustained by Tenant or by any other person or persons on the premises due to any act of negligence of Tenant. H. Tenant agrees that it will not assign this Lease or sublease any portion of the premises or permit this Lease to transferred by operation of law or otherwise without the written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned; provided, however, that any merger and reorganization of Tenant for the purpose of incorporating under another state law shall not be deemed to be an assignment for purposes of this paragraph and shall not require Landlord's consent, or that any merger or change in control of the Tenant shall not be 4 deemed to be an assignment for purposes of this paragraph and shall not require Landlord's consent. Tenant shall remain responsible under this Lease for any portion of the premises sublet by Tenant (even if Landlord approved the subletting), unless Landlord shall agree otherwise. Any subtenant to whom any portion of the property is sublet shall agree to abide by the provisions of this Lease which are applicable to the sublet portion of the premises, before Landlord will be required to consent to the proposed subleasing of any portion of the premises. I. Tenant will permit Landlord, at all reasonable times and after reasonable notice to Tenant at Landlord's sole risk and expense and in a manner that causes the least practical disruption to Tenant, to enter upon the premises (i) to inspect their condition and to make reasonable and necessary repairs for the protection and preservation of the premises, (ii) to ascertain whether Tenant has performed its covenants under this Lease, and (iii) to show the premises to persons who may wish to rent the premises after the expiration of the term of this Lease or to purchase the premises, provided that any showing of the premises to persons who may wish to rent the premises shall be only during the last year of the term of the Lease. J. Tenant, upon leaving the premises, shall at its own expense, remove all dirt, rubbish, and refuse and upon failure to do so, Landlord may immediately, without further notice, do so at Tenant's expense. Tenant shall immediately pay Landlord's expenses upon receipt of a bill for the same from Landlord. 6. Default and Landlord's Rights. If the premises shall be deserted or ----------------------------- vacated, or if proceedings are commenced against Tenant for the appointment of a trustee or receiver of a substantial portion of Tenant's property, or there shall be a default in payment of any rent for more than five (5) days after written notice of such default from Landlord, or there shall be a default in the performance or any other covenant, agreement, condition, rule or regulation herein contained, or hereafter established with Tenant's consent, which shall continue for more than thirty (30) days (or, if the default is not curable within thirty (30) days and if Tenant begins to cure the default within such thirty (30) day period and diligently pursues curing the same, then for such for additional period as shall be reasonably necessary to cure the default) after Tenant's receipt of written notice of such default from Landlord, Tenant's rights in this Lease (if Landlord so elects, and such election is reserved) shall thereupon terminate and end without the necessity for any further notice, and 5 Landlord shall have the right to re-enter and repossess the premises in the manner permitted by law and dispossess or remove there from Tenant or other occupants thereof and their effects without being liable to any prosecution or action therefore. Landlord may likewise, at Landlord's option, and in addition to any other remedies which Landlord may have upon default, let and relet the premises in whole or in part, altering, changing or subdividing the same as in its reasonable judgment may accomplish the best rental results, and upon such terms and for such length of time, whether lesser or greater than the unexpired portion of the term of this Lease, as Landlord may reasonably see fit, and Tenant shall be liable to Landlord for any deficiency between the remaining unpaid rental and the rental so procured by Landlord for the period of said letting or reletting which is during the remaining term of this Lease and shall further be liable for the reasonable costs of reletting and alterations or changes required to enable Landlord to let and relet the premises, the deficiency and costs not to exceed, however, the balance of the unpaid rental due from tenant for the remaining term of the Lease. Landlord any institute action for the whole of any such deficiency immediately upon effecting a letting or reletting and shall not thereafter be precluded from further like action in the event such letting or reletting shall not cover the entire unexpired portion of the term hereof, or Landlord may monthly, or at such greater intervals as it may see fit, require Tenant to pay said deficiency then existing, and Tenant agrees to pay said deficiency to Landlord from time to time when called upon by Landlord to do so. Should this Lease not be terminated, Landlord may, notwithstanding such letting or reletting, at any time thereafter elect to terminate it. Tenant, upon termination as herein provided, will yield quiet and peaceful possession to Landlord, subject to any letting or reletting Landlord has effected of the premises. If Landlord shall give the notice of termination as herein provided, then, at the expiration of such period, this Lease shall terminate as completely as if that were the date herein fixed for the expiration of the term of this Lease, and Tenant shall then surrender the premises to Landlord. 7. No Waiver of Breach. Tenant agrees that no consent, expressed or ------------------- implied, by Landlord to any breach of Tenant's covenants or agreements shall be deemed a waiver of any succeeding breach. 8. Notice. It is agreed that all notices herein required to be given shall ------ be effective upon mailing, postage prepaid, addressed to Landlord at 895 Technology Blvd, Suite 101 Bozeman, 6 Montana 59718 or addressed to Tenant at 45 Discovery Drive, Bozeman, Montana or such other place as either may designate in writing to the other. In addition, any notice from Landlord to Tenant relating to this Lease or the premises shall be deemed duly served if personally delivered to an officer of Tenant at the premises. 9. Surrender Upon Termination. Tenant shall, upon termination of the -------------------------- term, peacefully and quietly surrender the premises to Landlord in as good condition as it was at the beginning, reasonable use and wear and damage by the elements excepted. Tenant shall remove all of its personal property and trade fixtures (repairing any damage to the premises such removal causes) so that Landlord can repossess and enjoy the premises not later than noon on the day upon which the term ends, whether upon notice or by holdover or otherwise. Landlord shall have the right to enforce this covenant by ejectment, for damages, or for breach of any other condition or covenant of this Lease. 10. Peaceful Possession. Landlord covenants and agrees, at its sole ------------------- expense, that the exterior, structure, the roof and the heating, ventilating, air conditioning, electrical, plumbing and all utility systems on or in the premises shall be maintained in good repair and tenantable condition, excepting damage resulting from neglect or intentional acts of Tenant, its agents, employees, contractors and invitees. So long as Tenant pays the rent and performs the covenants and agreements herein contained, Tenant shall peacefully and quietly hold the premises for the primary term and any extensions thereof. 11. Time of Essence. Time is of the essence of this Lease with respect to --------------- the performance by Tenant and Landlord of their obligations hereunder. 12. Attorney's Fees. In the event any action to enforce any of the terms --------------- of this Lease is brought, the prevailing party shall be entitled to its reasonable attorney's fees as provided in paragraph 25. 13. Liability - Premises. Landlord shall not be responsible or liable (i) -------------------- for any personal injury to Tenant or any other person on the premises, or for injury or damage to personal property or improvements of Tenant or of any third party on the premises unless such injury or damage is caused by the neglect or omissions of Landlord, its agents or employees; (ii) for injury or damage caused by the neglect or omissions of Tenant or its agents, contractors, invitees or employees; or (iii) on account of any inconvenience or annoyance or damage caused by fire, explosion, earthquake, 7 flood or other causes beyond the control of Landlord. Tenant will obtain general liability insurance in an amount of not less than $1,000,000 on which Landlord shall be named as an additional insured. If Tenant shall sublet any portion of the premises, the subtenant shall also furnish the general liability insurance required of Tenant or be covered under Tenant's policy. In addition, Tenant will at all times hold Landlord harmless from any claim or damages by reason of any personal injury, property damage, or otherwise, arising from its operation or use of the premises or any of Tenant's equipment used in connection therewith, provided the claim or damage is not caused by negligence or omission of Landlord, its agents, contractors or employees. Landlord shall carry, at its sole expense, all risk casualty insurance, covering the premises, in the amount equal to the full replacement cost of the premises. The policy shall be endorsed so that it may be terminated or amended only upon not less than thirty (30) days prior written notice to Tenant. The policy shall contain no co-insurance clause, a deductible amount not exceeding $5,000, and the insurance company's consent to the waivers of subrogation set forth in the next sentence. Landlord waives any claims it may have against Tenant and any rights to grant subrogation rights to others for any loss, damage or claim which is covered by Landlord's insurance. In the event that the premises shall be rendered wholly or partially untenantable by fire, explosion, earthquake, Act of God, or any other cause beyond the control of Landlord (collectively, the "casualties"), Landlord (i) shall rebuild and restore the premises as soon as reasonably practicable to the premises' former condition and use but only (A) to the extent of the insurance proceeds Landlord receives, and (B) if the casualties do not occur during the last two (2) years of the term (and for this purpose the term shall include all extension terms Tenant notifies Landlord it will exercise on or before thirty (30) days after the occurrence of any of the casualties), or (ii) in circumstances not described in clause (ii) may, at its option, either terminate this Lease by written notice given to Tenant within sixty (60) days after the casualty or commence to repair the premises within sixty (60) days after the casualty. If Landlord shall elect or be required to repair the premises, the rental hereunder shall be abated in proportion to the part of the premises that are untenantable, and no rental shall be payable hereunder for the period that said premises shall be wholly untenantable, provided that in the event any of the casualties is caused by the carelessness, negligence or improper conduct of Tenant, or of Tenant's agents, employees, contractors or invitees, the rental shall not be so abated. 8 All fixtures or improvements placed on the premises by Tenant, which shall be damaged or destroyed, shall be repaired and replaced by Tenant at its own expense and not at the expense of Landlord. If any of the glass or plate glass in the premised shall be damaged or become broken from the inside, Tenant shall replace, at Tenant's own cost and expense, all such glass or plate glass broken. If the glass is damaged or broken from the outside, Landlord shall replace the same at its own cost and expense. 14. Repairs and Maintenance. Landlord shall bear the entire expense of all ----------------------- repairs, maintenance, alterations, or improvements to the basic structure (exterior walls, roof, heating, ventilating, air conditioning, electrical, plumbing and other systems on the premises). Landlord shall, in addition, bear the entire expense for the repair and maintenance of the parking area, including landscaping and keeping the parking area free of rubbish, ice and snow. Tenant shall pay at its own expense, all repairs, maintenance, and alterations of Tenant installed fixtures or improvements and utilities. 15. Utilities, Taxes Etc. Tenant shall pay for all telephone, water/sewer, -------------------- electricity, natural gas, fire system monitoring, and janitorial services used in the operation of the premises. Tenant agrees to pay for replacement of light bulbs. Landlord shall pay for all real property taxes and assessments levied and assessed against the premises and for snow removal and lawn maintenance. 16. No Smoking Policy. There will be no smoking allowed anywhere in the ----------------- premises by anyone. It will be Tenant's responsibility to convey to and enforce this policy by its employees, agents and all other invitees. 17. Paragraph Headings. The paragraph headings in this instrument are for ------------------ convenience only and do not limit or construe the contents or any paragraphs. 18. Severability. It is the intent of the parties that if a part of this ------------ Lease is invalid, all valid parts that are severable from the invalid part shall remain in effect. If a part of this Lease is invalid in one or more of it applications, that part remains in effect in all valid applications that are severable from the invalid applications. 19. Landlord's Liability. The term "Landlord" as used herein shall mean -------------------- only the owner or owners at the time in question of the premises. In the event of any transfer of such title or interest, 9 Landlord herein named (and in case of any subsequent transfers the then grantor) shall be relieved from and after the date of such transfer of all liabilities as respects Landlord's obligations thereafter to be performed, provided that any funds in the hands of Landlord or the then grantor at time of such transfer in which Tenant has an interest shall be delivered to the grantee, who shall assume the obligations of Landlord or the then grantor to Tenant with respect to those funds. The obligations contained in this Lease to be performed by Landlord shall, subject to the foregoing provisions of this paragraph 19, be binding on Landlord's successors and assigns. 20. Supersedes. This Lease supersedes all prior agreements between the ---------- parties. 21. Exercise of Rights. The omission of Landlord or Tenant to exercise any ------------------ right provided for on the default of the other at any time shall not preclude Landlord or Tenant from the exercise of such right at any subsequent default of the other or be deemed a waiver thereof or the right to do so. 22. Binding Effect. This Lease shall be binding upon and inure to the -------------- benefit of the heirs, successors, administrators, and permitted assigns of the parties hereto. 23. Security Deposit. At the execution of this Lease, Tenant will pay ---------------- Landlord the sum of $10,000 as a security deposit. Landlord shall hold and use the security deposit as security for Tenant's performance of its obligations under this Lease. At the termination of this Lease and if at that time Tenant has fully complied with all of its obligations under this Lease, Landlord shall return the security deposit, without interest (or the part of the security deposit which Landlord has not applied to satisfy Tenant's obligations under this Lease), to Tenant 24. Governing Law. This Agreement and all matters relating thereto shall ------------- be governed by the laws of Montana. 25. Arbitration. Any dispute under this Lease shall be decided by binding ----------- arbitration initiated and conducted in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA"). The parties shall decide upon the arbitrator. If the parties are unable to decide upon the arbitrator within ten (10) days after a notice from one party to the other that a dispute exists under this Lease, the AAA shall select the arbitrator. The decision of the arbitrator shall be binding. All costs of arbitration shall be borne by the party the arbitrator 10 determines to be the non-prevailing party. Such costs shall include the costs and reasonable attorneys' fees of the prevailing party. 11 IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date and year first written above. GENESIS PARTNERS, LLC - Landlord By:_______________________________________ /s/ Steve Daines 4/4/00 - ------------------------------------------- Steve Daines, member - Landlord date /s/ Clair Daines 4/4/00 - ------------------------------------------- Clair Daines, member - Landlord date /s/ Greg Gianforte 4/6/00 - ------------------------------------------- Greg Gianforte, member - Landlord date Right Now Technologies, Inc. - Tenant By /s/ Susan Carstensen 4/6/00 - ------------------------------------------- Susan Carstensen date Chief Financial Officer 12 EX-10.6 6 EMPLOYMENT AGREEMENT DATED 8-15-1999 Exhibit 10.6 EMPLOYMENT AGREEMENT -------------------- This EMPLOYMENT AGREEMENT (this "Agreement"), is dated as of the 15/th/ day of August, 1999, between JEFF HONEYCOMB, an individual with an address of 6 Antler Pine Road, Sandy Hook, CT 06482 (the "Employee"), and RIGHT NOW TECHNOLOGIES, INC., a Montana corporation with an address of 111 South Grand, Bozeman, MT 59715 (the "Company"). WHEREAS, the Company wishes to employ the Employee as President and Chief Operating Officer, and the Employee desires to accept such employment upon the terms and conditions stated herein; NOW, THEREFORE, in consideration of the promises and of the covenants and agreements set forth herein, the parties hereby agree as follows: 1. Employment and Duties. The Company hereby agrees to employ the --------------------- Employee, and the Employee accepts employment, upon the terms and conditions set forth in the Agreement and the job description attached hereto as Exhibit A for the position of President and Chief Operating Officer. During the term of his employment, the Employee shall diligently and faithfully serve the Company in such capacity. He shall devote his best effort and entire business time, services and attention to the advancement of the Company's business and interest and shall comply with the policies, programs and directions of the Company's Board of Directors and the Chairman. 2. Compensation. In consideration of the services rendered by the ------------ Employee, the Company agrees to compensate him as follows: 1 (a) The Company shall pay to the Employee an annual base salary of $100,000 payable in equal installments on the 15/th/ and last day of every month. (b) The Employee shall, after sixty (60) days of employment, be entitled to benefits comparable to the benefits afforded by the Company to other salaried employees, including vacation and sick leave and coverage under any health, accident, hospitalization, disability, retirement and life insurance plans, programs or policies maintained by the Company. (c) The Employee shall be entitled to reimbursement, in accordance with Company policy, for all reasonable, ordinary and necessary out-of-pocket expenses which he incurs on behalf of the Company in the course of performing his duties hereunder, subject to furnishing appropriate documentation of such expenses in form and substance satisfactory to the Company. The Employee shall be reimbursed for up to $7,000 in moving expenses following the submission of receipts for same. (d) The Employee shall be entitled to an Incentive Bonus (IB) of $25,000 per quarter, commencing with the quarter ended September 30, 1999. The IB will be based on quarterly goals related to revenue and profit. The IB will be paid quarterly on the 15/th/ of the month following the end of each quarter. (e) The Employee shall receive options to purchase 1,100,000 shares of the Company's common stock at an option price of $.30 per share. Following the pending stock split, the Employee shall have 2,200,000 options at an option price of $.30 each. 2 The options will vest in accordance with the terms of an option agreement, the form of which is attached as Exhibit C to this Agreement. 3. Term. Unless terminated at an earlier date in accordance with Section ---- 6 of the Agreement, this Agreement shall commence on the date first above written for the period of one (1) year and shall be renewed automatically thereafter for two successive one (1) year periods, unless either party gives written notice to the other of its intention to allow this Agreement to expire at least thirty (30) days prior to the expiration date of the original term or any other of the two renewal terms. 4. Employee's Covenants. -------------------- (a) During the term of his employment and for a period of one (1) year thereafter, the Employee shall not, directly or indirectly, on his own behalf or on behalf of others: (i) become involved as an employee, consultant, partner, owner or in any other capacity, in any business which involves the marketing, sale or distribution of web customer service software products and which competes with the product lines in the marketing areas targeted by the Company; (ii) solicit any person employed by the Company at the time of termination of the Employee's employment or within the preceding or subsequent six-month period, to leave the employ of the Company or to render services to any business which competes with the business of the Company; or (iii) solicit business from any customers of the Company or persons or entitles providing services or supplying manufactured goods or equipment to the Company at the time of Employee's termination or within the preceding or subsequent six (6) month period. The Employee agrees that the restrictions and agreements contained in this Section 4(a) are reasonable and necessary to protect the legitimate interests of the Company 3 and that any violation of this Section 4(a) will cause irreparable harm to the Company that would not be quantifiable and for which no adequate remedy would exist at law and accordingly injunctive relief shall be available for any violation of this Section 4(a). If the duration or geographical extent of, or business activities covered by this Section 4(a) are in excess of what is valid and enforceable under applicable law, then such provision shall be construed to cover only that duration, geographical extent or activities that are valid and enforceable. The Employee acknowledges the uncertainty of the law in this respect and expressly stipulates that this Agreement be given the construction which renders its provisions valid and enforceable to the maximum extent (not exceed its express terms) possible under applicable law. (b) The Employee acknowledges that some of the information which he will acquire in the course of his employment with the Company concerning the Company policies, business methods, products, systems advertiser lists, marketing programs, ideas, plans concerning business or program development, and other such matters is valuable proprietary information and may constitute trade secrets of the Company. Therefore, the Employee agrees that he shall take all reasonable and necessary steps during the term of his employment and thereafter to safeguard such information, and he shall not disclose the same to any person or firm, except as necessary in the course of performing his duties on behalf of the Company. Further, upon termination of his employment hereunder, the Employee agrees that he will deliver to the Company any and all records, files, lists or other documents containing information within the scope of the foregoing description. 4 (c) During the term of this Agreement, the Employee will promptly reveal to the management of the Company all matters pertaining to staff, members, services, clients and prospective customers or suppliers coming to his attention regarding the operation or administration of the Company or the conduct of its affairs. 5. Cause for Termination of Employment. The following constitute the ----------------------------------- sole grounds on which the Employee's employment hereunder may be terminated by the Company for cause prior to the expiration of the initial term set forth in Section 3 or any extension thereof: (a) Habitual intemperance or addiction to a narcotic, the use of which constitutes criminal conduct under federal and state laws; (b) Disclosure of any confidential information concerning the Company, its computer programs, or any of the Company's customers or suppliers to any person, firm, group, corporation or any other entity, learned during the course of the Employee's employment; (c) Failure to disclose information regarding persons engaged in fraud or dishonesty or any unethical practice which the Employee has reason to know will result in damage to the reputation of the Company; (d) Consistent refusal or failure to perform duties assigned to the Employee by the Board of Directors or the CEO consistent with the nature of the Employee's position; (e) The Employee's refusal or, after appropriate request, failure to perform or comply with any term or condition of his employment required to be performed or complied with by him; 5 (f) The conviction of the Employee of any criminal offense involving moral turpitude, fraud, embezzlement, or forgery; or (g) Conduct reflecting on the integrity and reputation of the Company. 6. Termination of Employment. ------------------------- (a) The Employee's employment hereunder shall continue until either party gives notice to the other party of its intention to terminate. Such notice shall be given at least thirty (30) days prior to the effective date of termination. Either party may terminate this Agreement for any reason whatsoever upon giving thirty (30) days notice prior to the effective date of termination. (b) Notwithstanding the foregoing, the Company may terminate the Employee's employment immediately, without giving notice, if the termination is for cause as provided in Section 5 of this Agreement. 7. Effect of Termination. --------------------- (a) Upon termination of the Employee's employment for any reason whatsoever, all rights and obligations of the parties under this Agreement shall cease, except that (i) the Employee shall be obligated to return to the Company all documents, notes, tapes or other records of contacts and other information concerning Company projects, (ii) the Employee shall continue to be bound by the covenants set forth in Section 4 hereof, and (iii) the Company shall be bound to pay the Employee accrued compensation to the date of termination, as provided in Section 7(b) hereof. (b) In the event of the Employee's termination by the Company without cause, the Employee shall be paid, as severance, twelve (12) months' salary his options shall 6 continue to vest as set forth in the option agreement attached as Exhibit C to this Agreement. 8. Remedies. The Employee acknowledges that any breach by the Employee -------- of the covenants set forth in Section 4 of this Agreement will result in irreparable harm to the Company, and the Employee agrees that the Company shall be entitled to seek equitable relief for any such breach, in addition to any other remedies to which it may be entitled, without the necessity of proving irreparable harm or the inadequacy of money damages. 9. Miscellaneous. ------------- (a) This Agreement may not be assigned by either party hereto. (b) In the event that any provision of this Agreement is found by a court of competent jurisdiction to be invalid or unenforceable, such provision shall be, and shall be deemed to be, modified so as to become valid and enforceable, and the remaining provisions of this Agreement shall not be affected. (c) Failure to insist upon strict compliance with any of the terms, promises or conditions of this Agreement shall not be deemed a waiver of such term, promise or condition, or any other term, promise or condition hereof, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of that right or power at any other time, or of any other right or power hereunder, unless so specifically stated in writing. (d) This Agreement cannot be amended, changed, modified, or discharged except by an agreement in writing signed by both the Company and the Employee. 7 (e) Each of the parties agrees to execute all further instruments and documents and to take all further action as the other party may reasonably request in order to effectuate the terms and purposes of this Agreement. (f) This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Montana. (g) Any and all notices, designations, consents, offers, acceptances, or other communications required to be provided hereunder shall be in writing and delivered, either personally or by courier, or sent by certified mail, to the parties at the addresses first set forth above or such other address as either party may request by notice hereafter, and shall be deemed given upon such delivery. (h) This Agreement, together with the exhibits attached hereto and hereby incorporated into this Agreement by reference, constitute the entire agreement of the parties with respect to such subject matter, whether written or oral. Without limiting the generality of the foregoing, the parties represent that no oral communication made prior to the execution of this Agreement shall in any way add to, delete from, change or modify the terms of this Agreement or their interpretation. (i) The captions at the beginning of the several articles and sections of this Agreement are not part of the terms and conditions of this Agreement but are only guides or labels to assist in locating and reading such articles and sections. They shall be given no effect in construing this Agreement. (j) Except as otherwise herein expressly provided, this Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns, and the Employee, his heirs, executors, administrators and legal representatives. 8 RIGHT NOW TECHNOLOGIES, INC. /s/ Jeff Honeycomb /s/ Greg Gianforte __________________________________ ---------------------------------- JEFF HONEYCOMB BY: Greg R. Gianforte ITS: CEO 9 EX-21.1 7 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 List of Subsidiaries -------------------- RightNow Technologies (UK) Limited, a private limited company, organized under the Companies Act 1985 of England and Wales. EX-23.1 8 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated January 14, 2000 in the Registration Statement (Form S-1) and related Prospectus of RightNow Technologies, Inc. /s/ Ernst & Young LLP Minneapolis, Minnesota April 20, 2000 EX-27.1 9 FINANCIAL DATA SCHEDULE
5 YEAR 3-MOS DEC-31-1999 MAR-31-2000 JAN-01-1999 JAN-01-2000 DEC-31-1999 MAR-31-2000 14,182,845 12,374,291 0 0 2,814,760 4,934,760 229,150 335,976 0 0 16,815,209 17,076,200 571,041 1,151,241 43,908 94,220 17,348,130 18,140,011 3,702,411 6,393,255 7,272 5,347 16,119,622 16,119,622 0 0 20,521 20,746 (4,001,537) (6,919,703) 17,348,130 18,140,011 2,024,541 1,443,110 2,024,541 1,443,110 63,418 166,096 4,438,783 4,473,305 0 0 0 0 0 0 (2,444,994) (3,028,422) 0 0 (2,444,994) (3,028,422) 0 0 0 0 0 0 (2,444,994) (3,028,422) (.12) (.15) (.12) (.15)
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