<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1999
REGISTRATION NO. 333-87345
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE KNOT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7375 13-3895178
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) CLASSIFICATION CODE NUMBER)
</TABLE>
------------------------
462 BROADWAY
6TH FLOOR
NEW YORK, NY 10013
TELEPHONE: (212) 219-8555
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID LIU
CHIEF EXECUTIVE OFFICER
THE KNOT, INC.
462 BROADWAY
6TH FLOOR
NEW YORK, NY 10013
(212) 219-8555
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
ALEXANDER D. LYNCH, ESQ. JOHN M. HESSION, ESQ.
BRIAN B. MARGOLIS, ESQ. JOCELYN M. AREL, ESQ.
BROBECK, PHLEGER & HARRISON LLP TESTA, HURWITZ & THIBEAULT, LLP
1633 BROADWAY, 47TH FLOOR 125 HIGH STREET
NEW YORK, NY 10019 BOSTON, MA 02110
(212) 581-1600 (617) 248-7000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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,
check the following box. [ ]
------------------------
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL 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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
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 an offer to buy these securities in any state where the offer
or sale is not permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 10, 1999
3,500,000 SHARES
[THE KNOT LOGO]
COMMON STOCK
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $8.00 and
$10.00 per share. We intend to apply to list our common stock on The Nasdaq
Stock Market's National Market under the symbol "KNOT."
The underwriters have an option to purchase a maximum of 525,000 additional
shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 5.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS THE KNOT
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Per Share....................................... $ $ $
Total........................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 1999.
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
HAMBRECHT & QUIST
SALOMON SMITH BARNEY
The date of this prospectus is , 1999.
<PAGE> 3
INSIDE FRONT COVER:
- Background: photo of bride and groom.
- Bottom half of page contains centered text reading: "How do I get her
ring size?"; "Where do I seat my father's 2nd wife's children?"; "How can
I find a photographer from 1,500 miles away?"; "Can my brother be my
bridesmaid?"; "How can we combine Jewish and Scottish traditions?"; When
do we send out the invitations?"; "Is anyone else having cold feet?";
"What if we want fishing rods instead of flatware?"; "Have any exotic
honeymoons for under $3,000?"; "How do you tie a bow tie?"; "How do we
tell guests where we're registered?"; and "How do I make this feeling
last forever?"
- At bottom of page: "the knot, the new word in weddings; advice. ideas.
relief. shopping."
GATEFOLD:
- Title text reading "the new word in weddings . . . the knot" (across top
of both pages of gatefold).
- Centered on gatefold is The Knot's home page screen shot displaying a
link to The Knot's Ultimate Checklist, links to The Knot's areas, links
to The Knot Registry, links to "This Week's Features", links to planning
tools, and a link to The Knot Shop.
- Surrounding The Knot's home page screen are overlays of photos of brides,
grooms, friends and family.
- Right side of gatefold lists services and information provided by The
Knot Web site. Text reads: "Online and Offline All The Time", "Inspiring
Ideas", "Up-to-date Etiquette", "Online/800# Gift Registry", "Personal
Planning Tools", "Nationwide Vendor Listings", "Active Chat Rooms",
"Wedding Supply Shopping", "Honeymoon Travel Agent", "Thousands of
Editorial Articles", "15,000 Gown Pictures", "10,000 Gown Gifts", and
"395,000 Registered Couples".
- Bottom right hand corner contains The Knot's Web site address and the
words "open all night".
<PAGE> 4
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................. 1
RISK FACTORS........................ 5
FORWARD-LOOKING STATEMENTS.......... 19
USE OF PROCEEDS..................... 20
DIVIDEND POLICY..................... 20
CAPITALIZATION...................... 21
DILUTION............................ 22
SELECTED FINANCIAL DATA............. 23
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS........... 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 26
BUSINESS............................ 39
MANAGEMENT.......................... 57
CERTAIN TRANSACTIONS................ 69
PRINCIPAL STOCKHOLDERS.............. 71
DESCRIPTION OF CAPITAL STOCK........ 73
SHARES ELIGIBLE FOR FUTURE SALE..... 76
UNDERWRITING........................ 78
NOTICE TO CANADIAN RESIDENTS........ 81
LEGAL MATTERS....................... 83
EXPERTS............................. 83
WHERE YOU CAN FIND ADDITIONAL
INFORMATION....................... 83
INDEX TO FINANCIAL STATEMENTS....... F-1
</TABLE>
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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 ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999, 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 IN CONNECTION WITH UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
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<PAGE> 5
PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all of the information
that may be important to you. You should read the entire prospectus, including
"Risk Factors" and the financial statements and the notes to the financial
statements, before deciding to invest in our common stock. Information contained
on our online sites does not constitute part of this prospectus. References in
this prospectus to "The Knot," "we," "our" and "us" refer to The Knot, Inc.
THE KNOT, INC.
OUR BUSINESS
The Knot is the leading online destination targeting the wedding market.
Weddings are major milestone events and consumers tend to allocate significant
budgets to their weddings and related purchases. According to an independent
research report, the domestic wedding market generates over $45 billion in
retail sales annually.
Our easy-to-use online sites provide full-service offerings for couples
planning their weddings. We provide future brides and grooms with comprehensive
content, including thousands of articles on wedding planning organized by topic
and a database of local wedding vendors in 52 markets nationwide. Our sites also
feature numerous interactive services and personalized planning tools. By
providing hosted chats and message boards, we create an online community where
brides and grooms can interact. We offer consumers a convenient place to
purchase a broad range of wedding-related items through our online gift
registry, shops for wedding supplies and travel agency. We also author a series
of books and publish a semiannual gown guide that provide cross-promotional
opportunities and increase our brand awareness and our online audience.
We provide advertisers and vendors with targeted access to couples actively
seeking information and making meaningful buying decisions relating to all
aspects of their weddings. We receive revenue primarily from sponsorship,
advertising and production contracts. We also generate revenue from the sale of
merchandise, publishing and the sale of travel packages. For the nine months
ended September 30, 1999, sponsorship, advertising and production revenues
represented 65% of our net revenues.
In September 1999, we generated over 15.4 million page views on our Web
site compared to 2.5 million page views in December 1998. We are currently
enrolling as members an average of over 1,000 new couples per day.
OUR STRATEGY
Our strategy is to expand our position as the leading online resource
providing comprehensive wedding planning information, products and services by:
- building strong brand recognition of The Knot;
- aggressively growing our membership base and increasing member usage;
- providing a full-service shopping solution to make the wedding planning
process more convenient, efficient and enjoyable;
- generating multiple revenue streams; and
- pursuing strategic alliances and acquisitions.
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OUR OFFICES
Our business was incorporated on May 2, 1996. Our principal executive
offices are located at 462 Broadway, 6th Floor, New York, New York 10013. Our
telephone number is (212) 219-8555. The address of our Web site is
www.theknot.com. We are also located on America Online (keywords "Knot" and
"weddings").
OUR TRADEMARKS
The Knot is a registered trademark and/or service mark of The Knot, Inc. We
have applied for federal registration of the marks The Knot Ultimate Wedding
Checklist, Wedding Photographers Network, WPN, The Knot Wedding Gift Registry,
The Knot Registry, Click Trips and Bridalink Store. Other trademarks and service
marks appearing in this prospectus are the property of their respective holders.
THE OFFERING
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Common stock offered................................. 3,500,000 shares
Common stock to be outstanding after this offering... 13,973,103 shares
Use of proceeds...................................... For general corporate purposes, capital
expenditures and working capital.
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on our shares outstanding as of November 5, 1999. This information
excludes 3,849,868 shares of common stock reserved for issuance under our 1999
Stock Incentive Plan, of which 1,724,665 shares are issuable upon the exercise
of stock options outstanding as of November 5, 1999, and 2,066,667 shares of
common stock issuable upon the exercise of warrants outstanding as of November
5, 1999.
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<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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<CAPTION>
PERIOD FROM
MAY 2, 1996 YEAR ENDED NINE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------- -----------------------
1996 1997 1998 1998 1999
-------------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues....................... $ 71 $ 596 $ 1,040 $ 826 $ 2,635
Cost of revenues................... 9 67 131 82 904
--------- --------- --------- --------- ---------
Gross profit....................... 62 529 909 744 1,731
Total operating expenses........... 768 1,425 2,823 1,935 7,982
Loss from operations............... (706) (896) (1,914) (1,191) (6,251)
Net loss........................... $ (752) $ (1,095) $ (1,509) $ (830) $ (6,008)
========= ========= ========= ========= =========
Basic and diluted net loss per
share............................ $ (0.46) $ (0.67) $ (0.60) $ (0.35) $ (1.96)
========= ========= ========= ========= =========
Weighted average number of shares
used in calculating basic and
diluted net loss per share....... 1,625,410 1,625,410 2,497,065 2,344,126 3,066,960
========= ========= ========= ========= =========
Pro forma basic and diluted net
loss per share................... $ (0.46) $ (0.67) $ (0.32) $ (0.19) $ (0.67)
========= ========= ========= ========= =========
Pro forma weighted average number
of shares used in calculating
basic and diluted net loss per
share............................ 1,625,410 1,625,410 4,780,024 4,264,126 8,932,455
========= ========= ========= ========= =========
</TABLE>
Unaudited pro forma basic and diluted net loss per share have been
calculated assuming the conversion of all previously outstanding preferred stock
into common stock, as if the shares had converted immediately upon their
issuance. See Note 2 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing basic and diluted net
loss per share.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 9,302 $ 9,302 $37,597
Working capital...................................... 9,257 9,257 37,552
Total assets......................................... 13,846 13,846 42,141
Convertible preferred stock.......................... 17,901 -- --
Total stockholders' equity........................... 11,524 11,524 39,819
</TABLE>
The pro forma balance sheet data reflect the automatic conversion into
common stock of all outstanding convertible preferred stock upon the closing of
this offering. The pro forma as adjusted data reflect our receipt of the
estimated net proceeds from the sale of the 3,500,000 shares of common stock
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<PAGE> 8
offered by us at an assumed initial public offering price of $9.00 per share,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
Unless otherwise indicated, all information in this prospectus reflects the
automatic conversion of all outstanding shares of convertible preferred stock
into 7,360,000 shares of our common stock upon the closing of this offering,
assumes the filing of our amended and restated certificate of incorporation upon
the closing of this offering and assumes no exercise of the underwriters'
over-allotment option.
For more information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
related notes included elsewhere in this prospectus.
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<PAGE> 9
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained in this prospectus, before you decide to
buy our common stock. If any of the following events actually occurs, our
business and financial results may suffer. In such event, the market price of
our common stock could decline, and you could lose all or part of your
investment in our common stock.
RISKS RELATED TO OUR BUSINESS
WE HAVE AN UNPROVEN BUSINESS MODEL AND IT IS UNCERTAIN WHETHER ONLINE
WEDDING-RELATED SITES CAN GENERATE SUFFICIENT REVENUES TO SURVIVE.
Our model for conducting business and generating revenues is new and
unproven. Our business model depends upon our ability to generate revenue
streams from multiple sources through our online sites, including:
- Internet sponsorship and advertising fees from third parties; and
- online sales of wedding gifts and supplies.
It is uncertain whether wedding-related online sites that rely on
attracting sponsors and advertisers, as well as people to purchase wedding gifts
and supplies, can generate sufficient revenues to survive. For our business to
be successful, we must provide users with an acceptable blend of products,
information, services and community offerings that will attract wedding
consumers to our online sites frequently. In addition, we must provide sponsors,
advertisers and vendors the opportunity to reach these wedding consumers. We
provide our services to users without charge and we may not be able to generate
sufficient revenues to pay for these services. Accordingly, we are not certain
that our business model will be successful or that we can sustain revenue growth
or be profitable.
WE HAVE A LIMITED OPERATING HISTORY AND EXPECT TO ENCOUNTER DIFFICULTIES FACED
BY EARLY STAGE COMPANIES IN THE INTERNET ADVERTISING AND ONLINE WEDDING MARKETS.
We commenced operations in May 1996 and recorded our first revenues in
September 1996, immediately following the launch of our first online property.
Accordingly, we have only a limited operating history with which you can
evaluate our business and prospects. An investor in our common stock must
consider the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets, such as the Internet advertising
and online wedding markets. These risks include our ability to:
- increase the audience on our sites;
- broaden awareness of our brand;
- strengthen user-loyalty;
- offer compelling content;
- maintain our leadership in generating traffic;
- maintain our current, and develop new, strategic relationships;
- attract a large number of advertisers from a variety of industries;
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<PAGE> 10
- respond effectively to competitive pressures;
- generate revenues from the sale of merchandise and e-commerce;
- integrate our recent acquisitions into our existing operations;
- continue to develop and upgrade our technology; and
- attract, integrate, retain and motivate qualified personnel.
As a result of our limited operating history, we do not have historical
financial data for a significant number of periods upon which to forecast our
revenues and results of operations.
These risks could negatively impact our financial condition if left
unaddressed. For more information on the effects of some of these risks, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WE HAVE A HISTORY OF SIGNIFICANT LOSSES SINCE OUR INCEPTION AND EXPECT TO INCUR
SIGNIFICANT LOSSES FOR THE FORESEEABLE FUTURE.
We have not achieved profitability and expect to continue to incur
significant losses and negative cash flow for the foreseeable future. We
incurred net losses of $752,000 for the period from May 2, 1996 (inception)
through December 31, 1996, $1.1 million for the year ended December 31, 1997,
$1.5 million for the year ended December 31, 1998, and $6.0 million for the nine
months ended September 30, 1999. As of September 30, 1999, our accumulated
deficit was $9.4 million. We also expect to continue to incur significant
operating expenses and capital expenditures and, as a result, we will need to
generate significant revenues to achieve and maintain profitability. Even if we
do achieve profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. Failure to achieve
or maintain profitability may materially and adversely affect the market price
of our common stock. For more information on our losses and the effects of our
expenses on our financial performance, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
WE LACK SIGNIFICANT REVENUES AND MAY BE UNABLE TO ADJUST SPENDING QUICKLY ENOUGH
TO OFFSET ANY UNEXPECTED REVENUE SHORTFALL.
Our revenues for the foreseeable future will remain dependent on user
traffic levels and advertising activity on our sites and the expansion of our
e-commerce activity. In addition, we plan to expand and develop content and to
upgrade and enhance our technology and infrastructure to support our growth. We
incur a significant percentage of our expenses, such as employee compensation
and rent, prior to generating revenues associated with those expenses. Moreover,
our expense levels are based, in part, on our expectation of future revenues. We
may be unable to adjust spending quickly enough to offset any unexpected revenue
shortfall. If we have a shortfall in revenues in relation to our growth in
expenses, then our business, results of operations and financial condition would
be materially and adversely affected. For more information on our net revenues
and the effects of our expenses on our financial performance, see "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT
FLUCTUATION AND THESE FLUCTUATIONS MAY ADVERSELY AFFECT THE TRADING PRICE OF OUR
COMMON STOCK.
Our quarterly revenues and operating results have fluctuated significantly
in the past and are expected to continue to fluctuate significantly in the
future as a result of a variety of factors, many of which are outside our
control. These factors include:
- the level of online usage;
- the level of traffic on our online sites;
- demand for online advertising;
- seasonal trends in both online usage and advertising placements;
- the addition or loss of advertisers;
- the advertising budgeting cycles of specific advertisers;
- the number of users that purchase merchandise from us;
- the amount and timing of capital expenditures and other costs relating to
the expansion of our operations, including those related to acquisitions;
- the introduction of new sites and services by us or our competitors;
- changes in our pricing policies or the pricing policies of our
competitors;
- general economic conditions; and
- economic conditions specific to the Internet, electronic commerce and
online media.
We do not believe that period-to-period comparisons of our operating
results are necessarily meaningful and you should not rely upon these
comparisons as indicators of our future performance.
Due to the foregoing factors, it is possible that our results of operations
in one or more future quarters may fall below the expectations of securities
analysts and investors. In such event, the trading price of our common stock is
likely to decline. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Results of Operations Data" for
detailed information on our quarterly operating results.
OUR FINANCIAL CONDITION AND REVENUES WOULD BE ADVERSELY AFFECTED IF TRAFFIC ON
OUR AOL SITE DECREASED OR IF CARRIAGE OF OUR SITES ON AOL WAS DISCONTINUED.
AOL has accounted for a significant portion of our online traffic to date.
In 1999, approximately 40% of our users were customers of AOL's Internet
services. If the financial condition and operations of AOL were to deteriorate
significantly, or if the traffic on our AOL site were to substantially decrease,
our revenues could be adversely affected.
In addition, our anchor tenant agreement with AOL expires on January 6,
2003. AOL may extend it for an additional two years, but does not have any
obligation to extend or renew the agreement. Through the AOL agreement, we
provide content on America Online, AOL.com, AOL Hometown, Netscape and
CompuServe. Under the terms of the agreement, AOL may terminate the agreement
without cause only with respect to our carriage on AOL Hometown, Netscape, and
CompuServe upon 30 days' prior written
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<PAGE> 12
notice. If the carrying of our sites on AOL is discontinued, our business,
results of operations and financial condition would be materially and adversely
affected. For more information about our relationship with AOL, see
"Business -- Relationship with AOL."
OUR OPERATING RESULTS MAY FLUCTUATE DUE TO SEASONAL FACTORS.
Seasonal and cyclical patterns may affect our revenues. In 1997, 19% of
weddings occurred in the first quarter, 28% occurred in the second quarter, 30%
occurred in the third quarter and 23% occurred in the fourth quarter. Because we
launched The Knot Registry in November 1998 and acquired Bridalink in July 1999,
we have limited experience generating merchandise revenues. Therefore, we have
been unable to determine whether our merchandise revenues are affected by
seasonal fluctuations in the number of weddings. In addition, we believe that
advertising sales in traditional media, such as television and radio, generally
are lower in the first and third calendar quarters of each year. Historically,
we have experienced increases in our traffic during the first and second
quarters of the year. As a result of these factors, we may experience
fluctuations in our revenues, which could have a material adverse effect on our
business and results of operations.
WE MAY BE UNABLE TO CONTINUE TO BUILD AWARENESS OF THE KNOT BRAND NAME.
Building recognition of our brand is critical to attracting and expanding
our online user base. Because we plan to continue building brand recognition, we
may find it necessary to accelerate expenditures on our sales and marketing
efforts or otherwise increase our financial commitment to creating and
maintaining brand awareness. Our failure to successfully promote and maintain
our brand would adversely affect our financial condition and cause us to incur
significant expenses in promoting our brand without an associated increase in
our net revenues.
IF WE CANNOT PROTECT OUR DOMAIN NAMES, IT WILL IMPAIR OUR ABILITY TO BRAND
SUCCESSFULLY THE KNOT.
We currently hold various Web domain names, including www.theknot.com. The
acquisition and maintenance of domain names generally is regulated by Internet
regulatory bodies. The regulation of domain names in the United States and in
foreign countries is subject to change. Governing bodies may establish
additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names. As a result, we may be unable
to acquire or maintain relevant domain names in all countries in which we
conduct business. Furthermore, it is unclear whether laws protecting trademarks
and similar proprietary rights will be extended to protect domain names.
Therefore, we may be unable to prevent third parties from acquiring domain names
that are similar to, infringe upon or otherwise decrease the value of our
trademarks and other proprietary rights. We may not successfully carry out our
business strategy of establishing a strong brand for The Knot if we cannot
prevent others from using similar domain names or trademarks. This could impair
our ability to increase market share and revenues.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE NOT ABLE TO SUCCESSFULLY
INTEGRATE OUR RECENT AND ANY FUTURE ACQUISITIONS.
In July 1999, we acquired Bridalink.com, an Internet wedding supply store,
and Click Trips, Inc., an online travel agency. In August 1999, we acquired
Wedding Photographers Network, an online searchable database of wedding
photographers. We may encounter
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difficulty integrating the personnel, operations, technology and software of
these acquired businesses. In addition, one or more of the key personnel of the
acquired businesses may decide not to work for us. These difficulties could
disrupt our ongoing business, distract our management and employees, increase
our expenses and adversely affect our results of operations.
In the future, we may acquire, or invest in, complementary companies,
products or technologies. Acquisitions and investments involve numerous risks,
including:
- difficulties in integrating operations, technologies, products and
personnel;
- diversion of financial and management resources from existing operations;
- risks of entering new markets;
- potential loss of key employees; and
- inability to generate sufficient revenues to offset acquisition or
investment costs.
THE COSTS ASSOCIATED WITH POTENTIAL ACQUISITIONS OR STRATEGIC ALLIANCES COULD
DILUTE YOUR INVESTMENT OR ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
To pay for an acquisition or to enter into a strategic alliance, we might
use equity securities, debt, cash, including the proceeds from this offering, or
a combination of the foregoing. If we use equity securities, our stockholders
may experience dilution. In addition, an acquisition may involve non-recurring
charges or involve amortization of significant amounts of goodwill that could
adversely affect our results of operations. Any such acquisitions or strategic
alliances may require us to obtain additional equity or debt financing, which
may not be available on commercially acceptable terms, if at all.
IF THE USE OF THE INTERNET AS AN ADVERTISING AND MARKETING MEDIUM FAILS TO
DEVELOP OR DEVELOPS MORE SLOWLY THAN WE EXPECT, OUR BUSINESS WILL BE MATERIALLY
AND ADVERSELY AFFECTED.
Our future success depends in part on a significant increase in the use of
the Internet as an advertising and marketing medium. Sponsorship, advertising
and production revenues constituted 65% of our net revenues for the nine months
ended September 30, 1999 and 82% of our net revenues for the year ended December
31, 1998. The Internet advertising market is new and rapidly evolving, and it
cannot yet be compared with traditional advertising media to gauge its
effectiveness. As a result, demand for and market acceptance of Internet
advertising solutions are uncertain. Many of our current and potential customers
have little or no experience with Internet advertising and have allocated only a
limited portion of their advertising and marketing budgets to Internet
activities. The adoption of Internet advertising, particularly by entities that
have historically relied upon traditional methods of advertising and marketing,
requires the acceptance of a new way of advertising and marketing. These
customers may find Internet advertising to be less effective for meeting their
business needs than traditional methods of advertising and marketing.
Furthermore, there are software programs that limit or prevent advertising from
being delivered to a user's computer. Widespread adoption of this software by
users would significantly undermine the commercial viability of Internet
advertising. If these markets fail to develop or develop more slowly than we
expect, our business, results of operations and financial condition would be
materially and adversely affected.
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WE HAVE A SMALL NUMBER OF SPONSORS AND ADVERTISERS AND THE LOSS OF A NUMBER OF
THESE COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We derive sponsorship revenues from contracts ranging up to three years and
advertising revenues principally from short-term advertising contracts. We
depend on a limited number of sponsors and advertisers for a significant part of
our net revenues. Consequently, the loss of any of these sponsors or advertisers
could materially and adversely affect our business, results of operations and
financial condition. For the nine months ended September 30, 1999, no single
sponsor or advertiser accounted for 10% or more of our net revenues. For the
year ended December 31, 1998, Banfi Products Corp. accounted for 19% of our net
revenues. During the nine months ended September 30, 1999, we did not generate
net revenues from the sale of sponsorships or advertisements to Banfi Products
Corp.
We anticipate that our future results of operations will continue to depend
to a significant extent upon revenues from a small number of sponsors and
advertisers. In addition, we anticipate that such sponsors and advertisers will
continue to vary over time. For example, although Banfi Products accounted for a
large percentage of our revenues in 1998, different sponsors and advertisers
will account for a large percentage of our revenues this year. To achieve our
long-term goals, we will need to attract additional significant sponsors and
advertisers on an ongoing basis. Our failure to enter into a sufficient number
of large contracts during a particular period may have a material adverse effect
on our business, results of operations and financial condition. For more
information on our advertising revenues, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS.
We rely solely upon copyright, trade secret and trademark law and
assignment of invention and confidentiality agreements to protect our
proprietary technology, processes, content and other intellectual property to
the extent that protection is sought or secured at all. We cannot assure you
that any steps we might take will be adequate to protect against infringement
and misappropriation of our intellectual property by third parties. Similarly,
we cannot assure you that third parties will not be able to independently
develop similar or superior technology, processes, content or other intellectual
property. The unauthorized reproduction or other misappropriation of our
intellectual property rights could enable third parties to benefit from our
technology without paying us for it. If this occurs, our business, results of
operations and financial condition would be materially and adversely affected.
In addition, disputes concerning the ownership or rights to use intellectual
property could be costly and time consuming to litigate, may distract management
from other tasks of operating the business, and may result in our loss of
significant rights and the loss of our ability to operate our business.
OUR PRODUCTS AND SERVICES MAY INFRINGE ON INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES.
Although we avoid infringing known proprietary rights of third parties,
including licensed content, we may be subject to claims alleging infringement of
third-party proprietary rights. If we are subject to claims of infringement or
are infringing the rights of third parties, we may not be able to obtain
licenses to use those rights on commercially reasonable terms, if at all. In
that event, we would need to undertake substantial reengineering to continue our
online offerings. Any effort to undertake such reengineering
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might not be successful. Furthermore, a party making such a claim could secure a
judgement that requires us to pay substantial damages. A judgment could also
include an injunction or other court order that could prevent us from selling
our products. Any claim of infringement could cause us to incur substantial
costs defending against the claim, even if the claim is invalid, and could
distract our management from our business.
WE DEPEND UPON QVC TO PROVIDE US WAREHOUSING, FULFILLMENT AND DISTRIBUTION
SERVICES, AND SYSTEM FAILURES OR OTHER PROBLEMS AT QVC COULD CAUSE US TO LOSE
CUSTOMERS AND REVENUES.
We have a services agreement with QVC to warehouse, fulfill and arrange for
distribution of most of our products. Our agreement with QVC expires on the
fourth anniversary of this offering. QVC does not have any obligation to renew
this agreement. If QVC's ability to provide us with these services in a timely
fashion or at all is impaired, whether through labor shortage, slow down or
stoppage, deteriorating financial or business condition, Year 2000 problems or
other system failures or for any other reason, or if the services agreement is
not renewed, we would not be able, at least temporarily, to sell or ship our
products to our customers. We may be unable to engage alternative warehousing,
fulfillment and distribution services on a timely basis or upon terms favorable
to us.
Our experience with QVC as a warehousing, fulfillment and distribution
service provider is limited. In connection with our transition to QVC as our
primary fulfillment provider, we have experienced system failures and other
problems resulting in duplicate orders and billing, delivery mistakes and
damaged products. We are unable to predict whether we will have similar problems
in the future. Any of these problems could cause us to lose customers and
revenues.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FINANCING NECESSARY TO EXECUTE OUR
BUSINESS STRATEGY.
We currently believe that the net proceeds from this offering, together
with our current cash and cash equivalents, will be sufficient to fund our
working capital and capital expenditure requirements for at least the next 12
months. To the extent we require additional funds to support our operations or
the expansion of our business, we may need to sell additional equity, issue debt
or convertible securities or obtain credit facilities through financial
institutions. We cannot assure you that additional funding, if required, will be
available to us in amounts or on terms acceptable to us. If sufficient funds are
not available or are not available on acceptable terms, our ability to fund our
expansion, take advantage of acquisition opportunities, develop or enhance our
services or products, or otherwise respond to competitive pressures would be
significantly limited.
OUR BUSINESS COULD BE MATERIALLY AND ADVERSELY AFFECTED BY INCREASED
COMPETITION.
The Internet advertising and online wedding markets are new, rapidly
evolving and intensely competitive, and we expect such competition to intensify
in the future.
We face competition for members, users and advertisers from the following
areas:
- online services or Web sites targeted at brides and grooms as well as the
online sites of retail stores, manufacturers and regional wedding
directories;
- bridal magazines, such as Bride's and Modern Bride; and
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- online and retail stores offering gift registries, especially from
retailers offering specific bridal gift registries.
We expect competition to increase because of the business opportunities
presented by the growth of the Internet and e-commerce. Our competition may also
intensify as a result of industry consolidation and a lack of substantial
barriers to entry. Many of our current and potential competitors have longer
operating histories, significantly greater financial, technical and marketing
resources, greater name recognition and substantially larger user or membership
bases than we have and, therefore, have a significantly greater ability to
attract advertisers and users. In addition, many of our competitors may be able
to respond more quickly than we can to new or emerging technologies and changes
in Internet user requirements, as well as devote greater resources than we can
to the development, promotion and sale of services.
There can be no assurance that our current or potential competitors will
not develop products and services comparable or superior to those that we
develop or adapt more quickly than we do to new technologies, evolving industry
trends or changing Internet user preferences. Increased competition could result
in price reductions, lower margins or loss of market share, any of which would
materially and adversely affect our business, results of operations and
financial condition. In addition, if we expand internationally, we may face
additional competition. There can be no assurance that we will be able to
compete successfully against current and future competitors.
OUR RESULTS OF OPERATIONS FOR A PARTICULAR PERIOD MAY BE MATERIALLY AND
ADVERSELY AFFECTED IF SALES TO SPONSORS OR ADVERTISERS FORECASTED IN A
PARTICULAR PERIOD ARE DELAYED OR DO NOT OTHERWISE OCCUR.
The time between the date of initial contact with a potential sponsor or
advertiser and the execution of a contract with the sponsor or advertiser is
often lengthy, typically ranging from six weeks for smaller agreements to six
months for larger agreements, and is subject to delays over which we have little
or no control, including:
- customers' budgetary constraints;
- customers' internal acceptance reviews;
- the success and continued internal support of advertisers' and sponsors'
own development efforts; and
- the possibility of cancellation or delay of projects by advertisers or
sponsors.
During the sales cycle, we may expend substantial funds and management
resources in advance of generating sponsorship or advertising revenues.
Accordingly, if sales to advertisers or sponsors forecasted in a particular
period are delayed or do not otherwise occur, our revenues and results of
operations would be adversely affected.
OUR POTENTIAL INABILITY TO COMPETE EFFECTIVELY IN OUR INDUSTRY FOR QUALIFIED
PERSONNEL COULD HINDER THE SUCCESS OF OUR BUSINESS.
Competition for personnel in the Internet and wedding industries is
intense. We may be unable to retain those employees who are important to the
success of our business. We may also face difficulties attracting, integrating
or retaining other highly qualified employees in the future. We have
experienced, and expect to continue to experience,
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difficulty in hiring and retaining highly-skilled employees with appropriate
qualifications as a result of our rapid growth and expansion. If we cannot
attract new personnel or retain and motivate our current personnel, our business
may not succeed.
SYSTEMS DISRUPTIONS AND FAILURES COULD CAUSE ADVERTISER OR USER DISSATISFACTION
AND COULD REDUCE THE ATTRACTIVENESS OF OUR SITES.
The continuing and uninterrupted performance of our computer systems is
critical to our success. Our advertisers and sponsors, users and members may
become dissatisfied by any systems disruption or failure that interrupts our
ability to provide our services and content to them. Substantial or repeated
system disruptions or failures would reduce the attractiveness of our online
sites significantly. Substantially all of our communications hardware and some
of our other computer hardware operations are located at Exodus Communications'
facilities in Jersey City, New Jersey. Fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events could damage these
systems. Computer viruses, electronic break-ins or other similar disruptive
problems could also adversely affect our online sites. Our business could be
materially and adversely affected if our systems were affected by any of these
occurrences. We do not presently have any secondary "off-site" systems or a
formal disaster recovery plan. Our sites must accommodate a high volume of
traffic and deliver frequently updated information. Our sites have in the past
experienced slower response times or decreased traffic. These types of
occurrences in the future could cause users to perceive our sites as not
functioning properly and therefore cause them to use another online site or
other methods to obtain information or services. In addition, our users depend
on Internet service providers, online service providers and other site operators
for access to our online sites. Many of them have experienced significant
outages in the past, and could experience outages, delays and other difficulties
due to system disruptions or failures unrelated to our systems. Although we
carry general liability insurance, our insurance may not cover any claims by
dissatisfied providers or subscribers or may not be adequate to indemnify us for
any liability that may be imposed in the event that a claim were brought against
us. Our business, results of operations and financial condition could be
materially and adversely affected by any system disruption or failure, security
breach or other damage that interrupts or delays our operations.
WE MAY NOT BE ABLE TO DELIVER VARIOUS SERVICES IF THIRD PARTIES FAIL TO PROVIDE
RELIABLE SOFTWARE, SYSTEMS AND RELATED SERVICES TO US.
We are dependent on various third parties for software, systems and related
services in connection with our hosting and accounting software, data
transmission and security systems. Several of the third parties that provide
software and services to us have a limited operating history and have relatively
new technology. These third parties are dependent on reliable delivery of
services from others. If our current providers were to experience prolonged
systems failures or delays, we would need to pursue alternative sources of
services. Although alternative sources of these services are available, we may
be unable to secure such services on a timely basis or on terms favorable to us.
As a result, we may experience business disruptions if these third parties fail
to provide reliable software, systems and related services to us.
WE MAY BE LIABLE IF THIRD PARTIES MISAPPROPRIATE OUR USERS' PERSONAL
INFORMATION.
If third parties were able to penetrate our network security or otherwise
misappropriate our users' personal or credit card information, we could be
subject to liability. Our
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liability could include claims for unauthorized purchases with credit card
information, impersonation or other similar fraud claims as well as for other
misuses of personal information, such as for unauthorized marketing purposes.
These claims could result in costly and time-consuming litigation which could
adversely affect our financial condition. In addition, the Federal Trade
Commission and state agencies have been investigating various Internet companies
regarding their use of personal information. We could have additional expenses
if new regulations regarding the use of personal information are introduced or
if our privacy practices are investigated.
WE MAY SUFFER DISRUPTION TO OUR BUSINESS AND WE COULD INCUR MATERIAL EXPENSES IF
ANY OF THE COMPUTER SYSTEMS OR SOFTWARE WE RELY ON FAIL TO BE YEAR 2000
COMPLIANT.
The Year 2000 problem could harm our business and financial results. Many
currently installed computer systems and software products are coded to accept
or recognize only two-digit entries in the date code field. These systems may
interpret the date code "00" as the year 1900 rather than the year 2000. As a
result, computer systems and/or software used by many companies and governmental
agencies may need to be upgraded or replaced to comply with Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities. Although we have completed testing of our systems,
including internally developed proprietary software, third-party software,
hardware and services, and believe that they are Year 2000 compliant, we have
not developed a contingency plan. Moreover, we may discover Year 2000 problems
that need to be upgraded, modified or replaced, which could be time consuming
and expensive. In addition there can be no assurance that our non-information
technology systems, including our telephone systems and utilities, are Year 2000
compliant and will not have to be upgraded, modified or replaced. Our failure to
fix or replace internally developed proprietary software, third-party software,
hardware or services on a timely basis could result in lost revenues, increased
operating costs, the loss of customers and other business interruptions.
We depend heavily on a number of third-party vendors to provide both
network services and equipment. A significant Year 2000-related disruption of
the network services or equipment that third-party vendors provide to us could
cause our sponsors, advertisers, members and visitors to consider seeking
alternate providers. Year 2000 issues could also cause an unmanageable burden on
our technical support personnel, which in turn could materially and adversely
affect our business, results of operations and financial condition.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers, including
AOL and QVC, and others outside of our control will be Year 2000 compliant. The
failure by such entities to be Year 2000 compliant could result in a systemic
failure such as a prolonged Internet, telecommunications or electrical failure.
These suppliers could also prevent us from delivering services to our customers,
decrease the use of the Internet or prevent users from accessing our sites.
IF THE ASSUMPTIONS THAT WE USE REGARDING THE GROWTH OF E-COMMERCE AND INTERNET
ARE INCORRECT, THEN THE FINANCIAL PROJECTIONS WE INCLUDE IN THIS PROSPECTUS MAY
BE MATERIALLY DIFFERENT FROM ACTUAL RESULTS.
This prospectus contains various third-party data and projections related
to our business and the Internet, including those relating to revenue generated
by e-commerce, the number of Internet users and the amount spent on Internet
advertising. These data and
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projections have been included in studies prepared by independent market
research firms, and the projections are based on surveys, financial reports and
models used by these firms, as well as a number of assumptions.
If the underlying data or one or more of the assumptions contained in these
reports turns out to be incorrect, actual results or circumstances may be
materially different from the projections included in this prospectus. Any
difference could reduce our revenue and harm our results of operations.
RISKS RELATED TO OUR INDUSTRY
WE ARE DEPENDENT ON CONTINUED GROWTH IN THE USE OF THE INTERNET AND COMMERCIAL
ONLINE SERVICES AS MEDIA FOR COMMERCE.
We cannot assure you that a sufficiently broad base of consumers will
adopt, and continue to use, the Internet and commercial online services as media
for commerce, particularly for purchases of wedding gifts and supplies. Even if
consumers adopt the Internet or commercial online services as a media for
commerce, we cannot be sure that the necessary infrastructure will be in place
to process such transactions. Our long-term viability depends substantially upon
the widespread acceptance and the development of the Internet or commercial
online services as effective media for consumer commerce and for advertising.
Use of the Internet or commercial online services to effect retail transactions
and to advertise is at an early stage of development. Convincing consumers to
purchase wedding gifts and supplies online may be difficult.
Demand for recently introduced services and products over the Internet and
commercial online services is subject to a high level of uncertainty. Few proven
services and products exist. The development of the Internet and commercial
online services into a viable commercial marketplace is subject to a number of
factors, including:
- continued growth in the number of users of such services;
- concerns about transaction security;
- continued development of the necessary technological infrastructure;
- development of enabling technologies;
- uncertain and increasing government regulation; and
- the development of complementary services and products.
WE DEPEND ON THE CONTINUED VIABILITY OF THE INFRASTRUCTURE OF THE INTERNET AND
OTHER COMMERCIAL ONLINE SERVICES.
To the extent that the Internet and other online services continue to
experience growth in the number of users and frequency of use by consumers
resulting in increased bandwidth demands, there can be no assurance that the
infrastructure for the Internet and other online services will be able to
support the demands placed upon them. The Internet and other online services
have experienced outages and delays as a result of damage to portions of their
infrastructure. Outages or delays, including those resulting from Year 2000
problems, could adversely affect online sites, e-mail and the level of traffic
on all sites. We also depend on online access providers that provide our users
with access to our services. In the past, users have experienced difficulties
due to systems failures unrelated to our systems. In addition, the Internet or
other online services could lose their viability due to delays in the
development or adoption of new standards and protocols required to handle
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increased levels of Internet or other online service activity or to increased
governmental regulation. Insufficient availability of telecommunications
services to support the Internet or other online services also could result in
slower response times and negatively impact use of the Internet and other online
services generally, and our sites in particular. If the use of the Internet and
other online services fails to grow or grows more slowly than expected, if the
infrastructure for the Internet and other online services does not effectively
support growth that may occur or if the Internet and other online services do
not become a viable commercial marketplace, we may not achieve profitability.
WE MAY BE UNABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY
AND THIS MAY HARM OUR BUSINESS.
If we are unable, for technological, legal, financial or other reasons, to
adapt in a timely manner to changing market conditions or customer requirements,
our business, results of operations and financial condition would be materially
and adversely affected. The Internet and e-commerce are characterized by rapid
technological change. Sudden changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices could
render our existing online sites and proprietary technology and systems
obsolete. The emerging nature of products and services in the online wedding
market and their rapid evolution will require that we continually improve the
performance, features and reliability of our online services. Our success will
depend, in part, on our ability:
- to enhance our existing services;
- to develop and license new services and technology that address the
increasingly sophisticated and varied needs of our prospective customers
and users; and
- to respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
The development of online sites and other proprietary technology entails
significant technological and business risks and requires substantial
expenditures and lead time. We may be unable to use new technologies effectively
or adapt our online sites, proprietary technology and transaction-processing
systems to customer requirements or emerging industry standards. Updating our
technology internally and licensing new technology from third parties may
require significant additional capital expenditures and could materially and
adversely affect our business, results of operations and financial condition.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION AND LEGAL
UNCERTAINTIES.
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. Laws and regulations may
be adopted covering issues such as user privacy, pricing, content, taxation and
quality of products and services. Any new legislation could hinder the growth in
use of the Internet and other online services generally and decrease the
acceptance of the Internet and other online services as media of communications,
commerce and advertising. The governments of states and foreign countries might
attempt to regulate our transmissions or levy sales or other taxes relating to
our activities. The laws governing the Internet remain largely unsettled, even
in areas where legislation has been enacted. It may take years to determine
whether and how existing laws such as those governing intellectual property,
privacy, libel and taxation apply
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to the Internet and Internet advertising services. In addition, the growth and
development of the market for e-commerce may prompt calls for more stringent
consumer protection laws, both in the United States and abroad, which may impose
additional burdens on companies conducting business online. Our business,
results of operations and financial condition could be materially and adversely
affected by the adoption or modification of laws or regulations relating to the
Internet and other online services.
WE MAY BE SUED FOR INFORMATION RETRIEVED FROM OUR SITES.
We may be subject to claims for defamation, negligence, copyright or
trademark infringement, personal injury or other legal theories relating to the
information we publish on our online sites. These types of claims have been
brought, sometimes successfully, against online services as well as other print
publications in the past. We could also be subject to claims based upon the
content that is accessible from our online sites through links to other online
sites or through content and materials that may be posted by members in chat
rooms or bulletin boards. Our insurance, which covers commercial general
liability, may not adequately protect us against these types of claims.
WE MAY INCUR POTENTIAL PRODUCT LIABILITY FOR PRODUCTS SOLD ONLINE.
Consumers may sue us if any of the products that we sell online are
defective, fail to perform properly or injure the user, or if consumers
experience problems with honeymoon packages purchased through our sites. To
date, we have had limited experience selling products online and developing
relationships with manufacturers or suppliers of such products. We plan to sell
a range of products targeted specifically at brides and grooms through The Knot
Registry, The Knot Shop, Bridalink.com, Click Trips and other e-commerce sites
that we may acquire in the future. Such a strategy involves numerous risks and
uncertainties. Although our agreements with manufacturers and providers of
travel services typically contain provisions intended to limit our exposure to
liability claims, these limitations may not prevent all potential claims.
Liability claims could require us to spend significant time and money in
litigation or to pay significant damages. As a result, any such claims, whether
or not successful, could seriously damage our financial results, reputation and
brand name.
WE COULD FACE ADDITIONAL REGULATORY REQUIREMENTS, TAX LIABILITIES AND OTHER
RISKS IF WE DECIDE TO EXPAND INTERNATIONALLY.
We may decide to expand internationally. There are additional risks related
to doing business in international markets, such as changes in regulatory
requirements, tariffs and other trade barriers, fluctuations in currency
exchange rates, and adverse tax consequences. In addition, there are likely to
be different consumer preferences and requirements in such markets. Furthermore,
we may face difficulties in staffing and managing any foreign operations. We
cannot assure you that one or more of these factors would not harm any future
international operations.
WE MAY INCUR SIGNIFICANT EXPENSES RELATED TO THE SECURITY OF PERSONAL
INFORMATION ONLINE.
The need to transmit securely confidential information online has been a
significant barrier to e-commerce and online communications. Any well-publicized
compromise of security could deter people from using the Internet or other
online services or from using them to conduct transactions that involve
transmitting confidential information. Because our success depends on the
acceptance of online services and e-commerce, we may incur
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significant costs to protect against the threat of security breaches or to
alleviate problems caused by such breaches.
RISKS RELATED TO THIS OFFERING
AFTER THIS OFFERING, OUR EXECUTIVE OFFICERS, DIRECTORS AND 5% OR GREATER
STOCKHOLDERS WILL EXERCISE SIGNIFICANT CONTROL OVER ALL MATTERS REQUIRING A
STOCKHOLDER VOTE.
After this offering, our executive officers, directors and existing
stockholders who each own greater than 5% of the common stock that was
outstanding immediately before this offering and their affiliates will, in the
aggregate, beneficially own approximately 76% of our outstanding common stock.
As a result, these stockholders will be able to exercise control over all
matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership could also have the effect of delaying or preventing a change in
control.
FUTURE SALES OF OUR COMMON STOCK MAY NEGATIVELY AFFECT OUR STOCK PRICE.
Following this offering, we will have a large number of shares of common
stock outstanding and available for resale beginning at various points in time
in the future. The market price of our common stock could decline as a result of
sales of a large number of shares of our common stock in the public market or
the perception that such sales could occur.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, OUR STOCK PRICE MAY
EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS AND ANY VOLATILITY IN OUR STOCK
PRICE COULD RESULT IN CLAIMS AGAINST US.
Prior to this offering, investors could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after the offering. The initial public offering price will be
determined by negotiations between us and the representatives of the
underwriters. The market price of our common stock may decline below the initial
public offering price after this offering.
Fluctuations in market price and volume are particularly common among
securities of Internet and other technology companies. The market price of our
common stock may fluctuate significantly in response to the following factors,
some of which are beyond our control:
- variations in quarterly operating results;
- changes in market valuations of Internet and other technology companies;
- our announcements of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
- failure to complete significant sponsorship, advertising and merchandise
sales;
- additions or departures of key personnel;
- future sales of common stock; and
- changes in financial estimates by securities analysts.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
common stock. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources.
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WE MAY SPEND THE NET PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU MAY NOT
AGREE.
The net proceeds of this offering are not allocated for specific uses. Our
management will have broad discretion to spend the net proceeds from this
offering in ways with which investors may not agree. The failure of our
management to apply these funds effectively could result in unfavorable returns.
This could have a material and adverse effect on our business, results of
operations and financial condition, and could cause the price of our common
stock to decline.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY MAKE IT
DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.
Provisions of our certificate of incorporation, our bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
might be beneficial to our stockholders.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements which involve risks and
uncertainties. These forward-looking statements, which are usually accompanied
by words such as "may," "might," "will," "should," "could," "intends,"
"estimates," "predicts," "potential," "continue," "believes," "anticipates,"
"plans," "expects" and similar expressions, relate to statements about our
market opportunities, our strategy, our competition, our projected expense
levels and the adequacy of our available cash resources. This prospectus also
contains forward-looking statements attributed to third parties relating to
their estimates regarding the wedding industry and the growth of Internet use.
These forward-looking statements are based on assumptions that may be incorrect
and there can be no assurance that the projections included in these
forward-looking statements will come to pass. Our actual results could differ
materially from those expressed or implied by these forward-looking statements
as a result of various factors, including the risk factors described above and
elsewhere in this prospectus. We undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
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USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of the shares
of common stock in this offering of $28.3 million, assuming an initial public
offering price of $9.00 per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses. If the underwriters
exercise their over-allotment option in full, we estimate that our net proceeds
will be $32.7 million.
The principal purposes of this offering are to obtain additional capital,
to create a public market for our common stock and to facilitate future access
to public equity markets. As of the date of this prospectus, we have no specific
plans to use the net proceeds from this offering other than as set forth below.
We expect to use the proceeds for working capital, capital expenditures and
other general corporate purposes. The actual amounts expended for these purposes
will vary significantly depending on a number of factors, including revenue
growth, if any, and the extent and timing of our entry into target markets and
capital expenditures. We may also use a portion of the net proceeds to acquire
or invest in businesses, technologies or products that are complementary to our
business. However, we have no present plans or commitments and are not currently
engaged in any negotiations with respect to such transactions.
Pending our use of the net proceeds of this offering for these purposes, we
intend to invest the proceeds in short-term, interest-bearing, investment-grade
securities.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock since
our inception. We intend to retain future earnings, if any, to finance the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future. Consequently, stockholders will need to
sell shares of common stock to realize a return on their investment, if any.
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CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the automatic conversion of
7,360,000 shares of outstanding preferred stock into 7,360,000 shares of
common stock upon the closing of this offering;
- on a pro forma as adjusted basis to give effect to the sale of 3,500,000
shares of common stock by us in this offering at an assumed initial
public offering price of $9.00 per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses
payable by us.
This information should be read in conjunction with our financial
statements and the notes to those statements included in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
------- ------- -----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term debt.............................................. $ -- $ -- $ --
Stockholders' equity:
Preferred Stock, $.001 par value, actual -- no shares
authorized, issued or outstanding; pro forma and pro
forma as adjusted -- 5,000,000 shares authorized and no
shares issued or outstanding............................ -- -- --
Series A convertible preferred stock, $.001 par value;
actual -- 3,360,000 shares authorized, issued and
outstanding; pro forma and pro forma as adjusted -- no
shares authorized, issued or outstanding................ 3,938 -- --
Series B convertible preferred stock, $.001 par value;
actual -- 4,000,000 shares authorized, issued and
outstanding; pro forma and pro forma as adjusted -- no
shares authorized, issued or outstanding................ 13,963 -- --
Common stock, $.01 par value; actual -- 14,640,000 shares
authorized and 3,093,608 shares issued and outstanding;
pro forma -- 100,000,000 shares authorized and
10,453,608 shares issued and outstanding; pro forma as
adjusted -- 100,000,000 shares authorized and 13,953,608
shares issued and outstanding........................... 31 104 139
Additional paid-in-capital.................................. 7,796 25,624 53,884
Deferred compensation....................................... (2,716) (2,716) (2,716)
Deferred sales and marketing................................ (2,123) (2,123) (2,123)
Accumulated deficit......................................... (9,365) (9,365) (9,365)
------- ------- -------
Total stockholders' equity.............................. $11,524 $11,524 $39,819
======= ======= =======
Total capitalization................................. $11,524 $11,524 $39,819
======= ======= =======
</TABLE>
The table above is based on shares outstanding as of September 30, 1999.
This table excludes:
- 1,762,968 shares of common stock issuable upon the exercise of stock
options outstanding as of September 30, 1999, with a weighted average
exercise price of $1.97 per share, which include 2,203 shares issuable
upon exercise of stock options not granted under our existing stock
option plan;
- 10,000 shares of common stock issuable upon the exercise of stock options
granted in connection with the Bridalink.com acquisition;
- 5,000 shares of common stock issued in connection with the Click Trips
acquisition and 10,000 shares of common stock issuable upon the exercise
of options to be granted upon achievement by Click Trips of
performance-based goals;
- 10,000 shares of common stock issued in connection with the Wedding
Photographers Network acquisition;
- 133,511 shares of common stock issuable to management of Casenhiser
Clothing Company, Inc. in connection with their employment by us, on the
second, third and fourth anniversaries of the April 1998 acquisition of
Bridal Search;
- 366,667 shares of common stock issuable upon the exercise of a warrant
with an exercise price of $7.20 per share held by AOL; and
- 1,700,000 shares of common stock issuable upon the exercise of a warrant
with an exercise price of $5.00 per share held by QVC Interactive
Holdings, LLC.
21
<PAGE> 26
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $10.9 million, or approximately $1.04 per share of common stock.
Pro forma net tangible book value per share is determined by dividing the amount
of our total tangible assets less total liabilities by the number of shares of
our common stock outstanding after giving pro forma effect to the conversion of
each share of preferred stock into one share of common stock upon the closing of
this offering. Dilution in pro forma net tangible book value per share
represents the difference between the amount per share paid by investors in this
offering and the pro forma net tangible book value per share of common stock
immediately after the completion of this offering. After giving effect to our
sale of 3,500,000 shares offered hereby at an assumed initial public offering
price of $9.00 per share and after deducting estimated underwriting discounts
and estimated offering expenses payable by us, and the application of the
estimated net proceeds therefrom, our pro forma net tangible book value as of
September 30, 1999 would have been $39.2 million, or $2.81 per share. This
represents an immediate increase in pro forma net tangible book value of $1.77
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $6.19 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $9.00
Pro forma net tangible book value per share as of
September 30, 1999.......................................... $1.04
Increase per share attributable to new investors.......... 1.77
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.81
-----
Dilution in pro forma net tangible book value per share to
new investors............................................. $6.19
=====
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1999, after giving effect to the automatic conversion of all outstanding shares
of preferred stock into common stock upon the closing of this offering, the
total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid to us by existing
stockholders and by new investors before deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by us,
assuming an initial public offering price of $9.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 10,453,608 74.9% $19,509,600 38.2% $1.40
New investors......................... 3,500,000 25.1% 31,500,000 61.8% 9.00
----------- ----- ----------- -----
Total............................. 13,953,608 100.0% $51,009,600 100.0%
=========== ===== =========== =====
</TABLE>
The foregoing tables and calculations exclude:
- 1,762,968 shares of common stock issuable upon the exercise of stock
options outstanding as of September 30, 1999, with a weighted average
exercise price of $1.97 per share, which include 2,203 shares issuable
upon exercise of stock options not granted under our existing stock
option plan;
- 10,000 shares of common stock issuable upon the exercise of stock options
granted in connection with the Bridalink.com acquisition;
- 5,000 shares of common stock issued in connection with the Click Trips
acquisition and 10,000 shares of common stock issuable upon the exercise
of options to be granted upon achievement by Click Trips of
performance-based goals;
- 10,000 shares of common stock issued in connection with the Wedding
Photographers Network acquisition;
- 133,511 shares of common stock issuable to management of Casenhiser
Clothing Company, Inc. in connection with their employment by us, on the
second, third and fourth anniversaries of the April 1998 acquisition of
Bridal Search;
- 366,667 shares of common stock issuable upon the exercise of a warrant
with an exercise price of $7.20 per share held by AOL; and
- 1,700,000 shares of common stock issuable upon the exercise of a warrant
with an exercise price of $5.00 per share held by QVC Interactive
Holdings, LLC.
To the extent that any of these options or warrants are exercised, there
will be further dilution to new investors.
22
<PAGE> 27
SELECTED FINANCIAL DATA
The selected balance sheet data as of December 31, 1997 and 1998 and as of
September 30, 1999 and the selected statement of operations data for the period
from May 2, 1996 (inception) through December 31, 1996, the years ended December
31, 1997 and 1998 and the nine months ended September 30, 1999 have been derived
from our audited financial statements included in this prospectus. Balance sheet
data as of December 31, 1996 have been derived from our audited financial
statements not included in this prospectus. The statement of operations data for
the nine months ended September 30, 1998 have been derived from unaudited
financial statements included in this prospectus. In the opinion of management,
the statement of operations data for the nine months ended September 30, 1998
have been prepared on the same basis as the audited financial statements
appearing in this prospectus and include all necessary adjustments, consisting
only of normal recurring adjustments, we believe to be necessary for a fair
presentation of the data. Unaudited pro forma basic and diluted net loss per
share have been calculated assuming the conversion of all previously outstanding
preferred stock into common stock, as if the shares had converted immediately
upon their issuance. The selected financial data set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," our financial statements and the notes to those
statements included in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1996 YEAR ENDED NINE MONTHS
(INCEPTION) TO DECEMBER 31, ENDED SEPTEMBER 30,
DECEMBER 31, --------------------- ---------------------
1996 1997 1998 1998 1999
-------------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................................... $ 71 $ 596 $ 1,040 $ 826 $ 2,635
Cost of revenues................................. 9 67 131 82 904
--------- --------- --------- --------- ---------
Gross profit..................................... 62 529 909 744 1,731
Operating expenses:
Product and content development................ 262 635 1,031 788 1,685
Sales and marketing............................ 255 503 768 476 2,913
General and administrative..................... 242 265 809 539 2,194
Non-cash compensation.......................... -- -- 93 57 717
Non-cash sales and marketing................... -- -- -- -- 127
Depreciation and amortization.................. 9 22 122 75 346
--------- --------- --------- --------- ---------
Total operating expenses......................... 768 1,425 2,823 1,935 7,982
Loss from operations............................. (706) (896) (1,914) (1,191) (6,251)
Interest income (expense), net................... (46) (199) 15 (29) 243
--------- --------- --------- --------- ---------
Loss before extraordinary items.................. (752) (1,095) (1,899) (1,220) (6,008)
Extraordinary items.............................. -- -- 390 390 --
--------- --------- --------- --------- ---------
Net loss......................................... $ (752) $ (1,095) $ (1,509) $ (830) $ (6,008)
========= ========= ========= ========= =========
Loss per share -- basic and diluted:
Loss before extraordinary items................ $ (0.46) $ (0.67) $ (0.76) $ (0.52) $ (1.96)
Extraordinary items............................ -- -- 0.16 0.17 --
--------- --------- --------- --------- ---------
Net loss per share............................... $ (0.46) $ (0.67) $ (0.60) $ (0.35) $ (1.96)
========= ========= ========= ========= =========
Weighted average number of shares used in
calculating basic and diluted net loss per
share.......................................... 1,625,410 1,625,410 2,497,065 2,344,126 3,066,960
========= ========= ========= ========= =========
Pro forma basic and diluted net loss per share... $ (0.46) $ (0.67) $ (0.32) $ (0.19) $ (0.67)
========= ========= ========= ========= =========
Pro forma weighted average number of shares used
in calculating basic and diluted net loss per
share.......................................... 1,625,410 1,625,410 4,780,024 4,264,126 8,932,455
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1996 1997 1998 1999
----- ------- ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 16 $ 305 $1,038 $ 9,302
Working capital............................................. (84) 194 1,003 9,257
Total assets................................................ 194 1,153 1,950 13,846
Convertible preferred stock................................. -- -- 3,938 17,901
Total stockholders' equity.................................. (751) (1,017) 1,646 11,524
</TABLE>
23
<PAGE> 28
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
The following unaudited pro forma condensed statement of operations for the
year ended December 31, 1998 has been derived from the application of pro forma
adjustments to the historical financial statements of The Knot, Inc. and
Casenhiser Clothing Company, Inc. d/b/a Bridal Search, which are included
elsewhere in this prospectus. The unaudited pro forma condensed statement of
operations information gives effect to the acquisition of the assets of
Casenhiser Clothing Company, Inc. as if such transaction had occurred on January
1, 1998.
The unaudited pro forma condensed statement of operations does not purport
to be indicative of what our actual results of operations would have been
assuming the acquisition of Casenhiser Clothing Company, Inc. had been completed
on January 1, 1998, nor does it purport to be indicative of results of
operations that we may achieve in the future.
We have accounted for the acquisition of Casenhiser Clothing Company, Inc.
using the purchase method of accounting. We have allocated the aggregate
purchase price to the assets acquired based upon their fair values. We have
allocated the excess purchase price over the fair value of the assets acquired
to goodwill.
Pro forma basic and diluted net loss per share have been calculated
assuming the conversion of all previously outstanding preferred stock into
common stock, as if the shares had converted immediately upon their issuance.
See Note 2 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing basic and diluted net
loss per share.
The adjustment to pro forma net revenues for the year ended December 31,
1998 reflects the elimination of $38,000 of licensing fees that we paid to
Casenhiser Clothing Company, Inc. The adjustments to pro forma total operating
expenses include $19,000 of goodwill amortized during the period, $97,000 of
non-cash compensation amortized during the period, $33,000 of payroll and
related expenses and $9,000 facilities costs.
24
<PAGE> 29
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CASENHISER
CLOTHING PRO
THE KNOT, INC. COMPANY, INC. ADJUSTMENTS FORMA
-------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues............................ $1,040 $44 $(38) $1,046
Cost of revenues........................ 131 -- -- 131
--------- --------- --------- ---------
Gross profit............................ 909 44 (38) 915
Total operating expenses................ 2,823 48 120 2,991
--------- --------- --------- ---------
Loss from operations.................... (1,914) (4) (158) (2,076)
Net loss................................ $(1,509) $(6) $(158) $(1,673)
========= ========= ========= =========
Basic and diluted net loss per share.... $(0.60) $(0.66)
========= =========
Weighted average number of shares used
in calculating basic and diluted net
loss per share........................ 2,497,065 2,537,588
========= =========
Pro forma basic and diluted net loss per
share................................. $(0.32) $(0.35)
========= =========
Pro forma weighted average number of
shares used in calculating basic and
diluted net loss per share............ 4,780,024 4,820,547
========= =========
</TABLE>
25
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations together with our financial statements, the notes to those
statements and the other information in this prospectus. This discussion
contains forward-looking statements that involve risks and uncertainties. You
should consider carefully the information about these risks and uncertainties
contained in the section of this prospectus entitled "Risk Factors" before you
decide to buy our common stock.
OVERVIEW
The Knot is the leading online wedding destination on the World Wide Web
and the primary wedding content provider on America Online and several other of
AOL's leading brands, including AOL.com, Netscape Netcenter and CompuServe. We
commenced operations in May 1996, and recorded our first revenues in September
1996, immediately following the launch of our first online property. Our Web
site was launched in July 1997. We launched The Knot Registry, our online gift
registry, in November 1998 and significantly expanded our registry product
offerings in July 1999. In July 1999, we acquired the assets of Bridalink.com,
an Internet wedding supply store and the common stock of Click Trips, Inc., an
online travel agency. Also in July 1999, we entered into a strategic alliance
with Weddingpages, Inc. In August 1999, we acquired the assets of Wedding
Photographers Network, a searchable database of local wedding photographers.
We derive revenues from the sale of sponsorship, advertising and production
contracts. We also derive revenues from the sale of merchandise, from publishing
and from the sale of travel packages.
Sponsorship revenues are derived principally from contracts currently
ranging up to three years. Sponsorships are designed to integrate advertising
with specific editorial content. Sponsors can purchase the exclusive right to
promote products or services on a specific editorial area and can purchase a
special feature on our sites.
Advertising revenues are derived principally from short-term contracts
which typically range from one month up to one year. Advertising contracts
include banner advertisements and listings for local wedding vendors.
Sponsorship and advertising contracts provide for the delivery of a minimum
number of impressions. Impressions are the featuring of a sponsor's
advertisement, banner, link or other form of content on our sites. To date, we
have recognized our sponsorship and advertising revenues over the duration of
the contracts on a straight line basis as we have exceeded minimum guaranteed
impressions. To the extent that minimum guaranteed impressions are not met, we
are generally obligated to extend the period of the contract until the
guaranteed impressions are achieved. If this were to occur, we would defer and
recognize the corresponding revenues over the extended period.
Production revenues are derived from the development of online sites and
tools. Production revenues are recognized when the development is completed and
the online sites and tools are delivered.
To promote our brand on third-party sites, we produce online sites for
third parties featuring both The Knot and the third party. The cost of
production of these sites is included in our operating expenses. In return, we
receive distribution and exposure to their viewers, outbound links to our sites
and, in some circumstances, offline brand marketing. We do not recognize
revenues with respect to these barter transactions.
26
<PAGE> 31
Sponsorship, advertising and production revenues amounted to $1.7 million,
or 65% of our net revenues, for the nine months ended September 30, 1999, and
$853,000 or 82% of our net revenues, for the year ended December 31, 1998.
For the nine months ended September 30, 1999, our top six advertisers
accounted for 39% of our net revenues. For the year ended December 31, 1998, a
different advertiser accounted for 19% of our net revenues. For the year ended
December 31, 1997, one advertiser accounted for 42% of our net revenues and
another advertiser accounted for 13% of our net revenues. From May 2, 1996 (our
inception date) through December 31, 1996, four advertisers accounted for 34%,
30%, 23% and 13% of net revenues. Our large advertisers generally differed from
period to period. We expect that our large advertisers will continue to differ
over time.
Merchandise revenues are derived from the sales of merchandise through
Bridalink.com, which was acquired in July 1999, The Knot Registry and The Knot
Shop. Merchandise revenues include outbound shipping and handling charges. For
the nine months ended September 30, 1999, merchandise revenues were derived
principally from Bridalink.com and The Knot Registry. Merchandise revenues are
recognized when products are shipped to customers, reduced by an allowance for
estimated sales returns. Merchandise revenues amounted to 26% of our net
revenues for the nine months ended September 30, 1999 and 2% of our net revenues
for the year ended December 31, 1998.
Publishing revenues are derived from author royalties paid to us related to
our book publishing contract and from sales of books published by us, such as
our gown guide. Royalties are recognized when we have met all contractual
obligations, which typically include the delivery and acceptance of a final
manuscript. Revenues from the sale of books are recognized when the books are
shipped, reduced by an allowance for estimated sales returns. Publishing
revenues amounted to 6% of our net revenues for the nine months ended September
30, 1999 and 16% of our net revenues for the year ended December 31, 1998.
Travel revenues are derived from commissions earned on the sale of travel
packages by our online travel agency, Click Trips, Inc., which we acquired on
July 31, 1999. These revenues are recognized when the customer commences travel.
Travel commission revenues amounted to 2% of our net revenues for the nine
months ended September 30, 1999.
We generated revenues for the nine months ended September 30, 1998 and for
the year ended December 31, 1997, through usage fees paid by AOL based on the
number of customers visiting our AOL site. Usage fees were recognized as they
were earned based upon user time spent on our AOL site. On September 30, 1998,
we entered into an anchor tenant agreement with AOL which eliminated usage
revenues receivable from, and commissions payable to, AOL. Under this anchor
tenant agreement with AOL, we pay carriage fees to AOL. We generated $47,000 and
$74,000 of commission revenues from AOL which represented 5% and 13% of our net
revenues for the years ended December 31, 1998 and 1997, respectively. We paid
$16,000 and $68,000 in commissions to AOL for the years ended December 31, 1998
and 1997, respectively.
We recorded deferred compensation of approximately $3.3 million through
September 30, 1999, primarily as a result of the issuance of stock options to
employees with exercise prices per share subsequently determined for financial
reporting purposes to be below the fair market value per share of our common
stock at the dates of grant. The difference is recorded as a reduction of
stockholders' equity and amortized as non-cash
27
<PAGE> 32
compensation expense on an accelerated method over the four-year vesting period
of the related options.
In July 1999, we amended our anchor tenant agreement with AOL and recorded
deferred sales and marketing of $2.3 million as a result of the issuance of a
warrant to AOL in connection with that amendment. Deferred sales and marketing
is being amortized as non-cash sales and marketing expense on a straight-line
basis over the life of the agreement.
Extraordinary items for the year ended December 31, 1998 consist of a gain
of $1.1 million, representing the forgiveness of a portion of a note payable to
AOL including interest accrued on this note, and a loss of $719,000,
representing the write-off of unamortized deferred financing costs associated
with such note payable.
We have incurred net losses of $9.4 million from our inception on May 2,
1996 through September 30, 1999. We have historically relied on advances under a
retired note payable to AOL and on private sales of equity securities to fund
our operations. We expect operating and net losses to continue for the
foreseeable future as we continue to incur significant expenses while pursuing
our business strategy.
RESULTS OF OPERATIONS
The following table sets forth for the periods presented certain data from
our statement of operations, expressed as a percentage of net revenues.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1996 YEAR ENDED NINE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------- --------------------
1996 1997 1998 1998 1999
-------------- ------ ------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................... 12.8 11.2 12.6 9.9 34.3
-------- ------ ------ ------ ------
Gross profit....................... 87.2 88.8 87.4 90.1 65.7
Operating expenses:
Product and content
development................... 371.2 106.6 99.1 95.5 63.9
Sales and marketing.............. 361.2 84.4 73.9 57.7 110.5
General and administrative....... 343.1 44.4 77.9 65.2 83.3
Non-cash compensation............ -- -- 9.0 6.9 27.2
Non-cash sales and marketing..... -- -- -- -- 4.8
Depreciation and amortization.... 12.9 3.7 11.7 9.1 13.1
-------- ------ ------ ------ ------
Total operating expenses........... 1,088.4 239.1 271.6 234.4 302.8
Loss from operations............... (1,001.2) (150.3) (184.2) (144.3) (237.1)
Interest income (expense), net..... (64.9) (33.4) 1.4 (3.6) 9.2
-------- ------ ------ ------ ------
Loss before extraordinary items.... (1,066.1) (183.7) (182.8) (147.9) (227.9)
Extraordinary items................ -- -- 37.5 47.2 --
-------- ------ ------ ------ ------
Net loss........................... (1,066.1)% (183.7)% (145.3)% (100.7)% (227.9)%
======== ====== ====== ====== ======
</TABLE>
28
<PAGE> 33
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
Net revenues
Net revenues increased to $2.6 million for the nine months ended September
30, 1999 from $826,000 for the nine months ended September 30, 1998.
Sponsorship, advertising and production revenues increased to $1.7 million for
the nine months ended September 30, 1999 from $656,000 for the nine months ended
September 30, 1998, primarily due to revenues generated from additional
sponsorship and production contracts, and revenues from the launch of local
vendor advertising programs in July 1999. As a percentage of net revenues,
sponsorship, advertising and production revenues accounted for approximately 65%
and 79% for the nine months ended September 30, 1999 and 1998, respectively.
Merchandise revenues amounted to $694,000 for the nine months ended
September 30, 1999, resulting primarily from the acquisition of Bridalink.com in
July 1999 and the launch of The Knot Registry in November 1998. As a percentage
of net revenues, merchandise revenues accounted for 26% for the nine months
ended September 30, 1999. There were no merchandise revenues in the
corresponding period in 1998.
Publishing revenues increased to $160,000 for the nine months ended
September 30, 1999 from $143,000 for the nine months ended September 30, 1998.
The increase in publishing revenues was due to sales of our gown guide which was
published at the end of June 1999, partially offset by lower book publishing
revenues. As a percentage of net revenues, publishing revenues accounted for 6%
and 17% for the nine months ended September 30, 1999 and 1998, respectively.
Travel revenues accounted for $54,000 of our net revenues for the nine
months ended September 30, 1999, resulting from the acquisition of Click Trips,
Inc. in July 1999. As a percentage of net revenues, travel revenues accounted
for 2% for the nine months ended September 30, 1999. There were no travel
revenues in the corresponding period in 1998.
We anticipate that the components of our net revenues will continue to
fluctuate as our business continues to grow.
Cost of Revenues
Cost of revenues consists of the cost of merchandise sold, payroll and
related expenses for our personnel who are responsible for the production of
customized online sites and tools, and costs of Internet and hosting services.
Cost of revenues increased to $904,000 for the nine months ended September
30, 1999 from $82,000 for the nine months ended September 30, 1998. The increase
was primarily due to an increase in the sale of merchandise through
Bridalink.com and The Knot Registry, and an increase in the cost of producing
online sites and tools. As a percentage of our net revenues, cost of revenues
increased to 34% for the nine months ended September 30, 1999 from 10% for the
nine months ended September 30, 1998.
We anticipate that the cost of revenues will continue to grow in absolute
dollars as we increase our merchandising efforts and expand our sponsorship and
production contracts. Sponsorship, advertising and production gross margins are
currently greater than merchandise gross margins. As our business continues to
grow and our net revenues continue to change, we expect our cost of revenues to
continue to fluctuate as a percentage of net revenues.
29
<PAGE> 34
Product and Content Development
Product and content development expenses consist of payroll and related
expenses for creative personnel, information technology, and expenses for
third-party software developers and contract programmers.
Product and content development expenses increased to $1.7 million for the
nine months ended September 30, 1999 from $788,000 for the nine months ended
September 30, 1998. The increase was primarily attributable to hiring additional
staff to enhance the content and functionality of our sites, partially offset by
a decrease in third-party programming and content licensing fees. As a
percentage of our net revenues, product and content development expenses
decreased to 64% for the nine months ended September 30, 1999 from 95% for the
nine months ended September 30, 1998.
We believe that significant investments in product and content development
are required to remain competitive and, therefore, expect that our product and
content development expenses will continue to increase in absolute dollars for
the foreseeable future.
Sales and Marketing
Sales and marketing expenses consist primarily of payroll and related
expenses for sales and marketing, customer service and public relations
personnel, as well as expenditures for our AOL anchor tenant agreement,
advertising and promotional activities, and fulfillment and distribution of
merchandise.
Sales and marketing expenses increased to $2.9 million for the nine months
ended September 30, 1999, from $476,000 for the nine months ended September 30,
1998. The increase was primarily due to carriage fees paid under our anchor
tenant agreement with AOL, which went into effect on January 1, 1999, increased
personnel costs related to the hiring of additional sales and marketing
personnel and increased sales commissions. As a percentage of our net revenues,
sales and marketing expenses increased to 111% for the nine months ended
September 30, 1999 from 58% for the nine months ended September 30, 1998.
We believe that significant investments in sales and marketing personnel
and programs are required to remain competitive and to build our brand both
online and offline, and, therefore, that our sales and marketing expenses will
continue to increase in absolute dollars for the foreseeable future.
General and Administrative
General and administrative expenses consist primarily of payroll and
related expenses for our executive management, finance and administrative
personnel, legal and accounting fees, facilities costs and insurance expenses.
General and administrative expenses increased to $2.2 million for the nine
months ended September 30, 1999 from $539,000 for the nine months ended
September 30, 1998. This increase was primarily due to increased personnel costs
and professional fees. As a percentage of our net revenues, general and
administrative expenses increased to 83% for the nine months ended September 30,
1999 from 65% for the nine months ended September 30, 1998.
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We expect our general and administrative expenses to increase in absolute
dollars for the foreseeable future as we continue to hire personnel and incur
expenses to build our administrative infrastructure to support the growth of our
business and our operations as a public company.
Non-Cash Compensation
We recorded $3.0 million of deferred compensation during the nine months
ended September 30, 1999 and $268,000 of deferred compensation for the nine
months ended September 30, 1998. Amortization of deferred compensation increased
to $695,000 for the nine months ended September 30, 1999 from $57,000 for the
nine months ended September 30, 1998. As a percentage of our net revenues,
amortization of deferred compensation increased to 26% for the nine months ended
September 30, 1999 from 7% of our net revenues for the nine months ended
September 30, 1998.
Non-Cash Sales and Marketing
We recorded $2.3 million of deferred sales and marketing during the nine
months ended September 30, 1999, related to the issuance of a warrant to AOL in
connection with our amended anchor tenant agreement in July 1999. Amortization
of deferred sales and marketing was $127,000 for the nine months ended September
30, 1999. As a percentage of net revenues, amortization of deferred sales and
marketing amounted to 5% for the nine months ended September 30, 1999.
Depreciation and Amortization
Depreciation and amortization expenses consist of depreciation and
amortization of property and equipment and amortization of goodwill related to
acquisitions.
Depreciation and amortization expenses increased to $346,000 for the nine
months ended September 30, 1999 from $75,000 for the nine months ended September
30, 1998. This increase was primarily due to increased depreciation due to the
increase in property and equipment purchases and additional amortization of
goodwill related to acquisitions. As a percentage of net revenues, depreciation
and amortization expense increased to 13% for the nine months ended September
30, 1999 from 9% for the nine months ended September 30, 1998.
PERIOD FROM MAY 2, 1996 (INCEPTION) TO DECEMBER 31, 1996 AND YEARS ENDED
DECEMBER 31, 1997 AND 1998
Net Revenues
Net revenues increased to $1.0 million for the year ended December 31, 1998
from $596,000 for the year ended December 31, 1997 and from $71,000 in the
period from inception through December 31, 1996. The increase for each period
was due primarily to an increase in the average dollar value of sponsorship
programs and in the number of sponsors and advertisers. As a percentage of net
revenues, sponsorship and advertising revenues accounted for approximately 82%,
100%, and 100% for the years ended December 31, 1998 and 1997 and for the period
from inception through December 31, 1996, respectively.
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Merchandise revenues were $17,000 for the year ended December 31, 1998 as a
result of the launch of The Knot Registry in November 1998. As a percentage of
net revenues, merchandise revenues accounted for 2% for the year ended December
31, 1998. There were no merchandise revenues for the year ended December 31,
1997 or for the period from inception through December 31, 1996.
Publishing revenues were $143,000, for the year ended December 31, 1998 as
a result of the delivery and acceptance of the first book under our publishing
contract. As a percentage of net revenues, pubishing revenues accounted for 14%
for the year ended December 31, 1998. There were no publishing revenues for the
year ended December 31, 1997 or for the period from inception through December
31, 1996.
Cost of Revenues
Cost of revenues increased to $131,000 for the year ended December 31,
1998, from $67,000 for the year ended December 31, 1997 and from $9,000 in the
period from inception through December 31, 1996. The increase in cost of
revenues for each period was primarily due to the increased number of sponsors
and advertisers. Cost of revenues for the year ended December 31, 1998 included
the cost of merchandise sold as a result of the launch of The Knot Registry in
November 1998. Internet access and hosting services expenses also increased in
each period. As a percentage of net revenues, cost of revenues remained
relatively constant at 13%, 11% and 13% for the years ended December 31, 1998
and 1997, and for the period from inception through December 31, 1996,
respectively.
Product and Content Development
Product and content development expenses increased to $1.0 million for the
year ended December 31, 1998, from $635,000 for the year ended December 31, 1997
and from $262,000 for the period from inception through December 31, 1996. The
increase for each period was primarily attributable to increased personnel costs
related to enhancing the content and functionality of our sites. As a percentage
of net revenues, product and content development expenses decreased to 99% from
107% and from 371% for the years ended December 31, 1998 and 1997, and for the
period from inception through December 31, 1996, respectively. The percentage
decreases for each period were primarily attributable to the higher growth rate
in our net revenues as compared to the growth rate associated with these
expenses.
Sales and Marketing
Sales and marketing expenses increased to $768,000 for the year ended
December 31, 1998, from $503,000 for the year ended December 31, 1997 and from
$255,000 for the period from inception through December 31, 1996. The increases
for each period were primarily a result of the retention of an outside public
relations firm and higher sales commissions paid as a result of increased
sponsorship and advertising sales. As a percentage of net revenues, sales and
marketing expenses decreased to 74% from 84% and from 361% for the years ended
December 31, 1998 and 1997 and for the period from inception through December
31, 1996, respectively. The percentage decreases for each period were primarily
attributable to the higher growth rate in our net revenues as compared to the
growth rate associated with these expenses.
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General and Administrative
General and administrative expenses increased to $809,000 for the year
ended December 31, 1998, from $265,000 for the year ended December 31, 1997 and
from $242,000 for the period from inception through December 31, 1996. The
increase for each period was primarily due to an increase in personnel costs and
facilities expenses resulting from an increase in the number of personnel hired
to support the growth of our business. As a percentage of net revenues, general
and administrative expenses increased to 78% for the year ended December 31,
1998 from 44% for the year ended December 31, 1997 and decreased from 343% for
the period from inception through December 31, 1996. The percentage increase
from 1997 to 1998 was primarily attributable to increased personnel costs, while
the percentage decrease from 1996 to 1997 was primarily attributable to the
higher growth rate in our net revenues as compared to the growth rate in general
and administrative expenses.
Non-Cash Compensation
We recorded $480,000 in deferred compensation for the year ended December
31, 1998. Amortization of deferred compensation was $93,000, or 9% of our net
revenues, for the year ended December 31, 1998.
Depreciation and Amortization
Depreciation and amortization expenses increased to $122,000 for the year
ended December 31, 1998, from $22,000 for the year ended December 31, 1997 and
from $9,000 in the period from inception through December 31, 1996. The increase
for each period was primarily due to increased depreciation resulting from
increased purchases of property and equipment to support the growth of our
business. Also included in depreciation and amortization for the year ended
December 31, 1998 was approximately $54,000 of goodwill amortization related to
the acquisition of Bridal Search in April 1998. As a percentage of net revenues,
depreciation and amortization remained relatively constant at 12%, 4% and 13% of
net revenues for the years ended December 31, 1998 and 1997, and for the period
from inception through December 31, 1996, respectively.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly statement of
operations data for each of the seven quarters ended September 30, 1999. We have
prepared these data on the same basis as our audited financial statements in
this prospectus and have included all necessary adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of our results
of operations for these interim periods. You should read these interim financial
data together with our audited financial statements and the notes to those
statements in this prospectus. Our historical results of operations do not
necessarily indicate the results of operations we will achieve in the future,
and our results of
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operations for interim periods do not necessarily indicate the results of
operations for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues........... $ 226 $ 439 $ 161 $ 214 $ 194 $ 544 $ 1,897
Cost of revenues....... 33 28 21 49 53 188 663
------- ------- ------- ------- ------- ------- -------
Gross profit........... 193 411 140 165 141 356 1,234
Operating expenses:
Product and content
development....... 166 290 333 242 401 464 820
Sales and
marketing......... 94 144 238 292 706 788 1,419
General and
administrative.... 83 153 302 271 420 621 1,153
Non-cash
compensation...... -- 22 35 36 129 213 375
Non-cash sales and
marketing......... -- -- -- -- -- -- 127
Depreciation and
amortization...... 7 31 38 46 69 106 171
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 350 640 946 887 1,725 2,192 4,065
Loss from operations... (157) (229) (806) (722) (1,584) (1,836) (2,831)
Interest income
(expense), net....... (49) 4 16 44 (10) 110 143
------- ------- ------- ------- ------- ------- -------
Loss before
extraordinary
items................ (206) (225) (790) (678) (1,594) (1,726) (2,688)
Extraordinary items.... -- 390 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net loss............... $ (206) $ 165 $ (790) $ (678) $(1,594) $(1,726) $(2,688)
======= ======= ======= ======= ======= ======= =======
</TABLE>
Net revenues for the three months ended September 30, 1999 increased by
$1.4 million as compared to the three months ended June 30, 1999 primarily as a
result of revenues generated from additional sponsorship and production
contracts, the launch of local vendor advertising programs in July 1999, as well
as merchandise revenues generated through Bridalink.com which was acquired in
July 1999. There was a corresponding increase in both cost of revenues and sales
and marketing expenses during the three months ended September 30, 1999.
Net revenues for the three months ended June 30, 1999 increased from the
three months ended March 31, 1999 as a result of an increase in the average
dollar value of sponsorship agreements and in the number of sponsors and
advertisers. Net revenues for the three months ended September 30, 1998
decreased from the prior three month period as a result of lower sponsorship
revenues as well as decreased publishing revenues. Net revenues for the three
months ended June 30, 1998 increased from the prior three month period primarily
as a result of publishing revenues recognized from the delivery and acceptance
of the first book under our book publishing contract.
Sales and marketing expenses for the three months ended March 31, 1999
increased from the three months ended December 31, 1998 as a result of carriage
fees under our new anchor tenant agreement with AOL which went into effect on
January 1, 1999.
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LIQUIDITY AND CAPITAL RESOURCES
We funded our operations from our inception on May 2, 1996 through April
1998 primarily with advances under a retired note payable to AOL. Subsequent to
April 1998, we have funded our operations primarily through private sales of
preferred equity securities totaling $18.0 million. As of September 30, 1999, we
had $9.3 million in cash and cash equivalents.
Net cash used in operating activities was $4.8 million for the nine months
ended September 30, 1999. This resulted primarily from the net loss for the
period as adjusted for depreciation and amortization and an increase in accounts
receivable, other current assets and inventories, partially offset by increases
in accounts payable and accrued expenses and deferred revenue. Net cash used in
operating activities was $1.7 million for the year ended December 31, 1998,
$837,000 for the year ended December 31, 1997 and $625,000 for the period from
May 2, 1996 (inception) through December 31, 1996, primarily as a result of the
net loss for the periods, adjusted for depreciation and amortization.
Net cash used in investing activities was $1.6 million for the nine months
ended September 30, 1999, primarily due to the purchase of property and
equipment and cash paid for business acquisitions. Net cash used in investing
activities was $305,000 for the year ended December 31, 1998, $24,000 for the
year ended December 31, 1997 and $58,000 for the period from inception through
December 31, 1996, primarily due to the purchase of property and equipment and,
in 1998, cash paid for a business acquisition.
Net cash provided by financing activities was $14.7 million for the nine
months ended September 30, 1999 primarily resulting from the issuance of Series
B Preferred Stock in April 1999. Financing activities provided $2.8 million for
the year ended December 31, 1998 from the sale of Series A Preferred Stock.
Financing activities for the year ended December 31, 1997 provided $1.2 million
and for the period from inception through December 31, 1996 provided $700,000,
representing borrowings under a note payable to AOL.
Although we have no material commitments for capital expenditures, our
capital expenditures have increased from $58,000 for the period from inception
through December 31, 1996 to over $1.1 million for the nine months ended
September 30, 1999, consistent with the growth in our operations and staffing.
We anticipate that this increase in capital expenditures will continue for the
foreseeable future as a result of increased growth. We intend to continue to
pursue acquisitions of, or investments in, complementary businesses, services
and technologies, expand our sales and marketing programs and conduct more
aggressive brand promotions.
As of September 30, 1999, we had commitments under non-cancelable operating
leases amounting to $6.1 million, of which $374,000 will be due on or before
September 30, 2000.
We currently believe that the net proceeds from this offering, together
with our current cash and cash equivalents, will be sufficient to fund our
working capital and capital expenditure requirements for at least the next 12
months. We cannot assure you that additional funding, if required, will be
available to us in amounts or on terms acceptable to us. If sufficient funds are
not available or are not available on acceptable terms, our ability to fund our
expansion, take advantage of acquisition opportunities, develop or enhance our
services or products, or otherwise respond to competitive pressures would be
significantly
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limited. Those limitations would materially and adversely affect our business,
results of operations and financial condition.
RECENT ACQUISITIONS
On July 6, 1999, we purchased all of the assets of Bridalink.com for
approximately $124,000 in cash and the issuance of immediately vested stock
options to purchase up to 10,000 shares of our common stock at an exercise price
$1.50 per share. Bridalink.com operates www.bridalink.com, an Internet wedding
supply store located in Northern California.
On July 31, 1999, we acquired all of the capital stock of Click Trips, Inc.
for 5,000 shares of common stock. Under the terms of the acquisition agreement,
the 5,000 shares of common stock will be held in escrow for six months for the
purpose of indemnifying us against any potential liabilities of Click Trips.
Click Trips has the right to receive options to purchase up to an additional
10,000 shares of our common stock upon the attainment of $1.2 million in
commission revenue for the year ended December 31, 2000. The exercise price
related to the options will be equal to the fair market value of our common
stock on the date of grant. Click Trips operates www.clicktrips.com, an online
travel agency and is located in Warminster, Pennsylvania.
On August 18, 1999, we acquired the assets of Wedding Photographers
Network, a division of The Denis Reggie Company, for 10,000 shares of our common
stock. Wedding Photographers Network is a searchable database of local wedding
photographers and is located in Atlanta, Georgia.
We have accounted for these acquisitions using the purchase method of
accounting. Goodwill resulting from these acquisitions is being amortized using
the straight line method over three years. The results of operations for each
acquisition are included in the period subsequent to the date of each
acquisition.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept or recognize only two-digit entries in the date code field. These
systems and software products will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software may need to be upgraded, redesigned or replaced to
comply with such Year 2000 requirements to avoid system failure or
miscalculations causing disruptions of normal business activities.
Our business, results of operations and financial condition would suffer if
the systems on which we depend to conduct our business are not Year 2000
compliant. Our potential areas of exposure include products purchased from third
parties, information technology that we use for internal operations including
computers and software, and non-information technology systems and services
including telephone systems, electricity and other items that we use for
internal operations.
STATE OF READINESS
We are not currently aware of any Year 2000 compliance problems relating to
our systems that would have a material adverse effect on our business, results
of operations and financial condition. We have made a preliminary assessment of
the Year 2000 readiness of
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our operating, financial and administrative systems, including hardware and
software. All of the internally developed production systems for our sites are
Year 2000 compliant. We have received and have on file Year 2000 readiness
statements from AOL, QVC and each of our current third-party technology vendors.
In each case, these technology vendors state that the Year 2000 date change will
not result in a significant interruption in critical services or negatively
impact their clients in any material way. With respect to information technology
we addressed Year 2000 compliance issues primarily through commercially
available patches or upgrades in the ordinary course of business. We have
completed integrated testing of our systems, including internally developed
proprietary software, third-party software, hardware and services, and have
found no Year 2000 compliance problems.
We have contacted our principal vendors of material non-information
technology systems and services used by us, such as our telephone system and
utility providers, and requested confirmation of the Year 2000 compliance of
their systems and services. We have received notification from some of these
vendors that the systems and services that they provide to us are Year 2000
compliant. We have replaced the systems and services of non-compliant vendors
with compliant alternatives.
COSTS
To date, we have spent an immaterial amount on Year 2000 compliance issues,
and we expect to incur additional costs not to exceed $200,000 in connection
with identifying, evaluating and addressing Year 2000 compliance issues. Most of
our expenses for the Year 2000 have related to, and are expected to continue to
relate to, the operating costs associated with time spent by employees and
consultants in the evaluation process and execution of Year 2000 compliance.
Such expenses, if higher than anticipated, could have a material adverse effect
on our business, results of operations and financial condition.
RISKS
We believe, based upon our investigations and testing to date, that the
Year 2000 issue will not have a material adverse effect on our business, results
of operations or financial condition. However, despite all of our efforts to
date towards insuring Year 2000 compliance, latent issues may still surface in
the future that require upgrades, modifications, or replacement, all of which
could be time-consuming and expensive. Our failure to fix or replace internally
developed proprietary software, third-party software, hardware, or services on a
timely basis could result in lost revenues, increased operating costs, the loss
of customers and other business interruptions.
We depend heavily on a number of third-party vendors to provide both
network services and equipment. A significant Year 2000-related disruption of
the network, services or equipment that third-party vendors provide to us could
cause our sponsors, advertisers, members and visitors to consider seeking
alternate providers. Year 2000 issues could also cause an unmanageable burden on
our technical support personnel, which in turn could materially and adversely
affect our business, results of operations and financial condition.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers, including
AOL and QVC, and others outside of our control will be Year 2000 compliant. The
failure by such entities to be Year 2000 compliant could result in a systemic
failure such as a prolonged Internet, telecommunications or electrical failure.
These suppliers could also prevent us from delivering services to our customers,
decrease the use of the Internet or prevent users from
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accessing our sites which could have a material adverse effect on our business,
results of operations and financial condition.
CONTINGENCY PLAN
Because no systems have been found to be non-compliant, we have determined
that a contingency plan is not required. We are unable to provide for
contingencies arising as a result of large scale or Internet-wide failure
because we are not aware of any adequate replacement service for the Internet.
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BUSINESS
OVERVIEW
The Knot is the leading online wedding destination on the World Wide Web
and the primary wedding content provider on America Online and several other of
AOL's leading brands, including AOL.com, Netscape Netcenter and CompuServe. We
combine comprehensive content and an online community with wedding-related
commerce. Our online sites provide full-service offerings targeted at the
planning needs of today's brides and grooms. We believe that our sites enable
our users to overcome the many challenges of the wedding planning process by
providing a one-stop solution. In addition, we provide advertisers and vendors
with targeted access to couples actively seeking information and making
meaningful buying decisions relating to all aspects of their weddings.
Located at www.theknot.com on the Web and on AOL at keywords "Knot" and
"weddings", our sites provide future brides and grooms with useful information
and resources. We offer:
- - a searchable database that draws on thousands of articles on wedding planning;
- - a database of approximately 13,000 local vendors in 52 markets nationwide;
- - a searchable bridal gown database with more than 15,000 gown images from over
140 bridal designers;
- - a searchable database with more than 750 bridal accessories, including
headpieces, shoes and purses;
- - 45 weekly hosted chats;
- - nine integral tools for planning the wedding;
- - an online gift registry with more than 10,000 gifts;
- - an online shop of over 450 wedding supplies and gifts; and
- - honeymoon travel packages.
We also service the wedding market through a series of books and a semiannual
gown guide. These traditional forms of media provide cross-promotional
opportunities and assist us in increasing our brand awareness and our online
audience.
Engaged couples are increasingly turning to The Knot. In September 1999, we
generated over 15.4 million page views on our Web site compared to 2.5 million
in December 1998. As of September 30, 1999, more than 395,000 couples had
enrolled on our site to become members, and we are currently enrolling as
members an average of over 1,000 new couples per day.
INDUSTRY BACKGROUND
Growth of the Internet and Online Commerce
The Internet has emerged as a global medium that allows millions of people
worldwide to obtain information, communicate and conduct business. In its June
1999 report, International Data Corporation estimates that the number of
Internet users
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worldwide will grow from approximately 142 million users in 1998 to 502 million
by the end of 2003. Additionally, worldwide commerce revenues on the Internet
are expected to grow from approximately $50 billion at the end of 1998 to
approximately $1.3 trillion by the end of 2003. The Internet has also become an
attractive medium for advertising. Advertisers can utilize the Internet to
target specific groups based on consumer tastes and buying patterns. Forrester
Research estimates that the dollar volume of online advertising will increase
from $1.5 billion in 1998 to $15.3 billion in 2003.
The Wedding Industry
Each year approximately 2.4 million couples get married in the United
States. According to an independent research report, the domestic wedding market
generates approximately $45 billion in retail sales annually. Presumed to be a
once-in-a-lifetime occasion, a wedding is a major milestone event and,
therefore, consumers tend to allocate significant budgets to the wedding and
related purchases. According to a 1997 survey of readers of Bride's magazine,
the average amount spent on a wedding was $19,104, excluding the honeymoon.
Planning a wedding can be a stressful and confusing process. Engaged
couples must make numerous decisions and expensive purchases. A typical wedding
requires decisions and planning relating to bridal registries, invitations,
wedding gowns and wedding party attire, wedding rings, photographers, music,
caterers, flowers and honeymoons. In addition to the number of decisions faced
by engaged couples, the fixed date and the emotional significance of the event
intensify the stress. For the majority of engaged couples, the process of
planning a wedding is an entirely new one. They do not know where to find the
necessary information and services, how much services or goods should cost or
when decisions need to be made. These planning decisions are further complicated
because many couples choose to have their weddings in locations other than where
they live. Researching and soliciting local wedding services from distant
locations without traveling and making an enormous time commitment is extremely
difficult. Today's to-be-weds are seeking reliable resources and information to
assist in their planning and purchase decisions.
Vendors and advertisers highly value to-be-weds as a consumer group.
Replenished on an annual basis, wielding substantial budgets and facing a firm
deadline, engaged couples are ideal recipients of advertisers' messages and
vendors' products and services. According to Modern Bride, during the six months
prior to and the six months following a wedding, the average couple will make
more buying decisions and purchase more products and services than at any other
time in their lives. The challenges and obstacles that engaged couples face make
them especially receptive to marketing messages. A disproportionate amount of
advertising revenues are generated per subscriber by bridal magazines. According
to Advertising Age, in 1998 the top three bridal magazines generated an average
of $190.74 in revenues per reader, compared to an average of $75.50 in revenues
per reader in the top three travel magazines and an average of $53.63 in
revenues per reader in the top three women's magazines.
The wedding market also represents significant opportunities for the retail
industry. Over 91% of all to-be-weds register for gifts. According to a 1997
report by Bride's magazine, engaged couples receive gifts from an average of 200
guests, most of whom are spending between $70 and $100. Because items are
selected by the engaged couple but paid for by their guests, price sensitivity
is minimal and registry products are rarely discounted by retailers. Registry
for products in all categories has grown, prompting many
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national retailers -- previously without registries -- to enter the gift
registry market. Weddings also generate substantial revenues for travel services
companies. Honeymoon travel generates an estimated $4.5 billion annually.
According to a 1997 Bride's survey, over 99% of all newlyweds go on a honeymoon
with an average cost of $3,657 per couple.
Traditional Wedding Resources Fail to Adequately Service Today's Engaged Couples
The wedding market is highly fragmented and wedding resources are widely
dispersed. In addition, to-be-weds face difficulty in locating wedding planning
information. Traditionally, to-be-weds have relied upon many different resources
when planning their weddings, including family and friends, bridal magazines,
books, bridal registries, wedding consultants and travel agents. Because the
traditional providers of wedding resources are single-service/product focused,
to-be-weds must manage multiple providers. Consequently, to-be-weds find wedding
planning to be stressful, time consuming and inconvenient.
Seeking information and ideas, most engaged couples turn to bridal
magazines for assistance. Many couples, however, find that the sheer volume of
gown ad pages, scarcity of editorial content, the lack of organization of these
magazines and their infrequent publishing schedules make them an inefficient and
insufficient source of timely and relevant wedding planning information.
In addition, the registry process is equally burdensome. Increasingly,
to-be-weds supplement department store bridal registries, the customary source
of wedding gifts, to satisfy their gift preferences. Despite the inconvenience,
a significant portion of today's engaged couples register at two or more stores
and increasingly turn to specialty and discount stores to obtain the product
variety they desire.
The Internet and the Wedding Industry
To-be-weds are seeking a comprehensive resource to assist in their
preparation and planning for a wedding. Because of its global reach and capacity
to transmit information rapidly, the Internet represents an ideal medium over
which to-be-weds can easily access information and communicate with the
widely-dispersed providers of local wedding resources. We expect the impact of
the Internet on the wedding market to be significant.
In 1997, the median age was 26 for first-time brides and 28 for first-time
grooms, placing them in the demographic age group, 18 to 34 years, that
currently comprises approximately 41% of all home Web users. As Internet use
continues to increase, engaged couples are more likely to turn to online
resources as the first place they look for wedding products, information and
registry services. Recognizing this trend, traditional providers of wedding
resources have begun to offer their services and products online. Like their
offline equivalents, however, these online offerings are single-service/product
focused. To-be-weds continue to search for a comprehensive solution to their
information, planning and purchasing needs at a single destination.
THE KNOT SOLUTION
We are the leading online destination targeting the wedding market. We
focus on the needs of engaged couples and have created an online environment
that provides information, advice, community, tools and commerce in the areas of
wedding planning most important to couples including engagement, wedding day,
honeymoons and newlywed life. In addition, we provide vendors and advertisers
with targeted marketing opportunities
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due to the well-defined demographic profile of our users. Key components of our
solution include:
BENEFITS TO USERS
Relevant Wedding Content. We provide creative and up-to-date information
and resources to attract users to our sites. Weddings are information-intensive
events requiring extensive research, planning and decision-making. Our sites
provide future brides and grooms with a wide range of wedding-related
information and resources. We also provide offline information and services to
brides and grooms. We author books that serve as guides for wedding planning and
publish The Knot Ultimate Wedding Gown Guide, a semiannual publication
cataloguing wedding gowns from the top designers in the world.
Active Membership and Community Participation. Our online sites generate a
high degree of member involvement through chats, message boards and personalized
interactive services. To-be-weds actively seek forums to exchange ideas and ask
questions during the planning process. We encourage and promote active
participation within our online community. The Knot community allows our members
to interact with other couples, as well as our own experts, on wedding planning
issues and concerns. For example, our "Ask Carley" area is an interactive
service in which wedding etiquette and other questions are answered daily by our
experts on wedding planning. This area includes a searchable database that draws
from an archive of up-to-date answers to over 11,000 questions. We also send out
a weekly general newsletter to our subscribers updating them on new articles,
features and upcoming events on our sites and bi-weekly newsletters focused on
specific topics, such as registries and accessories. Additionally, our
interactive services allow users to prepare and modify their wedding budget and
create personalized checklists and Web pages.
Convenient, Comprehensive Shopping Experience. We integrate our
interactive services and informative content with comprehensive shopping
services, which range from wedding gifts and supplies to honeymoons. We have
developed The Knot Registry, which we believe is the Internet's most
comprehensive wedding gift registry. Unlike other online bridal registries which
link users to large retailers in exchange for a payment from the retailer, we
buy products directly from manufacturers. This enables us to provide our users
with a large selection of products from a wide range of categories, while
maintaining a high level of customer service. We offer registry gifts ranging
from fine china and blenders to mountain bikes and safaris. Our strategic
relationship with QVC facilitates our ability to offer a broad range of products
and enables products to be shipped generally within 48 hours of receipt of
order. Wedding guests can quickly and easily purchase gifts online or offline
via toll-free phone service, fax or mail, 24 hours a day.
Through our online wedding supply stores, to-be-weds can conveniently
purchase from one source a broad range of gifts for the wedding party and
supplies for the wedding ceremony, such as decorated disposable cameras, ring
pillows and unity candles. Many of these items are highly specialized and
difficult to find through traditional retail outlets.
Access to the Local Wedding Market. Through our strategic alliance with
Weddingpages, Inc., we offer a database of approximately 13,000 local wedding
vendors. In July 1999, we entered into an 18-month exclusive agreement with
Weddingpages, a publisher of local wedding magazines across the United States
and owner of a Web site offering wedding-related services and information.
Weddingpages Bride and Home is published in 52 markets twice yearly. This
magazine is distributed on a continual roll-out
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basis with estimated newsstand circulation that exceeds the combined circulation
of Bride's and Modern Bride. Through this strategic alliance, we offer a
national online site with a local sales force in over 50 markets and an
extensive database that brides and grooms can search to find vendors at their
wedding locations. Categories in the local vendor database include wedding
venues, caterers, florists, bridal shops, photographers, musicians and limousine
services. Weddingpages sells online advertising to local wedding vendors on our
behalf. We receive the revenue from these sales and pay Weddingpages a 65% sales
commission. We also pay Weddingpages a monthly fee for related administrative
and operating functions, including customer service, ad production and
accounting services. In addition, in August 1999, we acquired Wedding
Photographers Network, a division of The Denis Reggie Company. Wedding
Photographers Network allows to-be-weds to search for local wedding
photographers meeting their specific needs.
BENEFITS TO ADVERTISERS, SPONSORS AND VENDORS
We provide advertisers, sponsors and vendors with targeted access to
couples actively seeking information and advice and making meaningful spending
decisions relating to all aspects of their weddings. We offer advertisers,
sponsors and vendors an opportunity to establish brand loyalty with first-time
purchasers of many products and services.
Advertisers and Sponsors. We are able to deliver to advertisers and
sponsors significant leads to potential purchasers. Editorial content and
advertising are often integrated on our sites. For example, an article about
honeymoons might feature an advertisement for a resort. Instead of traditional
banners or buttons, our sponsors usually select our custom-developed marketing
programs that offer special features, including tools. When a user clicks on an
advertisement positioned on our sites, a sponsor's site appears which showcases
the advertiser's products and services. These sites can provide relevant product
and contact information, electronic catalogues of products or hyperlinks to the
sponsor's Web site. Companies can also enter into longer term arrangements to
exclusively sponsor entire editorial areas or special features.
Vendors. We provide our vendors with a consumer group that will make more
buying decisions than at any other time in their lives. Our easy-to-use shopping
sites increasingly promote e-commerce. Vendors' products are attractively
displayed with color photographs and descriptions customized for the bridal
market. Through our interactive online features, such as chat rooms and message
boards, and by utilizing the creative content portions of our sites, we
encourage and assist our users in making purchasing decisions.
OUR STRATEGY
Our objective is to expand our position as the leading online resource
providing comprehensive wedding planning, information, products and services.
Key elements of our business strategy include the following:
Build Strong Brand Recognition. Building brand recognition of the Knot is
critical to attracting and expanding our online user base. We have secured the
leading position in the online wedding market. To maintain the focus on The Knot
brand, we will continue to emphasize our editorial and creative content. We
believe that our content and ability to make the wedding process easier, more
fun and convenient for today's busy couples will continue to build our brand.
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We will also strengthen brand awareness through our book series and gown
guide. Through our affiliation with Weddingpages, the largest local wedding
publication in the United States, we are increasing our brand awareness at the
local level. We plan to continue building brand recognition by leveraging our
membership base and creating innovative and integrated marketing solutions.
Aggressively Grow Membership. New member enrollment per month has grown
from 11,000 in December 1998 to over 36,000 in September 1999. We currently
enroll as members an average of over 1,000 new couples per day. We intend to
continue to grow our membership base and increase member usage through our
content offerings, interactive services, active community participation and
strategic relationships.
Provide Full-Service Wedding Resources. We facilitate the wedding planning
process by providing what we believe is one of the most comprehensive package of
services, tools and commerce applications. By continuing to combine our
extensive wedding content and our active online community with a full-service
shopping solution, we plan to maintain our strong position and to make the
wedding planning process more convenient, efficient and enjoyable. We intend to
continue to expand the services we offer and the content we provide.
Capitalize on Multiple Revenue Opportunities. We intend to leverage the
size and favorable demographics of our online community to generate multiple
revenue streams. Our primary focus to date has been on national advertising
revenues and on providing our sponsors and advertisers with targeted access to
couples actively seeking information and making purchase decisions. We view our
relationships with our sponsors and advertisers as critical to our success. We
intend to continue to seek additional sponsorship contracts with longer terms
and higher dollar values for our contracts. We also intend to benefit from our
increased presence in the local wedding market. Our searchable database features
advertising in 52 local markets for local wedding vendors, such as
photographers, caterers and florists.
We expect to generate increasing online revenues from The Knot Registry and
our convenient gift and supply shops. We will continue to use our content to
promote e-commerce opportunities. Additionally, we expect to realize revenues
from publishing our books and semiannual gown guide. We will pursue additional
revenue opportunities, as appropriate, in connection with the needs of today's
engaged and newly married couples. We also intend to extend the relationship we
build with our users and provide access to additional products and services
relevant to newlyweds and growing families.
Continue to Pursue Strategic Alliances and Acquisitions. We plan to expand
our business through strategic alliances and acquisitions. Since April 1999, we
have entered into strategic relationships with QVC and Weddingpages, and we have
acquired Bridalink, Click Trips and Wedding Photographers Network. Our
relationship with QVC allows us to rapidly purchase, process and ship
merchandise for The Knot Registry, and our relationship with Weddingpages allows
us to provide our users with access to an extensive database of local vendors
and resources. The acquisitions of Bridalink, Click Trips and Wedding
Photographers Network expanded the resources available on our sites for to-be-
weds. We intend to seek other opportunities to acquire or form alliances with
other companies that will enhance our business.
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THE KNOT'S ONLINE NETWORK
Our sites allow users to access information, participate in interactive
chats and message boards, and purchase items online. The following is a brief
description of our online content:
EDITORIAL CONTENT
Engagement This area provides advice on proposing, choosing a
diamond ring, and throwing an engagement party. It
also includes steps to take after the bride and
groom are engaged.
Planning Advice This area informs couples on the business points
of planning a wedding. Topics include questions to
ask wedding vendors, points to be included in
contracts and tips for weddings on a budget.
Wedding Ideas Photos, stories, and creative ideas from weddings
around the country are featured in this area.
Additional topics include ethnic traditions,
second weddings and theme wedding ideas.
The Dress The articles and photo features in this area cover
all aspects of bridal fashion. Highlights include
the latest bridal gown trends, advice on choosing
accessories and advice on which gowns look good on
whom.
Big Day Beauty Articles and photos in this area advise brides on
the latest trends in bridal make-up and hair, as
well as recommend pre-wedding fitness and spa
treatments.
Grooms and Guys This area is devoted to grooms, groomsmen, dads
and ring bearers. Articles include topics from
wedding duties and toasts to groomsmen gifts and
bachelor parties.
Maids and Moms This area is devoted to helping bridesmaids, moms
and flowergirls sort out their wedding duties.
Also included are articles on throwing showers,
finding bridesmaid dresses and throwing
bachelorette parties.
Newlywed Nesting This area focuses on helping the bride and groom
set up house, including what to register for, how
to entertain, how to make post-wedding financial
decisions and how to maintain relationships after
the wedding.
Honeymoon Escapes Articles and photo features in this area cover
honeymoon destinations throughout the world.
Included in the area is advice on overseas travel,
resorts, packing tips and activities.
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INTERACTIVE FEATURES AND TOOLS
Ask Carley In this area, the wedding editors provide answers
to couples' etiquette questions. Topics include
divorced families, second weddings, problem
bridesmaids, and general wedding etiquette.
Gown Search This database of wedding attire includes more than
15,000 wedding gown images from over 140 bridal
designers. A bride can search for gowns by price,
designer or silhouette and save results to her own
saved gown list to view later. In addition, this
database features bridesmaid dresses, attire for
the mothers of the bride and groom, and flower
girl dresses.
Big Day Budgeter This personalized budget calculator creates a
category-by-category wedding budget. For each category, the budgeter offers
advice and explains what the couple can afford in
their price range. The budgeter saves the couple's
budget information online, where they can update
it 24 hours a day.
Local Vendor Finder In partnership with Weddingpages, we provide
listings of more than 13,000 wedding vendors in 52
local markets nationwide. Categories include
caterers, bakers, banquet halls, limousine
companies, musicians, and other wedding
professionals. Information includes contact
information, photos and service descriptions.
Personal Wedding Web Pages Couples can create a Web page for their wedding.
On these three-page Web sites couples can include
photos, personal stories, ceremony details such as
location and time, local lodging and activities
for guests, names and description of bridal party
members and a link to buy items on the couple's
registry list at The Knot.
The Ultimate Wedding
Checklist This checklist provides a personalized,
week-by-week wedding planning to-do list created
according to a couple's wedding date. Couples
visit the Web site for their daily to-dos and
check off items they have completed.
Wedding Photographers
Network This is a database of professional wedding
photographers that provides couples the ability to
search by date, location and price. Couples can
view online portfolios of the photographers' work.
Diamond Finder This database of diamond information helps couples
find an appropriate stone based on budget, cut,
quality and size requirements. This feature also
includes the ability to appraise a diamond or to
double-check a price.
Wedding Guest List Manager This online address book allows couples to manage
their guest list, invitations and seating. Couples
can track guest address information as well as the
total number of guests invited and guest
responses. Additionally, they can create a seating
chart and record gifts received and thank you
notes sent.
Accessory Search This database allows brides to search for bridal
accessories by designer name or category.
Categories include headpieces, shoes, purses,
gloves and jewelry. Brides can also search by
specific criteria such as price point. Search
results include photos, price, style number and
purchase information.
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COMMUNITY FEATURES
Wedding Chat We have 24-hour chat rooms on both America Online
and the Web. We have 45 weekly hosted chats. Our
18 chat hosts, usually newlyweds, manage the room
to facilitate conversation flow and help brides
find information on The Knot that answers their
questions.
Newsletters Couples can subscribe to a general weekly
newsletter featuring updates on current Knot
editorial articles, tips on using The Knot and
special promotions. Couples can also subscribe to
biweekly newsletters focused on topics such as
registry and accessories.
Discussion Groups The Knot message boards provide an area for
couples to exchange personal stories, creative
ideas and advice. Special board features include
the wedding dress resale classifieds board, and
the "vendor referral" board, where brides list
their favorite wedding professionals.
Wedding Announcements A database of wedding announcements that allows
visitors to The Knot to find couples marrying in a
specific area of the country or on a specific
wedding date. Photos and stories about the
couples' weddings are included in this area, which
also allows visitors to post good wishes for them.
SPONSORSHIP, ADVERTISING AND PRODUCTION
We have derived a significant amount of our revenues to date from the sale
of sponsorship, advertising and production contracts. For the nine months ended
September 30, 1999, sponsorship, advertising and production revenues represented
65% of our net revenues.
Our strategy is focused on generating a majority of our advertising
revenues from sponsors and advertisers who seek a cost-effective means to reach
the wedding market. Sponsors advertise on the editorial areas of our sites, and
can purchase special features in an area designated solely for them. These
programs are typically exclusive and are for a period of up to three years.
Sponsorships provide content while showcasing sponsors' products and
services, creating a relationship between our users and our sponsors. The
special feature programs typically include an exclusive Knot-designed online
site, as well as site-wide banners and links to the sponsor's Web site. In
addition, special features also include integrated marketing programs which may
include online promotional events, such as sweepstakes, or hosted chat sessions,
collection of user data for the sponsor, offline promotions, such as collateral
material distribution at bridal shows and links to other strategic areas of the
sponsor's Web site. For example, OurBeginning.com, a wedding invitation
supplier, is the exclusive sponsor of The Complete Guide to Invitations where we
publish articles about wording, addressing and assembling invitations as well as
an Invitation Q&A section. There are advertising banners and text that link to
OurBeginning.com's special feature area as well as to their site. The special
feature area also contains links to the OurBeginning.com Web site.
Both content specific area and special feature sponsorships may also
include interactive tools. For example, Mondera's Wedding Band Finder, which is
hosted on our
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Web site allows users to search for wedding bands by gender, price or metal. If
there are wedding bands available that meet the user's criteria, a buy button
appears on the screen. If the user clicks on the buy button, they will be linked
directly to Mondera's Web site where the user can make the purchase.
We offer short-term advertising contracts ranging from one month to one
year. For example, a local photographer can purchase a listing on our Wedding
Photographers Network which typically contains key contact information and may
also contain a portfolio sample of a photographer's work. Advertisers can also
purchase banner advertisements.
E-COMMERCE
The Knot Shop and Bridalink.com
We offer wedding supplies through The Knot Shop and Bridalink.com.
Bridalink.com is our separate online store for wedding supplies which we
maintain in order to attract new users and generate additional revenue. We offer
over 450 products, including decorated disposable cameras, wedding bubbles and
bells, ring pillows, toasting flutes, car decorating kits, table centerpieces,
goblets and glasses, garters and unity candles. These highly specialized items
are often difficult to find through traditional retail outlets, and the purchase
of these items is often left to the last minute. Consumers can place orders
online, through a toll-free number, fax or via mail, 24 hours a day. We fulfill
orders from our warehouse located in Redding, California.
The Knot Registry
The Knot Registry offers a broad selection of more than 10,000 products and
services from more than 500 well-recognized brands. Approximately 45% of our
products are supplied by QVC vendors. Wedding guests can quickly and easily
purchase gifts online or via phone or fax, 24 hours a day. We offer traditional
registry categories such as china, household appliances and electronics, in
addition to non-traditional categories, such as outdoor gear, dance lessons,
entertainment and travel. Couples also may register for services which are
typically not available from traditional bridal registries, such as home
mortgage down payments, car loans and leases and investment services such as
mutual funds.
The Knot Registry is designed to provide convenience for the engaged
couple, allowing them to:
- register from anywhere 24 hours a day;
- modify and monitor their registry selections at any time throughout their
engagement;
- arrange for custom announcements, including personalized e-mail and
registry announcement cards, to guests, notifying them of the couple's
registration;
- select a delivery date;
- elect to participate in completion programs after the wedding to purchase
registry gifts selected but not received; and
- interact with our shopping experts through e-mail, instant messenger or a
toll-free phone service to help them decide which products best suit
their needs.
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Couples may browse products by traditional categories or price. To assist
registering couples through the difficult and time-consuming gift selection
process, The Knot Registry is also organized into custom groupings of products
and services designed to match the interests of particular lifestyles, such as
adventurous, romantic or cosmopolitan. This merchandising strategy is designed
to save the registrant time and streamline the registry process.
Through The Knot Registry, wedding guests can quickly and easily purchase
gifts online. The Knot Registry offers direct access to the couple's registry
list, a custom display of what remains to be purchased by category or price and
secure transactions to complete the order online. For guests lacking online
access, the couple's custom registry list is available for review via a
toll-free phone service, fax or mail, 24 hours a day.
In April 1999, we entered into a services agreement with QVC. Under this
agreement, QVC provides us warehousing, sales, fulfillment and distribution
services in connection with The Knot Registry. This services agreement was fully
implemented on September 7, 1999. Our strategic relationship with QVC affords us
the ability to purchase merchandise for The Knot Registry from QVC vendors at a
specified premium over QVC's volume discount rate. At the customer's request, a
product generally can be shipped within 48 hours of order. We utilize QVC to
process and ship all merchandise orders from The Knot Registry. Our services
agreement with QVC expires on the fourth anniversary of this offering. We have
the option to extend the term of the services agreement for an additional 180
days. QVC may terminate our services agreement if we fail to pay any amounts due
or otherwise breach the terms of the agreement, or if we are sold or become
bankrupt.
We believe The Knot Registry model offers several advantages over other
online retailers, traditional bridal registries or both. These advantages
include:
<TABLE>
<CAPTION>
ADVANTAGE OVER
TRADITIONAL ADVANTAGE OVER
BRIDAL REGISTRY ONLINE RETAILERS
--------------- ----------------
<S> <C> <C>
- - Items are registered weeks or even months prior X
to the desired shipment date. This allows us to
better plan our inventory needs and maximize
inventory turns.
- - The state-of-the-art fulfillment capabilities X X
of QVC allow us to implement a just-in-time
inventory strategy which reduces our inventory
carrying costs.
- - Since wedding guests often pay for gifts when X X
ordered and prior to procurement, we benefit
from the float on these funds.
- - Shipments are often bundled and shipped X X
together, reducing shipment costs.
- - The bride and groom may review their list of X X
gifts prior to shipment, enabling them to round
out sets or exchange gifts prior to shipment.
This review minimizes returns, while
representing an opportunity for us to sell them
additional products.
</TABLE>
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CLICK TRIPS, INC.
On July 31, 1999, we acquired Click Trips, Inc., an online travel agency
located at www.clicktrips.com. Click Trips specializes in destination travel
packages to the Caribbean, Bermuda and Mexico. Click Trips closely monitors
honeymoon and leisure travel trends and is therefore able to offer a high level
of customer service and great knowledge of resorts. In addition, the live chat,
past guest reviews, message boards and travel articles available on Click Trips
allow us to strengthen our sense of community among our online audience. The
Click Trips acquisition advances our brand-building initiative by integrating
the travel-related content and commerce platform with our existing
wedding-related offerings.
PUBLICATIONS
The Knot Book Series
Our book series consists of three books which are being published over
three years by Broadway Books, a division of Random House. We develop the
content of each book through the interaction between our users and our wedding
experts. This "real-world" approach, directed by our editorial team and based on
user experience and feedback, distinguishes us from the approach of traditional
wedding resources. Each book encourages readers to visit our sites. To date, we
have completed two of the books and a third is under development:
- The Knot's Complete Guide to Weddings in the Real World was published in
December 1998 and has gone to a second printing. This book is a detailed
wedding-planning resource for to-be-weds, offering the information a
bride and groom need to plan their wedding, from buying the ring to
crossing the threshold.
- The Knot Ultimate Wedding Planner, our second book, has been accepted by
the publisher and is scheduled to be published in January 2000. This book
includes worksheets, checklists, etiquette, tips, calendars and answers
to frequently-asked questions.
We sell our books on our online sites and through bookstores. We earn
royalties on sales of our books.
Wedding Gown Guide
We released The Knot Ultimate Wedding Gown Guide in June 1999. This guide
is an extensive catalogue of wedding gowns from the top designers in the world,
published without advertisements to be an attractive and efficient alternative
to traditional bridal magazines. With over 300 pages of color photos, the
publication provides in one resource information a bride needs to find the dress
of her dreams, including front, back and detail photos of over 1,000 gowns, full
descriptions and price information, and an index of designers and their
locations. The Ultimate Wedding Gown Guide also provides a buying checklist and
accessory and trend information. We intend to publish The Knot Ultimate Wedding
Gown Guide twice a year. We sell the gown guide on our Web site, through QVC's
television show and at bridal trade shows.
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MEMBERSHIP
We believe a large and active membership base is critical to our success.
Membership enrollment is free. Our members enjoy the use of personal Web pages,
message boards, budgeting tools, wedding checklists and gown search. We
recognize the importance of maintaining confidentiality of member information
and we have established a privacy policy to protect personal information. Our
current privacy policy is set forth on our sites. Our policy is not to tell any
third party any member's personal identifying information, but we may share
aggregated information about our members with other pre-screened organizations
who have specific direct mail product and service offers we think may be of
interest to our members. We may share aggregated member information with third
parties, such as a member's zip code or gender. In addition, we may use
information revealed by members and information built from user behavior to
target advertisements, content and e-mail.
RELATIONSHIP WITH AOL
On July 23, 1999, we entered into an amended anchor tenant agreement with
AOL, which extended the term of our existing agreement with AOL through January
6, 2003 and expanded our presence on AOL. Under the terms of the agreement, The
Knot is the primary wedding content provider on AOL and several other of AOL's
leading brands, including AOL.com, Netscape Netcenter and CompuServe. AOL
provides promotions and reserves programming areas for The Knot.
Under our original services agreement with AOL, we obtained usage fees from
AOL based on the number of customers visiting our AOL site, and we paid AOL
commissions on our advertising revenues. Under the new agreement, we now pay AOL
a quarterly carriage fee, with no obligation to pay AOL advertising commissions.
AOL may terminate the agreement regarding our carriage on specific properties
upon 30 days' prior written notice.
MARKETING
We utilize a number of strategies and programs to build awareness of The
Knot brand and to position The Knot as the definitive resource for wedding
planning and information. We employ an active press relations team, which
responds to numerous press inquiries. We promote our brand through television
and radio appearances by Carley Roney, our head wedding expert. In addition, we
actively encourage our promotions staff to speak at industry and corporate
events to enhance our reputation and promote our diverse products.
Our participation in wedding tradeshows and other industry events also
provides opportunities to promote The Knot brand. We are the exclusive online
sponsor of the Great Bridal Expo, the largest traveling consumer/trade show
dedicated to the wedding market. In exchange for our agreement to design,
promote and host the Great Bridal Expo Web site, the Great Bridal Expo has
agreed to distribute approximately 50,000 of The Knot branded shopping bags in
25 cities nationwide and will display two large banners featuring The Knot
throughout the trade shows. In addition, The Knot Ultimate Wedding Gown Guide
will be sold at the registration desks for the Great Bridal Expo, and a video
featuring The Knot will be displayed at each of the locations.
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We also take advantage of cross-promotional opportunities among our
properties and services. For example, The Knot's online presence will introduce,
promote and sell our publications. These opportunities help increase our brand
awareness and online traffic.
COMPETITION
The Internet advertising and online wedding markets are new, rapidly
evolving and intensely competitive, and we expect such competition to intensify
in the future. We face competition primarily from three separate areas: online
sites, magazines and gift registries.
There are many wedding-related sites on the Internet, developed and
maintained by online content providers. Retail stores, manufacturers, wedding
magazines and regional wedding directories also have online sites which compete
with us. We expect competition to increase because of the business opportunities
presented by the growth of the Internet and e-commerce. Competition may also
intensify as a result of industry consolidation and a lack of substantial
barriers to entry in our market. Moreover, we face competition for sponsorship
and advertising sales from other online content providers and advertisement
server companies that provide banner advertisement services that might be
considered an alternative marketing solution.
We also face competition for our services from bridal magazines. Bride's
and Modern Bride are the two dominant bridal publications in terms of revenue
and circulation. According to Advertising Age, these two magazines and Bridal
Guide, the third leading bridal magazine, generated gross advertising revenues
of $198.4 million in 1998.
The Knot Registry faces competition from online sources such as registry
aggregators. We also compete with retail stores offering gift registries,
especially from retailers offering specific bridal gift registries. These
stores, particularly national department store chains, have strong brand
awareness, many years of retailing experience, and most now have online
transactional capabilities.
We believe that the principal competitive factors in the online wedding
market are brand recognition, convenience, ease of use, information, quality of
service and products, member affinity and loyalty, reliability and selection. As
to these factors, we believe that we compete favorably. Our dedicated editorial,
sales and products staffs concentrate their efforts on producing the most
comprehensive online wedding resource available.
Generally, many of our current and potential competitors have longer
operating histories, significantly greater financial, technical and marketing
resources, greater name recognition and substantially larger user or membership
bases than we have. Therefore, these competitors have a significantly greater
ability to attract advertisers and users. In addition, many of these competitors
may be able to respond more quickly than we can to new or emerging technologies
and changes in Internet user requirements and to devote greater resources than
we do to the development, promotion and sale of services. There can be no
assurance that our current or potential competitors will not develop products
and services comparable or superior to those developed by us or adapt more
quickly than we do to new technologies, evolving industry trends or changing
Internet user preferences. Increased competition could result in price
reductions, reduced margins or loss of market share, any of which would
materially and adversely affect our business, results of operation and financial
condition. In addition, if we expand internationally, we may face additional
competition. There can be no assurance that we will be able to compete
successfully
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against current and future competitors, or that competitive pressures faced by
us would not have a material adverse effect on our business, results of
operations and financial condition.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
Our technology infrastructure provides for continuous availability of our
online service. All of the critical components of the system are redundant,
allowing us to withstand unexpected component failure and to undergo maintenance
or upgrades. Our operation is dependent on the ability to maintain our computer
and telecommunications systems in effective working order and to protect our
systems against damage from fire, natural disaster, power loss,
telecommunications failure or similar events. Our system hardware is co-located
at Exodus Communications' Jersey City, New Jersey data center. Systems
administrators and network managers at Exodus monitor our servers, operate our
network and execute backups. Our servers have access to auxiliary power during
outages. Our systems are copied to backup tapes daily, which are in turn sent to
us for offsite storage. Database and Web servers are redundant and operate using
clustering technology for effective load-balancing and fault tolerance.
Regular capacity planning allows us to quickly upgrade existing hardware
and integrate new hardware to react quickly to a rapidly expanding member base
and increased traffic to our sites. We generally operate at 99.9% uptime and no
unexpected downtime. Key content management and e-commerce components are
designed, developed and deployed by our in-house technology group. We also
license commercially available technology when appropriate in lieu of dedicating
our own human or financial resources. Current examples include eShare
Expressions, our chat server and NetGravity, our ad server. Also, we use
MapQuest for geographical mapping applications.
We employ several layers of security to protect data transmission and
prevent unauthorized access. We keep all of our production servers behind
firewalls for security purposes and do not allow outside access, at the
operating systems level, except via special secure channels. Strict password
management and physical security measures are followed. Computer emergency
response team alerts are read, and, where appropriate, recommended action is
taken to address security risks and vulnerabilities. From time to time, we use
the services of third party computer security experts and penetration tests have
been performed to help improve security.
E-commerce transactions and browser-based administration screens employ
secure sockets layer encryption to secure data transmitted between clients and
servers. Credit card information captured during e-commerce transactions is
never shared with outside parties, and we provide shoppers with a toll-free
number to place orders by phone as an alternative to completing a transaction
online.
GOVERNMENT REGULATION
We are not currently subject to direct federal, state or local regulation,
and laws or regulations applicable to access to or commerce over the Internet,
other than regulations applicable to businesses generally. Due to the increasing
popularity and use of the Internet and other online services, however, it is
possible that a number of laws and regulations may be adopted regarding the
Internet or other online services covering issues such as user privacy, freedom
of expression, pricing, content and quality of products and services, taxation,
advertising, intellectual property rights and information security. The nature
of such legislation and the manner in which it may be interpreted and enforced
cannot be
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fully determined and, therefore, such legislation could subject us and/or our
customers to potential liability, which in turn could have an adverse effect on
our business, results of operations and financial condition. The adoption of any
such laws or regulations might also decrease the rate of growth of Internet use,
which in turn could decrease the demand for our service or increase the cost of
doing business or in some other manner have a material adverse effect on our
business, results of operations and financial condition. In addition,
applicability to the Internet of existing laws governing issues such as property
ownership, copyrights and other intellectual property issues, taxation, libel,
obscenity and personal privacy is uncertain. The vast majority of such laws were
adopted prior to the advent of the Internet and related technologies and, as a
result, do not contemplate or address the unique issues of the Internet and
related technologies.
Several states have also proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
information is collected from users and provided to third parties. Changes to
existing laws or the passage of new laws intended to address these issues,
including some recently proposed changes, could create uncertainty in the
marketplace that could reduce demand for our services or increase the cost of
doing business as a result of litigation costs or increased service delivery
costs, or could in some other manner have a material adverse effect on our
business, results of operations and financial condition. In addition, because
our services are accessible throughout the United States, other jurisdictions
may claim that we are required to qualify to do business as a foreign
corporation in a particular state. We are qualified to do business in New York,
California, Texas and Virginia and our failure to qualify as a foreign
corporation in a jurisdiction where we are required to do so could subject us to
taxes and penalties for the failure to qualify and could result in our inability
to enforce contracts in such jurisdictions. Any such new legislation or
regulation, or the application of laws or regulations from jurisdictions whose
laws do not currently apply to our business, could have a material adverse
effect on our business, results of operations and financial condition.
To obtain membership on our sites, users must disclose their names,
addresses, e-mail addresses and roles in the wedding. Our members use budgeting
tools, wedding checklists, gown search, personal Web pages and message boards on
our sites. We do not currently sell any member's personal identifying
information to third parties unless the member has provided written consent. We
may share aggregated member information with third parties, such as a member's
zip code or gender. In addition, we may use information revealed by members and
information built from user behavior to target advertising, content and e-mail.
Privacy concerns may cause visitors to avoid online sites that collect
behavioral information and even the perception of security and privacy concerns,
whether or not valid, may indirectly inhibit market acceptance of our services.
In addition, because we rely on the collection and use of personal data from our
members for targeting advertisements shown on our services, we may be harmed by
any laws or regulations that restrict our ability to collect or use this data.
The European Union recently enacted its own privacy regulations that may result
in limits on the collection and use of some user information. The FTC has begun
investigations into the privacy practices of companies that collect information
about individuals on the Internet. Although we are not currently subject to
direct regulation by the FTC, there can be no assurance that we will not become
subject to direct regulation in the future.
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It may take years to determine how existing laws such as those governing
intellectual property, privacy, libel and taxation apply to the Internet. Any
new legislation or regulation regarding the Internet, or the application of
existing laws and regulations to the Internet, could harm us. Additionally,
while we do not currently operate outside of the United States, the
international regulatory environment relating to the Internet market could have
a material and adverse effect on our business, results of operations and
financial condition if we expand internationally.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard our copyrights, service marks, trademarks, trade dress, trade
secrets, proprietary technology and similar intellectual property as critical to
our success, and rely on trademark and copyright law, trade secret protection,
confidentiality and assignment of invention agreements, and/or license
agreements with employees, customers, independent contractors, partners and
others to protect our proprietary rights. We strategically pursue the
registration of our trademarks and service marks in the United States, and have
applied for and obtained registration in the United States for some of our
trademarks and service marks, including "theknot". Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our products and services are made available online.
We have licensed in the past, and expect to license in the future, some of
our proprietary rights, such as trademarks or copyrighted material, to third
parties. While we attempt to ensure that the quality of our brand is maintained
by our licensees, there can be no assurance that our licensees will not take
actions that might materially adversely affect the value of our proprietary
rights or reputation, which could have a material adverse effect on our
business, financial condition and results of operations. There can be no
assurance that the steps we have taken to protect our proprietary rights will be
adequate or that third parties will not infringe or misappropriate our
copyrights, trademarks, trade secrets and similar proprietary rights. In
addition, there can be no assurance that other parties will not assert claims of
infringement of intellectual property against us. Although we believe that our
products and services do not infringe upon the intellectual property rights of
others and that we have all rights necessary to utilize the intellectual
property employed in our business, we may be subject to claims alleging
infringement of third-party intellectual property rights. Any such claims could
require us to spend significant sums on litigation, pay damages, delay product
installments, develop non-infringing intellectual property or acquire licenses
to intellectual property that is the subject of any such infringement.
Therefore, such claims could have a material adverse effect on our business,
results of operations and financial condition.
EMPLOYEES
At November 5, 1999, we had a total of 109 employees, of which 53 were
involved in product and content development, 34 were involved in sales and
marketing, and 22 were involved in general and administrative functions. None of
our employees is represented by a labor union. We have not experienced any work
stoppages and we consider relations with our employees to be good. Competition
for qualified personnel in our industry is intense. We believe that we will need
to continue to attract, hire and retain qualified personnel to be successful in
the future.
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FACILITIES
We currently lease approximately 20,000 square feet of space at our
headquarters in New York City. The lease expires on March 31, 2012. We lease
approximately 3,100 square feet of space for our customer service center and
merchandising operation in Orange County, California. The lease for this space
expires on August 31, 2002. We also lease approximately 3,000 square feet of
space for warehousing and operations in Redding, California. This lease expires
on May 31, 2001, with an option to extend for an additional two years. Click
Trips, our subsidiary in Warminster, Pennsylvania, also leases approximately
1,100 square feet of office space. The lease for this space expires on December
1, 2000, with an option to extend for an additional year.
We currently anticipate that we will require additional space to
accommodate our growth as more personnel are hired.
LEGAL PROCEEDINGS
We are not presently a party to any material legal proceedings.
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MANAGEMENT
OUR EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The executive officers, key employees and directors of The Knot, and their
ages and positions as of November 5, 1999, are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ---- --------
<S> <C> <C>
David Liu(2)......................... 34 President, Chief Executive Officer and
Chairman of the Board
Sandra Stiles(1)..................... 49 Chief Operating Officer, Assistant
Secretary and Director
Richard Szefc........................ 50 Chief Financial Officer, Treasurer and
Secretary
Carlos Manuel Abreu.................. 40 Chief Technology Officer
Carley Roney......................... 31 Editor-in-Chief
Michael Wolfson...................... 33 Vice President, Distribution
Rob Fassino.......................... 32 Vice President, Business Integration
Russell Casenhiser................... 34 Vice President of Retail Sales
Adam Sandow.......................... 31 Vice President of Sales
John Link(1)(2)...................... 57 Director
Ann Winblad(1)(2).................... 48 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
DAVID LIU is a co-founder of The Knot and has been our Chief Executive
Officer and a director since our inception in May 1996. From January 1993 to May
1996, Mr. Liu served as Director of Production of RunTime Inc., a CD-ROM
development firm that he co-founded with Ms. Roney. Prior to January 1993, Mr.
Liu was the Director of Production at VideOvation, a subsidiary of the Reader's
Digest. Mr. Liu received a B.F.A. in Film and Television from New York
University. Mr. Liu is married to Ms. Roney.
SANDRA STILES has been Chief Operating Officer since November 1998 and
Assistant Secretary since September 1999. From November 1998 to May 1999, she
served as our Chief Financial Officer. Ms. Stiles has served as a director of
The Knot since May 1998. From September 1994 to October 1998, she was the Senior
Vice President and Director of Operations for the Children's Book and Value
Publishing division of Random House. She also served as a Vice President and the
Corporate Comptroller of Random House from October 1990 to August 1994. Prior to
October 1990, Ms. Stiles held various positions at OmniCorp Holdings, Inc.,
Bertelsmann Inc. and Arthur Andersen & Co. She received a B.S. in Accounting
from New York University.
RICHARD SZEFC has been Chief Financial Officer since May 1999 and Treasurer
and Secretary since September 1999. From July 1998 to May 1999, Mr. Szefc was an
independent consultant. From April 1990 to July 1998, Mr. Szefc served as
Executive Vice President and Chief Financial Officer of Random House. Prior to
April 1990, Mr. Szefc
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served as a partner in the audit practice of Arthur Andersen & Co. Mr. Szefc
received a B.S. in Economics from the University of Pennsylvania.
CARLOS MANUEL ABREU has served as our Chief Technology Officer since
February 1999. From March 1992 to January 1999, Mr. Abreu was the Chief
Executive Officer and Chief Technology Officer of Cyberphilia, Inc., a developer
of intranets, extranets and e-commerce solutions for advertising,
pharmaceutical, public relations, publishing, architectural, e-commerce and
other companies. Mr. Abreu received a B.S. in Computer Science from Rutgers
University.
CARLEY RONEY is a co-founder of The Knot. She has served as the
Editor-in-Chief since our inception in May 1996. From May 1996 to September
1999, she also served as Vice President of Creative Development. From January
1994 to May 1996, she served as President at RunTime Inc., a CD-ROM development
firm that she co-founded with David Liu. Ms. Roney received a M.A. in cultural
studies and a B.F.A. in Film and Television from New York University. Ms. Roney
is married to Mr. Liu.
MICHAEL WOLFSON is a co-founder of The Knot and has served as Vice
President of Distribution since our inception. From May 1996 to September 1999,
he served as our Secretary. From April 1998 to April 1999, he also served as the
Vice President of Membership Acquisition. From October 1994 to February 1996,
Mr. Wolfson served as Director of Development of the Digital Media Division of
Margeotes Fertitta and Partners, an advertising agency. In 1992, Mr. Wolfson
founded and served as President of Luna Pictures, a company providing Avid-based
editing facilities for television and movie production companies. Mr. Wolfson
received a B.F.A. in Film and Television from New York University.
ROB FASSINO is a co-founder of The Knot. He has served as Vice President,
Business Integration since August 1999. He also served as Vice President of
Production from April 1999 to August 1999, and Vice President of Sales from June
1996 to April 1999. From October 1994 to June 1996, Mr. Fassino served as the
Director of the Digital Media Division of Margeotes Fertitta and Partners, an
advertising agency. Mr. Fassino received a B.F.A. in Film and Television from
New York University.
RUSSELL CASENHISER has served as Vice President of Retail Sales since May
1999. He has also served as Director of Registry Operations from April 1998 to
May 1999. From January 1996 to April 1998, Mr. Casenhiser was the President and
co-founder of Bridal Search, an online directory of bridal gowns. From September
1992 to December 1995, Mr. Casenhiser served as the President of La Galleria, a
high-end retail clothing store. Mr. Casenhiser received a B.S. in Economics from
Pepperdine University and a M.B.A from Pepperdine University.
ADAM SANDOW has served as Vice President of Sales since February 1999. From
December 1994 to January 1999, Mr. Sandow was President of Travel Publishing
Group, Inc., a consumer magazine publisher.
JOHN LINK has served as one of our directors since June 1999. Mr. Link has
been the Executive Vice President of Information Technology since January 1991
and Chief Information Officer of QVC since March 1994. He also served as Senior
Vice President of Information Technology from June 1989 to March 1994. Prior to
June 1989, Mr. Link held various senior technical management positions at Sun
Company. Mr. Link received a B.A. in Physics from the University of Delaware, a
Master of Science in Computer Science from the University of Pennsylvania and
completed the Program for Management
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Development at Harvard Business School. He is a member of the Society for
Information Management.
ANN WINBLAD has served as one of our directors since April 1998. Ms.
Winblad has been a general partner of Hummer Winblad Venture Partners, a venture
capital investment firm, since 1989. She is a member of the board of trustees of
the University of St. Thomas and is an advisor to numerous entrepreneurial
groups such as the Software Development Forum, the Stanford/MIT Venture Forum
and the Massachusetts Computer Software Council, Software Industry Business
Practices. Ms. Winblad also serves on the boards of directors of Net Perceptions
Inc., a developer and supplier of realtime recommendation technology for the
Internet, Liquid Audio Inc., a provider of an open platform that enables the
digital delivery of music over the Internet, and several private companies. Ms.
Winblad received a B.S. in Mathematics and Business Administration from the
University of St. Thomas and an M.A. in Education with an Economics focus from
the University of St. Thomas.
COMPOSITION OF THE BOARD
Prior to the closing of this offering, we intend to file a revised
certificate of incorporation under which our board of directors will be divided
into three classes, each of whose members will serve for a staggered three-year
term. Upon the expiration of the term of a class of directors, directors in that
class will be elected for three-year terms at the annual meeting of stockholders
in the year in which their term expires. Our board of directors has resolved
that John Link and Ann Winblad will be Class I Directors whose terms expire at
the 2000 annual meeting of stockholders. Sandra Stiles will be a Class II
Director whose term expires at the 2001 annual meeting of stockholders. David
Liu will be a Class III Director whose term expires at the 2002 annual meeting
of stockholders. A director's term will be subject to the election and
disqualification of their successors, or their earlier death, resignation or
removal.
BOARD COMMITTEES
The Audit Committee of the board of directors reviews, acts on and reports
to the board of directors on various auditing and accounting matters, including
the recommendation of our auditors, the scope of the annual audits, fees to be
paid to the auditors, the performance of our independent auditors and the
accounting practices of The Knot. The members of the Audit Committee are John
Link, Sandra Stiles and Ann Winblad.
The Compensation Committee of the board of directors recommends, reviews
and oversees the salaries, benefits and stock option plans for our employees,
consultants, directors and other individuals whom we compensate. The
Compensation Committee also administers our compensation plans. The members of
the Compensation Committee are John Link, David Liu and Ann Winblad.
DIRECTOR COMPENSATION
Directors who are also employees of The Knot receive no additional
compensation for their services as directors. Directors who are not employees of
The Knot will not receive a fee for attendance in person at meetings of the
board of directors or committees of the Board of Directors, but they will be
reimbursed for travel expenses and other out-of-pocket costs incurred with in
connection with the attendance at meetings.
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EMPLOYMENT AGREEMENTS AND SEVERANCE ARRANGEMENTS
On April 12, 1999, we entered into an employment contract with Mr. Liu, our
Chief Executive Officer, for three years. The contract provides for salary and
the payment of one or more annual bonuses at the sole discretion of the board of
directors. In the event of his termination without cause before the end of the
contract term, Mr. Liu is entitled to one year's salary plus benefits. The
contract also contains a covenant by Mr. Liu not to compete for the term of the
contract and for one year after the term expires. As of August 1, 1999, Mr.
Liu's annual salary is $180,000.
On April 12, 1999, we entered into an employment contract with Ms. Roney,
our Editor-in-Chief, for three years. The contract provides for salary and the
payment of one or more annual bonuses at the sole discretion of the Board of
Directors. In the event of her termination without cause before the end of the
contract term, Ms. Roney is entitled to one year's salary plus benefits. The
contract also contains a covenant by Ms. Roney not to compete for the term of
the contract and for one year after the term expires. As of August 1, 1999, Ms.
Roney's annual salary is $120,000.
On November 2, 1998, we entered into an employment contract with Ms.
Stiles, our Chief Operating Officer, which is terminable at any time. In the
event of her termination without cause, Ms. Stiles is entitled to one year's
salary plus benefits. As of August 1, 1999, Ms. Stiles' annual salary is
$175,000.
On May 31, 1999, we entered into an employment contract with Mr. Szefc, our
Chief Financial Officer, which is terminable at any time. The contract provides
for an annual salary of $135,000 which has subsequently been increased to
$150,000, and, for termination without cause, one year's salary plus benefits.
In addition, in the event an individual or related group of persons acquires 50%
or more of our voting stock, at least 50% of Mr. Szefc's options will vest
immediately. As of July 16, 1999, Mr. Szefc's salary is $150,000.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned for all services
rendered to us in all capacities during 1998 by our Chief Executive Officer and
our most highly compensated executive officers, other than our Chief Executive
Officer, who earned more than $100,000 in 1998 on an annualized basis and who
served as executive officers at the end of 1998.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS SECURITIES
------------------- UNDERLYING OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ------- ------- ----------------- ------------
<S> <C> <C> <C> <C>
David Liu...................... $94,833(1) $30,000 -- $ --
Chief Executive Officer
Sandra Stiles.................. 18,333(2) -- -- --
Chief Operating Officer
</TABLE>
- -------------------------
(1) During the first quarter of 1998, Mr. Liu received $21,500 of the $94,833 in
compensation from Element Studios, a corporation formed in connection with
our inception.
(2) Ms. Stiles did not receive salary prior to November 2, 1998. Total
annualized salary for 1998 equals $110,000.
OPTION GRANTS IN LAST YEAR
The following table sets forth information regarding exercisable and
unexercisable stock options granted to each of the named executive officers in
the last fiscal year. No options were exercised by the named executive officers
during the year ended December 31, 1998. There was no public trading market for
the common stock as of December 31, 1998. Potential realizable values are
computed by:
- multiplying the number of shares of common stock subject to a given
option by the assumed market value on the date of grant,
- assuming that the aggregate stock value derived from that calculation
compounds annually for the entire term of the option, and
- subtracting from that result the aggregate option exercise prices.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
------------------------------------------------ POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(2)
OPTIONS IN FISCAL PRICE PER EXPIRATION -----------------------
NAME GRANTED YEAR SHARE DATE 5% 10%
- ---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David Liu................. -- -- $ -- -- $ -- $ --
Sandra Stiles............. 380,000 65.2% 0.50 04/30/08 119,490 302,811
</TABLE>
- -------------------------
(1) Each option represents the right to purchase one share of common stock. The
options shown in these columns, which were originally granted under our
Incentive Plan, vest according to the following schedule: (a) twenty-five
percent (25%) upon the one year anniversary of the grant and (b) thereafter,
ratably per month for the remaining 36 months. Total options granted to
employees in the last fiscal year were 583,000.
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(2) Amounts represent hypothetical gains that could be achieved for the options
if exercised at the end of the option term. The 5% and 10% assumed annual
rates of compounded stock price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent our estimate or
projection of our future common stock prices. These amounts represent
assumed rates of appreciation in the value of our common stock from the fair
market value on the date of grant. Actual gains, if any, on stock option
exercise depend on the future performance of the common stock. The amounts
reflected in the table may not necessarily be achieved. The initial public
offering price is higher than the estimated fair market value on the date of
grant, and the potential realizable value of the option grants would be
significantly higher than the numbers shown in the table if future stock
prices were projected to the end of the option term by applying the same
annual rates of stock price appreciation to the initial public offering
price.
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1998 AND YEAR-END
OPTION VALUES
The following table provides summary information concerning stock options
held as of December 31, 1998 by each of the named executive officers. No options
were exercised during fiscal 1998 by any of the named executive officers. 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 such
options and the assumed initial offering price of $9.00 per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
----------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
David Liu........................ -- -- $ -- $ --
Sandra Stiles.................... -- 380,000 -- 3,230,000
</TABLE>
1999 STOCK INCENTIVE PLAN
INTRODUCTION. The 1999 Stock Incentive Plan is intended to serve as the
successor program to our Incentive Plan. The 1999 plan was adopted by the board
of directors and approved by the stockholders in November 1999. The 1999 plan
will become effective when the underwriting agreement for this offering is
signed. At that time, all outstanding options under our existing 1997 plan will
be transferred to the 1999 plan, and no further option grants will be made under
the 1997 plan. The transferred options will continue to be governed by their
existing terms, unless our compensation committee decides to extend one or more
features of the 1999 plan to those options. Except as otherwise noted below, the
transferred options have substantially the same terms as will be in effect for
grants made under the discretionary option grant program of our 1999 plan.
SHARE RESERVE. 3,849,868 shares of our common stock have been authorized
for issuance under the 1999 plan. This share reserve consists of the number of
shares we estimate will be carried over from the 1997 plan plus an additional
increase of approximately 1,000,000 shares. The share reserve under our 1999
plan will automatically increase on the first trading day in January each
calendar year, beginning with calendar year 2001, by an amount equal to two
percent (2%) of the total number of shares of our common stock outstanding on
the last trading day of December in the prior calendar year, but in no event
will this annual increase exceed 1,000,000 shares (or such other lesser
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number determined by the Board). In addition, no participant in the 1999 plan
may be granted stock options or direct stock issuances for more than 500,000
shares (1,000,000 shares in the year of initial hire) of common stock in total
in any calendar year.
PROGRAMS. Our 1999 plan has five separate programs:
- the discretionary option grant program, under which eligible individuals
may be granted options to purchase shares of our common stock at an
exercise price not less than the fair market value of those shares on the
grant date;
- the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, upon the attainment of
performance milestones or the completion of a specified period of service
or as a bonus for past services;
- the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary each year to the
acquisition of special below market stock option grants;
- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date; and
- the director fee option grant program, under which our non-employee board
members may be given the opportunity to apply a portion of any retainer
fee otherwise payable to them in cash each year to the acquisition of
special below-market option grants.
ELIGIBILITY. The individuals eligible to participate in our 1999 plan
include our officers and other employees, our board members and any consultants
we hire.
ADMINISTRATION. The discretionary option grant and stock issuance programs
will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the vesting schedule to be
in effect for the option grant or stock issuance and the maximum term for which
any granted option is to remain outstanding. The compensation committee will
also have the authority to select the executive officers and other highly
compensated employees who may participate in the salary investment option grant
program in the event that program is put into effect for one or more calendar
years.
PLAN FEATURES. Our 1999 plan will include the following features:
- The exercise price for any options granted under the plan may be paid in
cash or in shares of our common stock valued at fair market value on the
exercise date. The option may also be exercised through a same-day sale
program without any cash outlay by the optionee.
- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from our 1997 plan, in return for the grant of new
options for the same or different
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number of option shares with an exercise price per share based upon the
fair market value of our common stock on the new grant date.
- Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election to
surrender their outstanding options for a payment from us equal to the
fair market value of the shares subject to the surrendered options less
the exercise price payable for those shares. We may make the payment in
cash or in shares of our common stock. None of the options under our 1997
plan have any stock appreciation rights.
CHANGE IN CONTROL. The 1999 plan will include the following change in
control provisions which may result in the accelerated vesting of outstanding
option grants and stock issuances:
- In the event that we are acquired by merger, asset sale, or sale of more
than 50% of our voting securities by the stockholders, each outstanding
option under the discretionary option grant program which is not to be
assumed by the successor corporation will immediately become exercisable
for all the option shares, and all outstanding unvested shares will
immediately vest, except to the extent our repurchase rights with respect
to those shares are to be assigned to the successor corporation.
- The compensation committee may grant options which will become
exercisable for all the option shares (i) in the event those options are
assumed in the acquisition but the optionee's service with us or the
acquiring entity is subsequently terminated or (ii) in connection with a
successful tender offer for more than fifty percent of our outstanding
voting stock or a change in the majority of our board through one or more
contested elections the vesting of any outstanding shares under our 1999
plan may be accelerated upon similar terms and conditions.
SALARY INVESTMENT OPTION GRANT PROGRAM. In the event the compensation
committee decides to put this program into effect for one or more calendar
years, each of our executive officers and other highly compensated employees may
elect to reduce his or her base salary for the calendar year by an amount not
less than $5,000 nor more than $50,000. Each selected individual who makes such
an election will automatically be granted, on the first trading day in January
of the calendar year for which his or her salary reduction is to be in effect,
an option to purchase that number of shares of common stock determined by
dividing the salary reduction amount by two-thirds of the fair market value per
share of our common stock on the grant date. The option will have exercise price
per share equal to one-third of the fair market value of the option shares on
the grant date. As a result, the option will be structured so that the fair
market value of the option shares on the grant date less the exercise price
payable for those shares will be equal to the amount of the salary reduction.
The option will become exercisable in a series of twelve equal monthly
installments over the calendar year for which the salary reduction is to be in
effect.
AUTOMATIC OPTION GRANT PROGRAM. Each individual who first becomes a non-
employee board member at any time after the effective date of this offering will
receive an option grant to purchase 15,000 shares of common stock on the date
such individual joins the board. In addition, on the date of each annual
stockholders meeting held after the effective date of this offering, each
non-employee board member who is to continue to serve as a non-employee board
member, including each of our current non-employee board
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members, will automatically be granted an option to purchase 5,000 shares of
common stock, provided such individual has served on the board for at least six
months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. The shares subject to each initial
15,000-share automatic option grant will vest in a series of three (3)
successive annual installments upon the optionee's completion of each year of
board service over the three (3)-year period measured from the grant date. The
shares subject to each annual 5,000-share automatic grant will vest upon the
optionee's completion of one (1) year of Board Service measured from the grant
date. However, the shares will immediately vest in full upon certain changes in
control or ownership or upon the optionee's death or disability while a board
member.
DIRECTOR FEE OPTION GRANT PROGRAM. If this program is put into effect in
the future, then each non-employee board member may elect to apply all or a
portion of any cash retainer fee for the year to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January in the year for which the non-employee board member
would otherwise be paid the cash retainer fee in the absence of his or her
election. The option will have an exercise price per share equal to one-third of
the fair market value of the option shares on the grant date, and the number of
shares subject to the option will be determined by dividing the amount of the
retainer fee applied to the program by two-thirds of the fair market value per
share of our common stock on the grant date. Accordingly, the fair market value
of the option shares on the grant date less the exercise price payable for those
shares will be equal to the portion of the retainer fee applied to that option.
The option will become exercisable in a series of twelve equal monthly
installments over the calendar year for which the election is in effect.
However, the option will become immediately exercisable for all the option
shares upon the death or disability of the optionee while serving as a board
member.
ADDITIONAL PROGRAM FEATURES. Our 1999 plan will also have the following
features:
- Outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50% of
our outstanding voting stock or a change in the majority of our board
through one or more contested elections.
- Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights
may also be granted to one or more officers as part of their option
grants under the discretionary option grant program. Options with this
feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from us in an amount per surrendered option share based
upon the highest price per share of our common stock paid in that tender
offer.
- The board may amend or modify the 1999 plan at any time, subject to any
required stockholder approval. The 1999 plan will terminate no later than
November 3, 2009.
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EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION. Our Employee Stock Purchase Plan was adopted by the board of
directors and approved by the stockholders in November 1999. The plan will
become effective immediately upon the signing of the underwriting agreement for
this offering. The plan is designed to allow our eligible employees and the
eligible employees of our participating subsidiaries to purchase shares of
common stock, at semi-annual intervals, with their accumulated payroll
deductions.
SHARE RESERVE. 300,000 shares of our common stock will initially be
reserved for issuance. The reserve will automatically increase on the first
trading day in January each calendar year, beginning in calendar year 2001, by
an amount equal to the total number of shares of our common stock issued under
the plan in the prior calendar year. In no event will any such annual increase
exceed 300,000 shares without approval of our board of directors.
OFFERING PERIODS. The plan will have a series of successive offering
periods, each with a maximum duration of 24 months. The initial offering period
will start on the date the underwriting agreement for the offering covered is
signed and will end on the last business day in January 2002. The next offering
period will start on the first business day in February 2002, and subsequent
offering periods will be set by our compensation committee.
ELIGIBLE EMPLOYEES. Individuals scheduled to work more than 20 hours per
week for more than 5 calendar months per year may join an offering period on the
start date or any semi-annual entry date within that period. Semi-annual entry
dates will occur on the first business day of February and August each year.
Individuals who become eligible employees after the start date of an offering
period may join the plan on any subsequent semi-annual entry date within that
offering period.
PAYROLL DEDUCTIONS. A participant may contribute up to 15% of his or her
Base Salary through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the participant's entry date into the offering period or, if lower, 85% of
the fair market value per share on the semi-annual purchase date. Semi-annual
purchase dates will occur on the last business day of January and July each
year. However, a participant may not purchase more than 1,000 shares on any
purchase date, and not more than 150,000 shares may be purchased in total by all
participants on any purchase date. Our compensation committee will have the
authority to change these limitations for any subsequent offering period.
RESET FEATURE. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start date
of the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.
CHANGE IN CONTROL. Should we be acquired by merger or sale of
substantially all of our assets or more than 50 percent of our voting
securities, then all outstanding purchase rights will automatically be exercised
immediately prior to the effective date of the acquisition. The purchase price
will be equal to 85% of the market value per share on the participant's entry
date into the offering period in which an acquisition occurs or, if lower, 85%
of the fair market value per share immediately prior to the acquisition.
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<PAGE> 71
PLAN PROVISIONS. The following provisions will also be in effect under the
plan:
- The plan will terminate no later than the last business day of January
2010.
- The board may at any time amend, suspend or discontinue the plan.
However, certain amendments may require stockholder approval.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated certificate of incorporation provides that the
liability of a director of The Knot shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law. Under the
Delaware General Corporation Law, the directors have a fiduciary duty to The
Knot which is not eliminated by this provision of the amended and restated
certificate of incorporation and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers to purchase insurance with respect to
liability arising out of their capacity or status as directors and officers,
provided that this provision shall not eliminate or limit the liability of a
director:
- for any breach of the director's duty of loyalty to The Knot or its
stockholders;
- for acts or omissions which are found by a court of competent
jurisdiction to be not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for the payment of dividends or approval of stock repurchases or
redemptions that are prohibited by the Delaware General Corporation Law;
or
- for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. Our
amended and restated certificate of incorporation eliminates the personal
liability of directors to the fullest extent permitted by Section 102(b)(7) of
the Delaware General Corporation Law and provides that The Knot shall fully
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
that person is or was a director or officer of The Knot, or is or was serving at
the request of The Knot as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
This indemnification shall be against expenses including attorney's fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the indemnitee in connection with such action, suit or proceeding.
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our current directors and executive
officers, in addition to the indemnification provided for in The Knot's amended
and restated certificate of incorporation. The Knot believes that these
provisions and agreements are necessary to attract and retain qualified
directors and executive officers. In addition, The Knot intends to obtain
liability insurance for its directors and officers.
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<PAGE> 72
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the amended and restated certificate of
incorporation or under the indemnification agreements referred to above. The
Knot is not aware of any threatened litigation or proceeding that may result in
a claim for this type of indemnification.
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CERTAIN TRANSACTIONS
SERIES A PREFERRED STOCK AND INVESTMENTS BY AOL
During 1996, AOL advanced $700,000 to us to fund the development of our
online property located on AOL. On January 17, 1997, AOL loaned us $1,150,000
under a promissory note bearing interest at the rate of 6.54% per year. In
addition, we granted AOL a warrant to purchase 3,250,820 shares of Series A
Preferred Stock at $0.38 per share. The promissory note and the warrant were
scheduled to expire on January 16, 2007. In connection with AOL's investment, we
entered into an interactive services agreement under which The Knot would be
featured on AOL. The interactive services agreement was later superseded by an
anchor tenant agreement as described below.
On April 28, 1998, we sold an aggregate of 3,360,000 shares of our Series A
Preferred Stock at a price of $1.172 per share to Hummer Winblad Venture
Partners III, L.P., Hummer Winblad Technology Fund III, L.P. and AOL for an
aggregate purchase price of $3.9 million. In connection with the sale of these
shares, AOL converted $937,600 of the principal outstanding under the promissory
note held by AOL into 800,000 shares of Series A Preferred Stock. The remaining
$912,400 balance of principal plus accrued interest was forgiven and the
aforementioned warrant was cancelled. In addition, the investors entered into an
investors rights agreement under which we granted the investors registration
rights for the shares underlying the Series A Preferred Stock. For more
information, see "Description of Capital Stock -- Registration Rights."
SERIES B PREFERRED STOCK
On April 13, 1999, we sold 4,000,000 shares of our Series B Preferred Stock
at a price of $3.75 per share to QVC. QVC paid an aggregate of $15.0 million for
the shares of Series B Preferred Stock and received a warrant to purchase
1,700,000 shares of our common stock at an exercise price of $5.00 per share.
The warrant becomes exercisable upon the earlier of the fourth anniversary of
the issuance of the warrant or our initial public offering of common stock. In
addition, QVC received registration rights in connection with their shares of
stock and the shares issuable upon the exercise of its warrant, and became a
party to the investor rights agreement. The Series B Preferred Stock and the
warrant have been assigned to QVC Interactive Holdings, LLC. We also entered
into a services agreement with QVC, which we believe is on terms and conditions
no less favorable to us than we could have obtained from unaffiliated third
parties.
AOL ANCHOR TENANT AGREEMENT
On July 23, 1999, we entered into an amended anchor tenant agreement with
AOL, which extended the term of our existing agreement with AOL through January
6, 2003. Under the terms of the agreement, The Knot continues to be the primary
wedding content provider on AOL and on several other of AOL's leading
properties, including AOL.com Netscape Netcenter and CompuServe. Under the terms
of the agreement, AOL may terminate the agreement without cause only with
respect to our carriage on AOL Hometown, Netscape and CompuServe upon 30 day's
prior notice. Advertisements and promotions are subject to AOL's approval, and
the advertisements may not promote AOL competitors such as other Internet
service providers or search engines. We believe the terms and conditions of our
anchor tenant agreement with AOL, taken as a whole, are no less favorable to us
than we could have obtained from unaffiliated third parties.
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In consideration for AOL's agreement to extend the term of the agreement,
we granted to AOL a warrant, exercisable for eight years from the date of grant,
to purchase 366,667 shares of our common stock at a price equal to $7.20 per
share. The warrant is immediately exercisable and expires in July 2007. In
addition, AOL received registration rights with respect to the shares issuable
under the warrant.
BRIDAL SEARCH
On April 2, 1998, we acquired substantially all of the assets of Casenhiser
Clothing Company, Inc., d/b/a Bridal Search, for $50,000 and the issuance of
162,540 shares of our common stock. In addition, we agreed to issue up to
356,046 additional shares of common stock upon the achievement of future
performance criteria, of which 178,031 shares were issued in connection with the
launch of The Knot Registry in November 1998. In August 1999, we entered into a
settlement and release agreement under which Bridal Search agreed to forego its
rights to receive the remaining 178,015 shares associated with the achievement
of future performance criteria in exchange for a payment of $150,000. In
addition, in connection with their employment by us, we are required to issue
178,015 shares of common stock to under which former members of Bridal Search's
management upon the first, second, third and fourth anniversaries of their
employment, of which 44,504 shares were earned and issued in April 1999.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the common stock as of November 5, 1999, and as adjusted to reflect
the sale of the shares of common stock offered by this prospectus, by each
person or group of affiliated persons whom we know to beneficially own 5% or
more of the common stock, each of our directors and named executive officers and
all of our directors and executive officers as a group. Unless otherwise
indicated, the address of each beneficial owner listed below is c/o The Knot,
Inc., 462 Broadway, 6th Floor, New York, New York 10013.
The following table gives effect to the shares of common stock issuable
within 60 days of November 5, 1999 upon the exercise of all options and other
rights beneficially owned by the indicated stockholders on that date. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting and investment power of the to shares.
Unless otherwise indicated, the persons named in the table have sole voting and
sole investment control of all shares beneficially owned.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)
NUMBER OF SHARES --------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING
- ---------------- --------------------- --------------- --------------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND
DIRECTORS:
David Liu(2)(3).................... 673,383 6.4% 4.8%
Sandra Stiles(4)................. 158,334 1.5 1.1
John Link(5)..................... -- * *
Ann Winblad(6)................... 2,560,000 24.4 18.3
OTHER 5% STOCKHOLDERS:
QVC Interactive Holdings,
Inc.(7)....................... 5,700,000 46.8 36.4
Hummer Winblad Funds(6).......... 2,560,000 24.4 18.3
America Online, Inc.(8).......... 1,166,667 10.8 8.1
Rob Fassino(2)................... 673,383 6.4 4.8
Carley Roney(2)(3)............... 673,383 6.4 4.8
Michael Wolfson(2)............... 673,383 6.4 4.8
All directors and executive
officers as a group (6
persons)(9)...................... 3,391,717 31.9 24.0
</TABLE>
- -------------------------
* Less than 1%.
(1) Percentage of beneficial ownership is based on 10,473,103 shares of common
stock outstanding as of November 5, 1999 and 13,973,103 shares of common
stock outstanding after this offering.
(2) Consists of 673,383 shares owned by each of the four founders of The Knot,
of which 505,037 shares are subject to repurchase under a vesting agreement
over the 36-month period beginning April 28, 1998, as long as each such
founder remains an employee of The Knot. As of November 5, 1999, 252,519 of
the 505,037 shares held by each founder subject to vesting, had vested. The
Knot has the right to repurchase all or any
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<PAGE> 76
portion of the unvested shares for $0.01 per share for a period of 60 days from
the date of early termination.
(3) Excludes 673,383 shares of common stock owned by this stockholder's spouse.
(4) Consists of 142,500 shares of common stock issuable upon exercise of
presently exercisable options and 15,834 shares of common stock issuable
upon the exercise of options exercisable within 60 days. Does not include
221,666 shares of common stock issuable upon the exercise of options that do
not vest within 60 days of November 5, 1999.
(5) Mr. Link's address is c/o QVC, Studio Park, West Chester, PA 19830.
(6) Consists of common stock issuable upon automatic conversion of 2,432,000
shares of Series A Preferred Stock owned by Hummer Winblad Venture Partners
III, L.P., and 128,000 shares of Series A Preferred Stock owned by Hummer
Winblad Technology Fund III, L.P. John Hummer, Ann Winblad (one of our
directors) and Mark Gorenberg are general partners of Hummer Winblad Equity
Partners II, L.P., the general partner of each of the Hummer Winblad Funds.
Consequently, Hummer Winblad Equity Partners II and Mr. Hummer, Ms. Winblad
and Mr. Gorenberg may each be deemed to beneficially own all of the shares
held by the Hummer Winblad Funds. Hummer Winblad Equity Partners II, Mr.
Hummer, Ms. Winblad and Mr. Gorenberg each disclaim beneficial ownership of
such shares, except to the extent of their pecuniary interest. The address
of the Hummer Winblad Funds is 2 South Park, 2nd Floor, San Francisco, CA
94107.
(7) Consists of common stock issuable upon automatic conversion of 4,000,0000
shares of Series B Preferred Stock owned by QVC Interactive Holdings, LLC
and 1,700,000 shares issuable upon the exercise of a currently exercisable
warrant at the time of the initial public offering. The address of QVC
Interactive Holdings, LLC is Studio Park, West Chester, PA 19830.
(8) Consists of common stock issuable upon automatic conversion of 800,000
shares of Series A Preferred Stock owned by AOL and 366,667 shares issuable
upon the exercise of a currently exercisable warrant. The address of AOL is
22000 AOL Way, Dulles, Virginia 20166.
(9) Includes 158,334 shares of common stock issuable upon the exercise of
options which are currently vested or which vest within 60 days of November
5, 1999.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Immediately prior to the closing of this offering, we intend to amend and
restate our certificate of incorporation and bylaws. Our amended and restated
certificate of incorporation and bylaws, summarized below, are included as
exhibits to the registration statement of which this prospectus forms a part.
Upon the closing of our offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, par value $0.01 per share, and 5,000,000
shares of preferred stock, par value $0.001 per share.
COMMON STOCK
As of November 5, 1999, there were 10,473,103 shares of our common stock
outstanding held of record by eighteen (18) stockholders. Holders of common
stock are entitled to one vote for each share held on all matters submitted to a
vote of stockholders and do not have cumulative voting rights. Accordingly,
holders of a majority of the shares of common stock entitled to vote in any
election of directors may elect all of the directors standing for election.
Holders of common stock are entitled to receive ratably those dividends, if any,
as may be declared by our board of directors out of funds legally available for
that purpose, subject to any preferential dividend rights of any outstanding
preferred stock. Upon the liquidation, dissolution or winding up of The Knot,
the holders of our common stock are entitled to receive ratably our net assets
available, if any, after the payment of all debts and other liabilities and
subject to the prior rights of any outstanding preferred stock. Holders of our
common stock have no preemptive, subscription, redemption or conversion rights.
The outstanding shares of our common stock are, and the shares offered in this
offering will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of common stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of preferred stock which we may designate and issue in the future.
PREFERRED STOCK
Upon the closing of this offering, there will be no shares of preferred
stock outstanding. Our board of directors will be authorized, without further
stockholder approval, to issue from time to time up to an aggregate of 5,000,000
shares of preferred stock in one or more series and to fix or alter the
designations, preferences, rights and any qualifications, limitations or
restrictions of the shares of each series thereof, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
including sinking fund provisions, redemption price or prices, liquidation
preferences and the number of shares constituting any series or designation of
series. For more information, see "-- Anti-Takeover Effects of Various
Provisions of Delaware Law and The Knot's Certificate of Incorporation and
Bylaws."
OPTIONS
We have 3,849,868 shares of our common stock reserved for issuance, upon
exercise of stock options, under 1999 Stock Incentive Plan. As of November 5,
1999, there were outstanding options to purchase a total of 1,724,665 shares of
common stock, of which
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options to purchase approximately 211,572 will be exercisable upon the closing
of this offering. Since we intend to file a registration statement on Form S-8
as soon as practicable following the closing of this offering, any shares issued
upon exercise of these options will be immediately available for sale in the
public market, subject to the terms of lock-up agreements entered into with the
underwriters. In addition, we have issued options to purchase 12,203 shares of
common stock outside of our existing stock option plan, all of which are
exercisable. For more information, see "Management -- 1999 Stock Incentive Plan"
and "Shares Eligible for Future Sale."
REGISTRATION RIGHTS
Under an investors' rights agreement, beginning six months after the
closing of this offering, the holders of 9,426,667 shares of common stock and
shares of common stock issuable upon the exercise of outstanding warrants will
be entitled to demand registration rights in connection with the registration of
their shares under the Securities Act of 1933. We are not required to effect
more than four registrations under these demand registration rights. In
addition, these holders will be entitled to piggyback registration rights in
connection with the registration of their shares under the Securities Act of
1933, subject to various limitations. Further, at any time after we become
eligible to file a registration statements on Form S-3, these holders may
require us to file registration statements under the Securities Act of 1933 on
Form S-3 in connection with their shares of common stock. These registration
rights are subject to conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares of common stock held
by security holders with registration rights to be included in a registration.
Generally, we are required to bear all of the expenses of all of these
registrations, except underwriting discounts and selling commissions.
Registration of any shares of common stock held by security holders with
registration rights would result in shares becoming freely tradable without
restriction under the Securities Act of 1933 immediately upon effectiveness of
such registration.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF
INCORPORATION AND BYLAWS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to some exceptions, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
interested stockholder attained that status with the approval of the board of
directors or the business combination is approved in a prescribed manner. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
various exceptions, an "interested stockholder" is a person who, together with
his, her or its affiliates and associates, owns or, within three years did own,
15% or more of the corporation's voting stock. This statute could prohibit or
delay the accomplishment of mergers or other takeover or change in control
attempts aimed at us and, accordingly, may discourage attempts to acquire us.
In addition, various provisions of our amended and restated certificate of
incorporation and our amended and restated bylaws, which provisions will be in
effect upon the closing of the offering and are summarized in the following
paragraphs, may be deemed to have an anti-takeover effect and may delay, defer
or prevent a tender offer or takeover attempt that a stockholder might consider
in its best interest, including those attempts that might result in a premium
over the market price for the shares held by stockholders.
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BOARD OF DIRECTORS VACANCIES. Our amended and restated certificate of
incorporation authorizes our board of directors to fill vacant directorships or
increase the size of the board of directors. This may deter a stockholder from
removing incumbent directors and simultaneously gaining control of our board of
directors by filling the vacancies created by this removal with its own
nominees.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. Our amended and
restated certificate of incorporation provides that stockholders may not take
action by written consent, but only at duly called annual or special meetings of
stockholders. Our amended and restated bylaws further provides that special
meetings of our stockholders may be called only by the chairman of the board of
directors, our chief executive officer or a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTORS
NOMINATIONS. Our amended and restated bylaws provide that stockholders seeking
to bring business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual meeting of stockholders, must
provide us timely notice thereof in writing. To be timely, a stockholder's
notice must be delivered to or mailed and received at our principal executive
offices, not less than 90 days nor more than 120 days prior to the first
anniversary of the date of the preceding year's annual meeting provided
regarding the previous year's annual meeting of stockholders; provided, that if
no annual meeting of stockholders was held in the previous year or the date of
the annual meeting of stockholders has been changed to be more than 30 calendar
days earlier than or 70 calendar days after this anniversary, notice by the
stockholder, to be timely, must be so received not earlier than 120 days prior
to such annual meeting nor later than the later of:
- 90 days prior to the annual meeting of stockholders; or
- the close of business on the 10th day following the date on which notice
of the date of the meeting is given to stockholders or made public,
whichever occurs first.
Our amended and restated bylaws also specify requirements as to the form
and content of a stockholders' notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to various limitations imposed by the Nasdaq
National Market. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred stock could make
more difficult or discourage an attempt to obtain control of The Knot by means
of a proxy contest, tender offer, merger or otherwise.
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company, New York, New York.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices of our common stock. Furthermore,
since no shares will be available for sale shortly after this offering because
of contractual and legal restrictions on resale described below, sales of
substantial amounts of common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon the closing of this offering, we will have outstanding an aggregate of
13,973,103 shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all shares sold in this offering will be freely tradeable without restriction or
further registration under the Securities Act unless such shares are purchased
by "affiliates" as that term is defined in Rule 144 under the Securities Act.
The following table illustrates the shares eligible for sale in the public
market:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ----
<C> <S>
0 After the date of this prospectus, freely tradable
shares sold in this offering and shares saleable under
Rule 144(k) that are not subject to the 180-day lock-up
0 After 90 days from the date of this prospectus, shares
saleable under Rule 144 or Rule 701 that are not
subject to the 180-day lock-up
10,455,900 After 180 days from the date of this prospectus, the
180-day lock-up is released and these shares are
saleable under Rule 144 (subject, in some cases, to
volume limitations), Rule 144(k) or Rule 701
17,203 After 180 days from the date of this prospectus,
restricted securities that are held for less than one
year are not yet saleable under Rule 144
</TABLE>
LOCK-UP AGREEMENTS
All of our stockholders and option holders have signed lock-up agreements
under which they 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 180 days after the date of
this prospectus.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock 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 common stock then outstanding, which will
equal approximately 139,731 shares immediately after the offering, or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144
76
<PAGE> 81
in connection with such sale. Sales under Rule 144 are also subject to
manner-of-sale provisions, notice requirements and the availability of
current public information about us.
RULE 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years, including the holding period of any
prior owner other than an affiliate, is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144. Therefore, unless otherwise contractually
restricted, "144(k)" shares may be sold immediately upon completion of this
offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock plan or other written agreement is eligible
to resell such shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with restrictions, including the
holding period, contained in Rule 144.
REGISTRATION RIGHTS
After this offering, the holders of 9,426,667 shares of common stock and
shares of common stock issuable upon the exercise of outstanding warrants will
be entitled to rights in connection with the registration of those shares under
the Securities Act. For more information, see "Description of Capital
Stock -- Registration Rights." After such registration, these shares of our
common stock become freely tradeable without restriction under the Securities
Act. These sales could have a material adverse effect on the trading price of
our common stock.
STOCK PLANS
We intend to file a registration statement under the Securities Act
covering 3,849,868 shares of common stock reserved for issuance under our 1999
Stock Incentive Plan, and our Employee Stock Purchase Plan and the shares
reserved for issuance upon exercise of outstanding non-plan options. We expect
this registration statement to be filed and to become effective as soon as
practicable after the effective date of this offering.
As of November 5, 1999, options to purchase 1,724,665 shares of common
stock were issued and outstanding. All of these shares will be eligible for sale
in the public market from time to time, subject to vesting provisions, Rule 144
volume limitations applicable to our affiliates and, in the case of some
options, the expiration of lock-up agreements.
77
<PAGE> 82
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Hambrecht & Quist
LLC and Salomon Smith Barney Inc. are acting as representatives, the following
respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.....................
Hambrecht & Quist LLC......................................
Salomon Smith Barney Inc. .................................
--------
Total...................................................... 3,500,000
========
</TABLE>
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 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 525,000 additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments in the sale of the 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 estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------------------- -------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts
and Commissions paid
by us................. $ $ $ $
Expenses payable by
us.................. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the number of shares of common stock being offered.
78
<PAGE> 83
We, our officers and directors and substantially all of our existing
stockholders and option holders 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 of 1933 relating to, any additional debt securities shares of
our common stock or securities convertible into or exchangeable or exercisable
for any of our common stock, or publicly disclose the intention to make any such
offer, sale, pledge, 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 in our case issuances under the exercise of employee
stock options outstanding on the date hereof.
The underwriters have reserved for sale, at the initial public offering
price, up to 175,000 shares of the common stock for officers, directors,
employees, business associates and persons related to, or affiliated with, the
foregoing, who may have 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 such persons purchase such reserved shares. Any
reserved shares not so 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 specified liabilities
under the Securities Act of 1933, or to contribute to payments which the
underwriters may be required to make in respect thereof.
We will make application to list the shares of common stock on The Nasdaq
Stock Market's National Market under the symbol "KNOT."
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include the following: the information
included in this prospectus and otherwise available to the representatives;
market conditions for initial public offerings; the history and the prospects
for the industry in which we will compete; the ability of our management; the
prospects for our future earnings; the present state of our development and our
current financial condition; the general condition of the securities markets at
the time of this offering; and the recent market prices of, and the demand for,
publicly traded common stock of generally comparable companies.
The representatives on behalf of the underwriters 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 maximum.
- 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 such
syndicate
79
<PAGE> 84
member are purchased in a stabilizing transaction or a syndicate covering
transaction to cover syndicate short positions.
Such 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 National Market or otherwise and, if commenced, may be discontinued at
any time.
80
<PAGE> 85
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 such
purchase confirmation is received that:
- such purchaser is entitled under applicable provincial securities laws to
purchase such common stock without the benefit of a prospectus qualified
under such securities laws,
- where required by law, that such purchaser is purchasing as principal and
not as agent, and
- such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION FOR 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
herein 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 such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
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 such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be
81
<PAGE> 86
obtained from us. Only one such 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 the 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.
82
<PAGE> 87
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Brobeck, Phleger & Harrison LLP, New York, New York. Various
legal matters in connection with the offering will be passed upon for the
underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements and schedule for The Knot, Inc. as of
December 31, 1997 and 1998 and September 30, 1999 and for the period from its
inception on May 2, 1996 to December 31, 1996, the years ended December 31, 1997
and 1998 and the nine month period ended September 30, 1999, included in this
prospectus and elsewhere in the registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report appearing
elsewhere in this prospectus, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements for Casenhiser Clothing Company, Inc. d/b/a Bridal
Search as of December 31, 1997 and April 1, 1998 and for the year ended December
31, 1997 and for the period ended April 1, 1998, included in this prospectus and
elsewhere in the registration statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere in this
prospectus, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with exhibits and schedules, under the Securities Act with
respect to the common stock to be sold in this offering. This prospectus does
not contain all of the information set forth in this registration statement. For
further information about The Knot and the shares of common stock to be sold in
the offering, please refer to this registration statement. For additional
information, please refer to the exhibits that have been filed with our
registration statement on Form S-1.
You may read and copy all or any portion of the registration statement or
any other information we file at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C., 20549. You can
request copies of these documents upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information about the public
reference rooms. Our Securities and Exchange Commission filings, including the
registration statement, will also be available to you on the Securities and
Exchange Commission's Web site (http://www.sec.gov). As a result of this
offering, we will become subject to the information and reporting requirements
of the Securities Exchange Act of 1934, and will file periodic reports, proxy
statements and other information with the Securities and Exchange Commission.
We intend to furnish our stockholders with annual reports containing
audited financial statements and to make available to our stockholders quarterly
reports for the first three quarters of each year containing unaudited financial
information.
83
<PAGE> 88
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
THE KNOT, INC.
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and September 30, 1999.................................... F-3
Consolidated Statements of Operations for the period from
May 2, 1996 (date of inception) to December 31, 1996 and
the years ended December 31, 1997 and 1998 and the nine
months ended September 30, 1998 (Unaudited) and 1999...... F-4
Consolidated Statements of Stockholders' (Deficit) Equity
for the period from May 2, 1996 (date of inception) to
December 31, 1996 and the years ended December 31, 1997
and 1998 and the nine months ended September 30, 1999..... F-5
Consolidated Statements of Cash Flows for the period from
May 2, 1996 (date of inception) to December 31, 1996 and
the years ended December 31, 1997 and 1998 and the nine
months ended September 30, 1998 (Unaudited) and 1999...... F-6
Notes to Consolidated Financial Statements.................. F-8
CASENHISER CLOTHING COMPANY, INC.
Report of Independent Auditors.............................. F-25
Balance Sheets as of December 31, 1997 and April 1, 1998.... F-26
Statements of Operations for the year ended December 31,
1997 and the period ended April 1, 1997 (Unaudited) and
April 1, 1998............................................. F-27
Statements of Shareholder's (Deficit) Equity for the year
ended December 31, 1997 and the period ended April 1,
1998...................................................... F-28
Statements of Cash Flows for the year ended December 31,
1997 and the period ended April 1, 1997 (Unaudited) and
April 1, 1998............................................. F-29
Notes to Financial Statements............................... F-30
</TABLE>
F-1
<PAGE> 89
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
The Knot, Inc.
We have audited the accompanying consolidated balance sheets of The Knot,
Inc. (the "Company") as of December 31, 1997 and 1998 and September 30, 1999,
and the related consolidated statements of operations, stockholders' (deficit)
equity and cash flows for the period from May 2, 1996 (date of inception) to
December 31, 1996, the years ended December 31, 1997 and 1998, and the nine
month period ended September 30, 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
December 31, 1997 and 1998, and September 30, 1999 and the consolidated results
of their operations and their cash flows for the period from May 2, 1996 (date
of inception) to December 31, 1996, the years ended December 31, 1997 and 1998,
and the nine month period ended September 30, 1999 in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
October 26, 1999, except for Note 12 as to which the
date is November 5, 1999
F-2
<PAGE> 90
THE KNOT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDER'S
DECEMBER 31, EQUITY AT
------------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
----------- ----------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 305,375 $ 1,037,589 $ 9,301,870
Accounts receivable, net of allowance of
$133,000 in 1999............................. 39,480 189,545 1,078,808
Inventories.................................... -- 28,741 511,639
Other current assets........................... 1,667 32,018 677,931
----------- ----------- -----------
Total current assets............................. 346,522 1,287,893 11,570,248
Property and equipment, net...................... 51,144 243,044 1,281,714
Goodwill, net.................................... -- 349,677 622,199
Deferred financing costs, net.................... 747,029 -- 296,667
Other assets..................................... 8,149 69,293 75,344
----------- ----------- -----------
Total assets..................................... $ 1,152,844 $ 1,949,907 $13,846,172
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued expenses.......... $ 104,385 $ 225,094 $ 1,424,341
Deferred revenue............................... 48,436 60,111 889,263
----------- ----------- -----------
Total current liabilities........................ 152,821 285,205 2,313,604
Note payable..................................... 2,016,770 -- --
Other liabilities................................ -- 18,800 8,800
----------- ----------- -----------
Total liabilities................................ 2,169,591 304,005 2,322,404
Commitments and contingencies
Stockholders' (deficit) equity:
Series A convertible preferred stock, $.001 par
value; 3,360,000 shares authorized, issued
and outstanding at December 31, 1998 and
September 30, 1999 (liquidation value of
$3,937,920 at September 30, 1999)............ -- 3,937,920 3,937,920
Series B convertible preferred stock, $.001 par
value; 4,000,000 shares authorized, issued
and outstanding at September 30, 1999
(liquidation value of $15,000,000 at
September 30, 1999).......................... -- -- 13,963,000
Common stock, $.01 par value; 14,640,000 shares
authorized; 1,625,410, 3,034,103 and
3,093,608 shares issued and outstanding at
December 31, 1997 and 1998 and September 30,
1999, respectively; 100,000,000 and
10,453,608 shares authorized and outstanding,
proforma, respectively....................... 16,254 30,341 30,936 $ 104,536
Additional paid-in-capital..................... 814,779 1,421,714 7,796,448 25,623,768
Deferred compensation.......................... -- (387,020) (2,716,139) (2,716,139)
Deferred sales and marketing................... -- -- (2,122,984) (2,122,984)
Accumulated deficit............................ (1,847,780) (3,357,053) (9,365,413) (9,365,413)
----------- ----------- ----------- -----------
Total stockholders' (deficit) equity............. (1,016,747) 1,645,902 11,523,768 $11,523,768
----------- ----------- ----------- ===========
Total liabilities and stockholders' (deficit)
equity......................................... $ 1,152,844 $ 1,949,907 $13,846,172
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 91
THE KNOT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1996
(DATE OF NINE MONTHS ENDED
INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- -------------------------
1996 1997 1998 1998 1999
------------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues......................... $ 70,567 $ 596,071 $ 1,039,584 $ 825,791 $ 2,635,430
Cost of revenues..................... 9,044 66,905 131,214 81,977 903,990
---------- ----------- ----------- ----------- -----------
Gross profit......................... 61,523 529,166 908,370 743,814 1,731,440
Operating expenses:
Product and content development.... 261,921 635,440 1,030,323 788,362 1,685,057
Sales and marketing................ 254,864 503,113 768,250 476,159 2,913,246
General and administrative......... 242,116 264,746 809,385 538,589 2,194,582
Non-cash compensation.............. -- -- 93,046 56,787 716,719
Non-cash sales and marketing....... -- -- -- -- 127,016
Depreciation and amortization...... 9,128 22,226 121,718 75,411 346,461
---------- ----------- ----------- ----------- -----------
Total operating expenses............. 768,029 1,425,525 2,822,722 1,935,308 7,983,081
Loss from operations................. (706,506) (896,359) (1,914,352) (1,191,494) (6,251,641)
Interest income (expense), net....... (45,780) (199,135) 14,968 (29,412) 243,281
---------- ----------- ----------- ----------- -----------
Loss before extraordinary items...... (752,286) (1,095,494) (1,899,384) (1,220,906) (6,008,360)
Extraordinary items.................. -- -- 390,111 390,111 --
---------- ----------- ----------- ----------- -----------
Net loss............................. $ (752,286) $(1,095,494) $(1,509,273) $ (830,795) $(6,008,360)
========== =========== =========== =========== ===========
Loss per share -- basic and diluted:
Loss before extraordinary items.... $ (.46) $ (.67) $ (.76) $ (.52) $ (1.96)
Extraordinary items................ -- -- .16 .17 --
---------- ----------- ----------- ----------- -----------
Net loss........................... $ (.46) $ (.67) $ (.60) $ (.35) $ (1.96)
========== =========== =========== =========== ===========
Weighted average number of shares
used in calculating basic and
diluted net loss per share......... 1,625,410 1,625,410 2,497,065 2,344,126 3,066,960
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 92
THE KNOT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ----------------------- --------------------- PAID IN
SHARES AMOUNT SHARES AMOUNT SHARES PAR VALUE CAPITAL
--------- ---------- --------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock at
inception, May 2, 1996............ -- $ -- -- $ -- 1,625,410 $16,254 $ (15,254)
Net loss for the period from May 2,
1996 (date of inception) to
December 31, 1996................. -- -- -- -- -- -- --
--------- ---------- --------- ----------- --------- ------- ----------
Balance at December 31, 1996....... -- -- -- -- 1,625,410 16,254 (15,254)
Issuance of warrant in connection
with note payable................. -- -- -- -- -- -- 830,033
Net loss for the year ended
December 31, 1997................. -- -- -- -- -- -- --
--------- ---------- --------- ----------- --------- ------- ----------
Balance at December 31, 1997....... -- -- -- -- 1,625,410 16,254 814,779
Issuance of common stock in
connection with acquisition....... -- -- -- -- 162,540 1,626 169,775
Deferred compensation related to
unvested common stock in
connection with acquisition....... -- -- -- -- -- -- 186,916
Issuance of common stock........... -- -- -- -- 1,068,122 10,681 (10,681)
Sale of Series A Convertible
Preferred Stock, net of costs..... 2,560,000 3,000,320 -- -- -- -- (217,378)
Conversion of note payable......... 800,000 937,600 -- -- -- -- --
Issuance of common stock........... -- -- -- -- 178,031 1,780 185,153
Deferred compensation related to
the issuance of stock options..... -- -- -- -- -- -- 293,150
Amortization of deferred
compensation...................... -- -- -- -- -- -- --
Net loss for the year ended
December 31, 1998................. -- -- -- -- -- -- --
--------- ---------- --------- ----------- --------- ------- ----------
Balance at December 31, 1998....... 3,360,000 3,937,920 -- -- 3,034,103 30,341 1,421,714
Issuance of common stock........... -- -- -- -- 44,505 445 (445)
Sale of Series B Convertible
Preferred Stock, net of costs..... -- -- 4,000,000 15,000,000 -- -- (127,509)
Issuance of warrant in connection
with sale of Series B Convertible
Preferred Stock................... -- -- -- (1,037,000) -- -- 1,037,000
Issuance of common stock in
connection with acquisitions...... -- -- -- -- 15,000 150 114,850
Issuance of stock options in
connection with acquisitions...... -- -- -- -- -- -- 55,000
Issuance of warrant in connection
with distribution agreement....... -- -- -- -- -- -- 2,250,000
Amortization of deferred sales and
marketing......................... -- -- -- -- -- -- --
Deferred compensation related to
the issuance of stock options..... -- -- -- -- -- -- 3,045,838
Amortization of deferred
compensation...................... -- -- -- -- -- -- --
Net loss for the nine months ended
September 30, 1999................ -- -- -- -- -- -- --
--------- ---------- --------- ----------- --------- ------- ----------
Balance at September 30, 1999...... 3,360,000 $3,937,920 4,000,000 $13,963,000 3,093,608 $30,936 $7,796,448
========= ========== ========= =========== ========= ======= ==========
<CAPTION>
TOTAL
DEFERRED STOCKHOLDERS'
DEFERRED SALES AND ACCUMULATED (DEFICIT)
COMPENSATION MARKETING DEFICIT EQUITY
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Issuance of common stock at
inception, May 2, 1996............ $ -- $ -- $ -- $ 1,000
Net loss for the period from May 2,
1996 (date of inception) to
December 31, 1996................. -- -- (752,286) (752,286)
----------- ----------- ----------- -----------
Balance at December 31, 1996....... -- -- (752,286) (751,286)
Issuance of warrant in connection
with note payable................. -- -- -- 830,033
Net loss for the year ended
December 31, 1997................. -- -- (1,095,494) (1,095,494)
----------- ----------- ----------- -----------
Balance at December 31, 1997....... -- -- (1,847,780) (1,016,747)
Issuance of common stock in
connection with acquisition....... -- -- -- 171,401
Deferred compensation related to
unvested common stock in
connection with acquisition....... (186,916) -- -- --
Issuance of common stock........... -- -- -- --
Sale of Series A Convertible
Preferred Stock, net of costs..... -- -- -- 2,782,942
Conversion of note payable......... -- -- -- 937,600
Issuance of common stock........... -- -- -- 186,933
Deferred compensation related to
the issuance of stock options..... (293,150) -- -- --
Amortization of deferred
compensation...................... 93,046 -- -- 93,046
Net loss for the year ended
December 31, 1998................. -- -- (1,509,273) (1,509,273)
----------- ----------- ----------- -----------
Balance at December 31, 1998....... (387,020) -- (3,357,053) 1,645,902
Issuance of common stock........... -- -- -- --
Sale of Series B Convertible
Preferred Stock, net of costs..... -- -- -- 14,872,491
Issuance of warrant in connection
with sale of Series B Convertible
Preferred Stock................... -- -- -- --
Issuance of common stock in
connection with acquisitions...... -- -- -- 115,000
Issuance of stock options in
connection with acquisitions...... -- -- -- 55,000
Issuance of warrant in connection
with distribution agreement....... -- (2,250,000) -- --
Amortization of deferred sales and
marketing......................... -- 127,016 -- 127,016
Deferred compensation related to
the issuance of stock options..... (3,045,838) -- -- --
Amortization of deferred
compensation...................... 716,719 -- -- 716,719
Net loss for the nine months ended
September 30, 1999................ -- -- (6,008,360) (6,008,360)
----------- ----------- ----------- -----------
Balance at September 30, 1999...... $(2,716,139) $(2,122,984) $(9,365,413) $11,523,768
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 93
THE KNOT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1996
(DATE OF NINE MONTHS ENDED
INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- -------------------------
1996 1997 1998 1998 1999
------------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss before extraordinary items............ $(752,286) $(1,095,494) $(1,899,384) $(1,220,906) $(6,008,360)
Adjustments to reconcile net loss before
extraordinary items to net cash used in
operating activities
Depreciation and amortization................ 9,128 22,226 67,429 39,299 192,459
Amortization of goodwill..................... -- -- 54,289 36,112 154,002
Amortization of deferred financing costs..... -- 83,004 27,668 27,668 --
Amortization of deferred
compensation............................... -- -- 93,046 56,787 716,719
Amortization of deferred sales and
marketing.................................. 127,016
Noncash interest expense..................... 45,780 120,990 30,248 30,248 --
Allowance for doubtful accounts and loan
receivable................................. -- -- -- -- 183,000
Changes in operating assets and liabilities:
Accounts receivable........................ (40,567) 1,087 (150,065) (42,404) (716,808)
Inventories................................ -- -- (28,741) (33,719) (388,556)
Other current assets....................... (57,271) 56,604 (29,959) (11,007) (645,551)
Other assets............................... (29,485) 21,336 (61,144) (61,405) (6,051)
Accounts payable and accrued expenses...... 199,324 (94,939) 120,709 54,856 788,088
Deferred revenue........................... -- 48,436 11,675 23,168 788,224
Other liabilities.......................... -- -- 18,800 18,800 (10,000)
--------- ----------- ----------- ----------- -----------
Net cash used in operating activities.......... (625,377) (836,750) (1,745,429) (1,082,503) (4,825,818)
INVESTING ACTIVITIES
Purchases of property and equipment............ (58,231) (24,267) (255,299) (203,522) (1,185,119)
Loan receivable................................ -- -- -- (50,000) (50,000)
Acquisition of businesses, net of cash
acquired..................................... -- -- (50,000) -- (335,051)
--------- ----------- ----------- ----------- -----------
Net cash used in investing activities.......... (58,231) (24,267) (305,299) (253,522) (1,570,170)
FINANCING ACTIVITIES
Proceeds from note payable..................... 700,000 1,150,000 -- -- --
Proceeds from short term borrowings............ -- -- -- -- 750,000
Repayment of short term borrowings............. -- -- -- -- (750,000)
Financing costs................................ -- -- (217,378) (217,378) (339,731)
Proceeds from issuance of convertible preferred
stock........................................ -- -- 3,000,320 3,000,320 15,000,000
--------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities................................... 700,000 1,150,000 2,782,942 2,782,942 14,660,269
--------- ----------- ----------- ----------- -----------
Increase in cash and cash equivalents.......... 16,392 288,983 732,214 1,446,917 8,264,281
Cash and cash equivalents at beginning of
period....................................... -- 16,392 305,375 305,375 1,037,589
--------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period..... $ 16,392 $ 305,375 $ 1,037,589 $ 1,752,292 $ 9,301,870
========= =========== =========== =========== ===========
</TABLE>
F-6
<PAGE> 94
THE KNOT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1996
(DATE OF NINE MONTHS ENDED
INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- -------------------------
1996 1997 1998 1998 1999
------------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
SUMMARY OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Issuance of warrant in connection with long
term debt.................................... $ -- $ 830,033 $ -- $ -- $ --
Issuance of common stock in connection with
recapitalization............................. -- -- 10,681 10,681 --
Issuance of common stock in connection with
acquisition.................................. -- -- 358,334 171,401 --
Accrued deferred financing costs............... -- -- -- -- 84,445
Conversion of loan payable into preferred
stock........................................ -- -- 937,600 937,600 --
--------- ----------- ----------- ----------- -----------
Total noncash investing and financing
activities................................... $ -- $ 830,033 $ 1,306,615 $ 1,119,682 $ 84,445
========= =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-7
<PAGE> 95
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. ORGANIZATION AND NATURE OF OPERATIONS
The Knot, Inc. (the "Company"), formerly Weddings.com, Inc., was
incorporated in the state of Delaware on May 2, 1996 ("Inception"). On June 18,
1996, the Company changed its name from Weddings.com, Inc. to The Knot, Inc.
The Company is a leading online destination targeting the wedding market.
The Company provides wedding resources on the World Wide Web and is the primary
wedding content provider on America Online and several other of AOL's leading
brands, including AOL.com, Netscape Netcenter and CompuServe. The Company's
online sites provide articles on wedding planning, organized by topic, a
database of local wedding vendors, interactive services and personalized
planning tools, a searchable bridal gown database, various communities of hosted
chats and message boards, a gift registry, a wedding supply and gift store and
honeymoon travel packages. The Company also authors a series of books and
publishes a semiannual gown guide.
The accompanying financial statements include the accounts of Click Trips,
Inc., a wholly owned subsidiary from July 31, 1999 through September 30, 1999.
All intercompany transactions have been eliminated in consolidation.
In August 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission ("SEC") that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering ("IPO"). Following the
closing of the Company's IPO, the Company will be authorized to issue
105,000,000 shares; 100,000,000 of these shares will be designated as common
stock having a par value of $.01, and 5,000,000 of these shares will be
undesignated preferred shares, having a par value of $.001. The Company will be
authorized to issue shares of undesignated preferred stock in one or more
classes or series without further stockholder approval. If the offering is
consummated under the terms presently anticipated, all the then outstanding
shares of the Company's convertible stock will automatically convert into shares
of common stock on a one-for-one basis upon the closing of the proposed IPO. The
conversion of all of the convertible preferred stock has been reflected in the
accompanying unaudited pro forma consolidated balance sheet as if it had
occurred on September 30, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates. The most
significant estimates included in the preparation of the financial statements
are related to asset lives, the valuation of common stock, preferred stock and
warrants.
F-8
<PAGE> 96
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value due to the short-term nature of these
instruments. The carrying amounts of outstanding borrowings approximate fair
value.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents
were approximately $243,000, $1,003,000, and $9,039,000 at December 31, 1997 and
1998 and September 30, 1999, respectively. The market value of the Company's
cash equivalents approximates their cost plus accrued interest.
INVENTORY
Inventory consists of finished goods. Inventory costs are determined
principally by using the average cost method, and are stated at the lower of
such cost or net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets which range from three to seven
years. Leasehold improvements are amortized over the shorter of their estimated
useful lives or the term of the related lease agreement.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets, including goodwill, for
impairment whenever events or changes in circumstances such as significant
declines in revenues, earnings or cash flows or material adverse changes in the
business climate, indicate that the carrying amount of an asset may be impaired.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of the assets to future estimated undiscounted net cash flows
expected to be generated by the assets. If the assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. To date, no
impairment has occurred.
GOODWILL
Goodwill is being amortized over three years using the straight-line
method. Accumulated amortization of goodwill approximates $54,000 and $208,000
at December 31, 1998 and September 30, 1999, respectively.
F-9
<PAGE> 97
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company accounts for income taxes on the liability method as required
by Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." Under this method, deferred tax assets and liabilities are
recognized for the future tax consequence attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax liabilities of a change
in tax rates is recognized in results of operations in the period that includes
the enactment date.
NET REVENUES BY TYPE
Net revenues by type are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR ENDED NINE MONTHS ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------- ------------------------
TYPE 1996 1997 1998 1998 1999
- ---- ------------ -------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sponsorship,
advertising and
production........... $70,567 $596,071 $ 853,240 $656,117 $1,724,154
Merchandise............ -- -- 17,487 -- 694,119
Publishing, travel and
other................ -- -- 168,857 169,674 217,157
------- -------- ---------- -------- ----------
Total.................. $70,567 $596,071 $1,039,584 $825,791 $2,635,430
======= ======== ========== ======== ==========
</TABLE>
REVENUE RECOGNITION
Sponsorship and Advertising
Sponsorship revenues are derived principally from contracts currently
ranging up to three years. Sponsorships are designed to integrate advertising
with specific editorial content. Sponsors can purchase the exclusive right to
promote products or services on a specific editorial area and can purchase
special feature on the Company's sites.
Advertising revenues are derived principally from short-term contracts
which typically range from one month up to one year. Advertising contracts
include banner advertisements and listings for local wedding vendors.
Sponsorship and advertising contracts provide for the delivery of a minimum
number of impressions. Impressions are the featuring of a sponsor's
advertisement, banner, link or other form of content on our sites. To date, the
Company has recognized sponsorship and advertising revenues over the duration of
the contracts on a straight line basis as the Company has exceeded minimum
guaranteed impressions. To the extent that minimum guaranteed impressions are
not met, the Company is generally obligated to extend the period of the contract
until the guaranteed impressions are achieved. If this were to occur,
F-10
<PAGE> 98
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company would defer and recognize the corresponding revenues over the
extended period.
Production revenues are derived from the development of online sites and
tools. Production revenues are recognized when the development is completed and
the online sites and tools are delivered.
To promote the Company's brand on third-party sites, the Company produces
online sites for third parties featuring both The Knot and the third party. The
cost of production of these sites is included in operating expenses. In return,
the Company receives distribution and exposure to the viewers of such third
party sites, outbound links to its sites and, in some circumstances, offline
brand marketing. The Company does not recognize revenue with respect to these
barter transactions.
Usage revenues received from America Online, Inc. ("AOL") which totaled
approximately $74,000 for the year ended December 31, 1997 and $47,000
(unaudited) for the nine months ended September 30, 1998 were derived from AOL
customers visiting the Company's AOL site. Usage revenues were recognized as
they were earned based upon hours of viewership of the Company's site. As
discussed in Note 4, the Company signed a new agreement with AOL which
eliminated usage revenues from, and licensing fees to AOL, subsequent to
September 30, 1998.
Merchandise
Merchandise revenues are derived from sales of merchandise through
Bridalink.com, The Knot Registry and The Knot Shop. Merchandise revenues include
outbound shipping and handling charges. Merchandise revenues from product sales
are recognized when the products are shipped to customers, reduced by an
allowance for estimated sales returns.
Publishing
Publishing revenues are derived from author royalties related to book
publishing contracts and sales of books published by the Company. Royalties
related to book publishing contracts are recognized when the Company has met all
contractual obligations, which typically includes the delivery and acceptance of
a final manuscript. Revenues related to the sale of books are recognized when
the books are shipped, reduced by an allowance for estimated returns.
Travel
Travel revenues are derived from commissions on the sale of travel packages
by the Company's online travel agency, Click Trips, Inc. Such revenues are
recognized when the customer commences travel.
DEFERRED REVENUE
Deferred revenue represents payments received or billings in excess of
revenue recognized related to sponsorship, advertising and production contracts,
as well as advances received against future royalties to be earned relating to
book publishing contracts.
F-11
<PAGE> 99
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COST OF REVENUES
Cost of revenues consists of the cost of merchandise sold, payroll and
related expenses for personnel who are responsible for the production of
customized online sites and tools, and costs of Internet and hosting services.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense totaled
approximately $69,000, $79,000, $46,000, $11,000 (unaudited) and $57,000 for the
period from inception through December 31, 1996 and for the years ended December
31, 1997 and 1998 and the nine months ended September 30, 1998 and 1999,
respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company maintains a significant portion of its cash
and cash equivalents with one financial institution. The Company's customers are
primarily concentrated in the United States. The Company performs on-going
credit evaluations, generally does not require collateral, and establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of customers, historical trends and other information. To date, such losses have
been within management's expectations.
For the year ended December 31, 1998, one advertiser accounted for 19% of
our net revenues. For the year ended December 31, 1997, one advertiser accounted
for 42% of our net revenues and a different advertiser accounted for 13% of our
net revenues. From May 2, 1996 (our inception date) through December 31, 1996,
four advertisers accounted for 34%, 30%, 23% and 13% of our net revenues,
respectively.
At September 30, 1999, two advertisers accounted for 14% and 12% of
accounts receivable, respectively. At December 31, 1998, four advertisers
accounted for 26%, 16%, 13%, and 12% of accounts receivable, respectively. At
December 31, 1997, two advertisers accounted for 62% and 38% of accounts
receivable, respectively.
STOCK-BASED COMPENSATION
The Company accounts for its employee stock option plan in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations and
complies with the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation."
STOCK SPLITS
On January 17, 1997 and April 27, 1998, the Company effected a 1,000 for 1
and a 16.2541 for 1 stock split, respectively. All share amounts have been
retroactively restated to reflect these events in the accompanying financial
statements.
F-12
<PAGE> 100
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERIM FINANCIAL INFORMATION
The unaudited interim financial information as of September 30, 1998 and
for the nine months then ended has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company's management, contains
all adjustments (consisting of normal recurring accruals) necessary for a fair
presentation. Operating results for any interim period are not necessarily
indicative of results to be expected for the entire year.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share." Basic net loss per share is computed by dividing net loss
by the weighted average number of common shares outstanding during the period.
Diluted net loss per share adjusts basic loss per share for the effects of
convertible securities, stock options and other potentially dilutive financial
instruments, only in the periods in which such effect is dilutive. There were no
dilutive securities in any of the periods presented herein.
SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which establishes standards for the way
that a public enterprise reports information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. In the initial
year of application, comparative information for earlier years must be restated.
The Company operates in a single segment. The chief operating decision maker
allocates resources and assesses the performance associated with sponsorship and
advertising, merchandise, publishing and travel on a single segment basis.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards for
reporting and displaying comprehensive income and its components in a full set
of general purpose financial statements. Since the Company's comprehensive net
loss is equal to its net loss for all periods presented, the adoption of this
standard has had no impact on the Company's financial statements.
SOFTWARE DEVELOPMENT COSTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." This SOP is effective for fiscal years beginning
after December 15,
F-13
<PAGE> 101
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998. The Company has adopted the provisions of SOP 98-1 during the nine months
ended September 30, 1999 with no material effect.
All projects are being amortized over their estimated useful lives, which
has been determined by management to be three years. Amortization on the
projects begins when the software is ready for its intended use.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
------- -------- -------------
<S> <C> <C> <C>
Leasehold improvements...................... $ 8,200 $ 8,200 $ 100,109
Software.................................... -- 47,900 489,058
Furniture and fixtures...................... 3,761 14,222 28,785
Computer equipment.......................... 70,537 271,505 955,004
------- -------- ----------
82,498 341,827 1,572,956
Less accumulated depreciation and
amortization.............................. 31,354 98,783 291,242
------- -------- ----------
$51,144 $243,044 $1,281,714
======= ======== ==========
</TABLE>
4. RELATED PARTY TRANSACTIONS
AOL
During 1996, AOL advanced $700,000 to the Company to fund the development
of the Company's online property located on AOL. During 1996, the Company
entered into an Interactive Services Agreement with AOL whereby AOL agreed to
carry the Company's content for a period of three years. As a result of this
agreement, AOL paid the Company a usage fee based on hours of viewership of the
Company's site on AOL. AOL received a commission equal to a percentage of the
Company's advertising revenues, as defined, that were derived from its site.
This agreement was amended in 1998 eliminating usage fees paid to the Company
and eliminating commissions paid to AOL.
On January 17, 1997, the Company and AOL entered into a Note and Warrant
Purchase Agreement, whereby the Company issued to AOL a Secured Promissory Note
(the "AOL Note") and a Stock Subscription Warrant (the "AOL Warrant") to
purchase 3,250,820 shares of the Company's Series A Convertible Preferred Stock.
The AOL Warrant was valued at approximately $830,000, based on its estimated
fair value. Such value was recorded as deferred financing costs and was
amortized on a straight line basis over the life of the AOL Warrant.
The Company borrowed a total of $1,850,000 under the AOL Note, inclusive of
the $700,000 advanced in 1996. The AOL Note bore interest at 6.54% per annum and
was payable January 16, 2007.
F-14
<PAGE> 102
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On April 28, 1998, AOL converted $937,600 of the outstanding balance under
the AOL Note to 800,000 shares of Series A Convertible Preferred Stock (See Note
8). The remaining balance of $1,109,418 which included accrued interest of
$197,018, was forgiven and the AOL Note and AOL Warrant were canceled. The
forgiveness of debt and the write-off of the related unamortized deferred
financing costs at April 28, 1998 of $719,307 are included in extraordinary
items.
In October 1998, the Company entered into an Anchor Tenant Agreement with
AOL (the "AOL Agreement"), whereby the Company received distribution within the
AOL service. Beginning January 1, 1999, the Company was obligated to pay
carriage fees throughout the term of the AOL Agreement. This agreement
superseded any prior agreements between the Company and AOL.
In July 1999, the Company entered into an amended and restated Anchor
Tenant Agreement with AOL ("Restated AOL Agreement") which superseded the AOL
Agreement. The Restated AOL Agreement expires on January 6, 2003 and provides
for a quarterly carriage fee payable over the remaining term of the Restated AOL
Agreement.
Pursuant to the Restated AOL Agreement, the Company issued a warrant to
purchase 366,667 shares of the Company's common stock at $7.20 per share,
subject to certain anti-dilution provisions. The warrant is immediately
exercisable and expires in July 2007. The Company valued this warrant at
approximately $2,250,000, by using the Black-Scholes option pricing model with
an expected volatility factor of 55%, risk free interest rate of 5%, no dividend
yield, and a 2-year life, which will be recognized as non-cash sales and
marketing expense on the straight line basis over the term of the agreement.
QVC, INC. ("QVC")
On April 13, 1999, the Company sold 4,000,000 shares of Series B
Convertible Preferred Stock ("Series B") for $15,000,000 to QVC. In connection
with the sale of Series B Convertible Preferred Stock, the Company issued a
warrant to QVC to purchase 1,700,000 shares of common stock at $5.00 per share
subject to certain anti-dilution provisions. The warrant becomes exercisable
upon the earlier of the fourth anniversary of the issuance of the warrant or
upon the occurrence of certain events including the closing of an initial public
offering. At issuance, the fair value of the warrant was calculated to be
approximately $1,037,000 by using the Black-Scholes option pricing model with an
expected volatility factor of 55%, risk free interest rate of 5%, no dividend
yield, and a 2-year life.
In April 1999, the Company entered into a services agreement with QVC (the
"Services Agreement"), whereby QVC will provide warehousing, fulfillment and
distribution services with respect to the Company's registry and book products.
Additionally, the services agreement, which has a term of four years from the
date of this offering, provides for the Company to purchase certain merchandise
through QVC at amounts in excess of QVC's cost. The fees for such services were
negotiated on an arm's length basis.
The Company also has an agreement with QVC to sell merchandise through a
co-branded site accessible from within QVC's on-line site.
F-15
<PAGE> 103
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ACQUISITIONS
CASENHISER CLOTHING COMPANY, INC. d/b/a BRIDAL SEARCH
On April 2, 1998, the Company acquired all of the assets of Bridal Search
for $50,000 in cash and 162,540 shares of the Company's common stock valued at
$1.05 per share for financial reporting purposes. In addition, the Company was
required to issue up to 356,046 additional shares to Bridal Search upon the
achievement of future performance criteria, of which 178,031 shares were issued
in connection with the launch of the Company's registry in November 1998 at a
value of $1.05 per share. The remaining 178,015 shares were issuable upon the
attainment of certain revenue based goals. In August 1999, the Company entered
into a Settlement and Release Agreement whereby Bridal Search agreed to forego
its rights to receive the remaining 178,015 shares related to revenue based
goals in exchange for a payment of $150,000. Such amount, representing
contingent purchase price, was recorded as additional goodwill. The purchase
price, net of tangible assets acquired, principally fixed assets of
approximately $4,000, was recorded as goodwill.
Under the agreement, the former owners of Bridal Search are also entitled
to receive an additional 178,015 shares of the Company's common stock,
contingent upon their employment by the Company and which vest over four years.
The value of these shares of $186,916 was recorded as deferred compensation. As
of September 30, 1999, 44,504 shares had vested pursuant to the agreement.
Bridalink.com
In July 1999, the Company acquired all of the assets of Bridalink.com for
approximately $124,000 in cash and the issuance of 10,000 immediately vested
stock options to purchase common stock at an exercise price of $1.50 per share.
The common stock was valued at $7.00 per share for financial reporting purposes.
Bridalink.com operates an online wedding supply store located in Northern
California. The acquisition was accounted for under the purchase method of
accounting. The purchase price, including legal fees, of $191,000, net of
tangible assets acquired, principally inventory and fixed assets of $124,000 was
recorded as goodwill.
CLICK TRIPS, INC.
In July 1999, the Company acquired all of the capital stock of Click Trips,
Inc. ("Click Trips") for 5,000 shares of common stock. The common stock was
valued at $7.00 per share for financial reporting purposes. Such shares are
being held in escrow for six months for the purpose of indemnifying the Company
against any potential liabilities of Click Trips. Click Trips has the right to
receive options to purchase up to 10,000 shares of the Company's common stock
upon the attainment of $1,200,000 in commission revenues for the year ended
December 31, 2000. The exercise price related to such options will be equal to
the fair market value of the Company's common stock on the date of grant. Click
Trips operates an online travel agency. The acquisition was accounted for under
the purchase method of accounting. The purchase price, including legal fees, of
$67,000, net of tangible assets acquired, principally fixed assets of
approximately $16,000, was recorded as goodwill.
F-16
<PAGE> 104
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WEDDING PHOTOGRAPHERS NETWORK
In August 1999, the Company acquired all of the assets of Wedding
Photographers Network ("WPN"), a division of The Denis Reggie Company, for
10,000 shares of the Company's common stock. The common stock was valued at
$8.00 per share for financial reporting purposes. WPN offers a search engine to
obtain a listing of professional wedding photographers in various local areas.
This acquisition was accounted for under the purchase method of accounting. The
purchase price of $159,000 which includes legal fees, and liabilities assumed of
approximately $38,000, was recorded as goodwill.
Unaudited pro forma data for the Company for the year ended December 31,
1998, and for the nine months ended September 30, 1999 giving effect to the
acquisitions of Bridal Search, Bridalink.com, Click Trips, Inc. and Wedding
Photographers Network as if these acquisitions had occurred at the beginning of
each period presented (with the exception of Bridal Search which is already
reflected in the Company's consolidated historical financial statements for the
nine months ended September 30, 1999) are shown below. Pro forma basic and
diluted net loss per share has been calculated assuming the conversion of all
convertible preferred stock on the date of issuance.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
Net revenues................................. $ 1,698,000 $ 3,665,025
Loss before extraordinary item............... (1,895,000) (5,865,000)
Net loss..................................... (1,505,000) (5,865,000)
Basic and diluted net loss per share......... (.59) (1.90)
Pro forma basic and diluted net loss per (.31) (.65)
share......................................
</TABLE>
6. ALLIANCE AGREEMENT WITH WEDDINGPAGES, INC.
In July 1999, the Company entered into an 18-month exclusive alliance
agreement with Weddingpages, Inc., ("Weddingpages"). Weddingpages sells online
advertising to local wedding vendors on our behalf. We receive the revenue from
the sale of advertisements and pay Weddingpages a 65% sales commission. We also
pay Weddingpages a monthly fee for related administration and operating
functions, including customer service, ad production, and accounting services.
7. SHORT TERM BORROWINGS
In July 1998, the Company entered into a short term borrowing agreement
with a bank whereby the Company was allowed to borrow up to $750,000 at an
interest rate equal to prime plus 2%. The agreement matured in April 1999. In
August 1999, this balance was paid in full.
F-17
<PAGE> 105
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CAPITAL STOCK
The Company's Amended and Restated Articles of Incorporation provides for
22,000,000 authorized shares of capital stock consisting of 14,640,000 shares of
common stock each having a par value of $.01 per share and 7,360,000 shares of
convertible preferred stock, each having a par value of $.001.
PREFERRED STOCK
On April 28, 1998, the Company sold 2,560,000 shares of Series A
Convertible Preferred Stock ("Series A") for $3,000,320. Simultaneously,
$937,600 of the AOL Note was converted into 800,000 shares of Series A
Convertible Preferred Stock (See Note 4).
On April 13, 1999, the Company sold 4,000,000 shares of Series B
Convertible Preferred Stock ("Series B") for $15,000,000 to QVC (see Note 4).
Each share of Series A and Series B Preferred Stock is convertible into one
share of the Company's common stock subject to certain anti-dilution provisions.
The Series A and Series B Convertible Preferred Stock will be automatically
converted into common stock upon completion of an initial public offering of the
Company's common stock with minimum net proceeds to the Company of $10,000,000
with a minimum price per share of $7.50.
The holders of the Series A and Series B Preferred Stock shall be entitled
to receive noncumulative annual dividends, at the rate of $.09 and $.30 per
share, respectively, if and when declared by the Board of Directors. The holders
of preferred stock are entitled to the number of votes equal to the number of
shares of common stock into which their preferred stock is convertible. Neither
series of preferred stock is redeemable.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Series A and B Preferred Stock shall be entitled to receive
$1.172 and $3.75 for each outstanding share of stock, respectively, plus
declared but unpaid dividends on such shares.
COMMON STOCK
From inception through April 24, 1998, all outstanding common shares of the
Company were owned by Element Studios, Inc. ("Element"), formerly MW
Entertainment, Inc. On April 24, 1998, in connection with a recapitalization of
the Company prior to the sale of Series A Preferred Stock, Element was
dissolved. The outstanding common shares of the Company owned by Element were
distributed equally to the four founders of Element. On April 28, 1998, the
Company issued an additional 1,068,122 common shares to the founders. Following
the recapitalization, each founder was the holder of 673,383 common shares.
F-18
<PAGE> 106
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In conjunction with the Series A issuance, the founders entered into
Vesting Agreements, whereby each founder granted the Company the right to
repurchase 505,037 shares of common stock for $.01, if the founder is no longer
employed by the Company. The amount of shares subject to the Vesting Agreements
are reduced ratably over thirty six months. Common shares subject to repurchase
are held in escrow and amounted to 392,807 and 266,544, per founder, at December
31, 1998, and September 30, 1999, respectively.
9. STOCK OPTIONS
Under the terms of the Company's Incentive Plan (the "1997 Plan"),
2,849,868 shares of common stock of the Company have been reserved for incentive
stock options, nonqualified stock options (incentive and nonqualified stock
options are collectively referred to as "Options"), restricted stock, or any
combination thereof. Awards may be granted to such directors, officers,
employees and consultants of the Company as the Board of Directors shall in its
discretion select. Only employees of the Company are eligible to receive grants
of incentive stock options.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance at December 31, 1996.......................... -- $ --
Options granted....................................... 98,825 .01
Options canceled...................................... -- --
---------
Options outstanding at December 31, 1997.............. 98,825 .01
Options granted....................................... 583,000 .50
Options canceled...................................... (8,810) .01
---------
Options outstanding at December 31, 1998.............. 673,015 .93
Options granted....................................... 1,131,750 2.84
Options canceled...................................... (44,000) 1.77
---------
Options outstanding at September 30, 1999............. 1,760,765 $1.97
=========
</TABLE>
As of December 31, 1998 and September 30, 1999, 34,828 and 229,509,
respectively, of the above options were exercisable. Generally, options are
granted at the fair market value of the stock on the date of grant as determined
by the Board of Directors. Options vest up to a four year period and have terms
not to exceed 10 years.
Had compensation for the Plan been determined consistent with the
provisions of SFAS No. 123, the effect on the Company's net loss before
extraordinary items and basic
F-19
<PAGE> 107
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and diluted net loss before extraordinary items per share would have been
changed to the following pro forma amounts:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss before extraordinary
items, as reported.......... $(1,095,494) $(1,899,384) $(1,220,906) $(6,008,360)
Net loss before extraordinary
items, pro forma............ (1,096,282) (1,988,488) (1,273,178) (6,341,133)
Basic and diluted loss before
extraordinary items per
share, as reported.......... (.67) (.76) (.52) (1.96)
Basis and diluted loss per
share, pro forma............ (.67) (.80) (.54) (2.07)
</TABLE>
The fair value of each option granted has been estimated on the date of
grant using the minimum value method option pricing model with the following
assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1997 1998 1999
------- ------- -------------
<S> <C> <C> <C>
Expected option lives......................... 4 years 4 years 4 years
Risk-free interest rates...................... 5.72% 4.64% 5.75%
Expected volatility........................... 0% 0% 0%
Dividend yield................................ 0% 0% 0%
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of options
is amortized to expense over the options' vesting period.
During the year ended December 31, 1998 and the nine months ended September
30, 1999, the Company granted options with exercise prices that were
subsequently determined to be less than the value for financial reporting
purposes on the date of grant. As a result, the Company has recorded deferred
compensation of approximately $293,000 during 1998 and $3,046,000 during the
nine months ended September 30, 1999. These amounts, together with deferred
compensation recorded in connection with the acquisition of Bridal Search, will
be recognized as noncash compensation expense on an accelerated basis over the
vesting period of the options consistent with the method described in FASB
Interpretation No. 28.
10. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
F-20
<PAGE> 108
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------- -------------------------
1997 1998 1998 1999
--------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss
carryforwards.............. $ 804,600 $ 1,374,000 $ 1,030,200 $ 3,874,000
Deferred revenue.............. -- 5,800 4,300 2,900
Depreciation and
amortization............... 8,900 49,500 37,200 111,100
Other......................... 500 800 500 100
--------- ----------- ----------- -----------
Total deferred tax assets....... 814,000 1,430,100 1,072,200 3,988,100
Deferred tax liabilities:
Capitalized software costs.... -- -- -- (188,500)
--------- ----------- ----------- -----------
Net deferred tax assets......... 814,000 1,430,100 1,072,200 3,799,600
Valuation allowance........... (814,000) (1,430,100) (1,072,200) (3,799,600)
--------- ----------- ----------- -----------
Total deferred tax assets....... $ -- $ -- $ -- $ --
========= =========== =========== ===========
</TABLE>
Net deferred tax assets have been fully offset by a valuation allowance due
to the uncertainty of realizing such benefit.
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $2,975,000 for federal and state income tax purposes which are set
to expire in years 2011 through 2018.
11. COMMITMENTS
OPERATING LEASES
The Company leases office facilities and certain warehouse space under
noncancelable operating lease agreements which expire at various dates through
2003. In October 1999, the Company entered into a lease amendment for additional
office space through March 31, 2012. Future minimum lease payments under
noncancelable operating leases including the lease amendment made in October
1999, are as follows:
<TABLE>
<S> <C>
Year ending September 30:
2000..................................... $ 374,000
2001..................................... 415,000
2002..................................... 416,000
2003..................................... 400,000
2004..................................... 450,000
Thereafter............................... 4,060,000
----------
Total...................................... $6,115,000
==========
</TABLE>
Rent expense for the period from Inception to December 31, 1996, the years
ended December 31, 1997 and 1998 and the nine months ended September 30, 1998
and 1999
F-21
<PAGE> 109
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounted to approximately $30,000, $43,000, $183,000, $98,000 (unaudited) and
$198,000, respectively.
Sublease income for the year ended December 31, 1998 and the nine months
ended September 30, 1998 and 1999 amounted to $97,000, $66,000 (unaudited) and
$36,000, respectively.
OTHER
At September 30, 1999, the Company is obligated to pay certain fees as
follows:
<TABLE>
<S> <C>
Year ending September 30:
2000..................................... $1,150,000
2001..................................... 1,200,000
2002..................................... 1,200,000
2003..................................... 300,000
----------
Total...................................... $3,850,000
==========
</TABLE>
12. SUBSEQUENT EVENTS
1999 STOCK INCENTIVE PLAN (THE "1999 PLAN")
In November 1999, the Company's Board of Directors adopted the 1999 Plan,
as a successor plan to the 1997 Plan, pursuant to which 1,000,000 additional
shares of the Company's common stock have been reserved for issuance to selected
employees, non-employee directors and consultants. All options under the 1997
Plan are incorporated into the 1999 Plan and no further option grants will be
made under the 1997 Plan. The 1999 Plan will become effective upon completion of
the Company's initial public offering of its common stock.
EMPLOYEE STOCK PURCHASE PLAN
In November 1999, the Company's Board of Directors adopted the Employee
Stock Purchase Plan to be effective upon completion of the Company's initial
public offering of its common stock. The Company has initially reserved 300,000
shares of common stock for issuance under the 1999 Plan.
F-22
<PAGE> 110
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMMON STOCK
At November 5, 1999, the Company had reserved the following shares of
common stock for future issuance after giving effect to transactions in this
footnote:
<TABLE>
<S> <C>
Conversion of Series A and Series B Preferred Stock.... 7,360,000
Options under the 1999 Stock Incentive Plan............ 3,849,868
Common stock warrant................................... 1,700,000
Common stock warrant................................... 366,667
Options under the Employee Stock Purchase Plan......... 300,000
Options related to the acquisition of Bridalink.com.... 10,000
Options related to the acquisition of Click Trips,
Inc.................................................. 10,000
Common Shares issuable in connection with employment of
certain management of Bridal Search.................. 133,511
----------
Total common stock reserved for future issuance........ 13,730,046
==========
</TABLE>
F-23
<PAGE> 111
REPORT OF INDEPENDENT AUDITORS
The Shareholder of
Casenhiser Clothing Company, Inc.
We have audited the accompanying balance sheets of Casenhiser Clothing
Company, Inc. (the "Company") as of December 31, 1997 and April 1, 1998, and the
related statements of operations, shareholder's equity and cash flows for the
year ended December 31, 1997 and the period ended April 1, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at December 31,
1997 and April 1, 1998 and the results of its operations and its cash flows for
the year ended December 31, 1997 and the period ended April 1, 1998 in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
August 18, 1999
F-24
<PAGE> 112
CASENHISER CLOTHING COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 1,
1997 1998
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 2,333 $ 3,249
Inventories......................................... 2,480 2,320
Other current assets................................ 1,750 850
--------- ---------
Total current assets.................................. 6,563 6,419
Property and equipment................................ 45,902 45,902
Less: accumulated depreciation........................ (39,436) (40,113)
--------- ---------
Property and equipment, net........................... 6,466 5,789
--------- ---------
Total assets.......................................... $ 13,029 $ 12,208
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses............... $ -- $ 5,743
--------- ---------
Total current liabilities............................. -- 5,743
Commitments and contingencies
Shareholder's equity:
Common stock, $.01 par value; 100,000 shares
authorized; 10,000, shares issued and outstanding
at December 31, 1997 and April 1, 1998,
respectively..................................... 100 100
Additional paid-in-capital.......................... 172,578 172,578
Accumulated deficit................................. (159,649) (166,213)
--------- ---------
Total shareholder's equity............................ 13,029 6,465
--------- ---------
Total liabilities and shareholder's equity............ $ 13,029 $ 12,208
========= =========
</TABLE>
See accompanying notes.
F-25
<PAGE> 113
CASENHISER CLOTHING COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD ENDED PERIOD ENDED
1997 APRIL 1, 1997 APRIL 1, 1998
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Net revenues.................................... $137,590 $11,908 $44,025
Operating expenses.............................. 75,898 18,810 48,402
-------- ------- -------
Income (loss) from operations................... 61,692 (6,902) (4,377)
Interest expense................................ (7,631) (1,149) (2,187)
-------- ------- -------
Net income (loss)............................... $ 54,061 $(8,051) $(6,564)
======== ======= =======
Income (loss) per share -- basic and diluted:
Net income (loss)............................. $ 5.41 $ (.81) $ (.66)
======== ======= =======
Weighted average number of shares used in
calculating basic and diluted net income
(loss) per share.............................. 10,000 10,000 10,000
======== ======= =======
</TABLE>
See accompanying notes.
F-26
<PAGE> 114
CASENHISER CLOTHING COMPANY, INC.
STATEMENTS OF SHAREHOLDER'S (DEFICIT) EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID IN ACCUMULATED TOTAL (DEFICIT)
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996..... 10,000 $100 $172,578 $(213,710) $(41,032)
Net income for the year ended
December 31, 1997................ -- -- -- 54,061 54,061
------ ---- -------- --------- --------
Balance at December 31, 1997..... 10,000 100 172,578 (159,649) 13,029
Net loss for the period ended
April 1, 1998.................. -- -- -- (6,564) (6,564)
------ ---- -------- --------- --------
Balance at April 1, 1998......... 10,000 $100 $172,578 $(166,213) $ 6,465
====== ==== ======== ========= ========
</TABLE>
See accompanying notes.
F-27
<PAGE> 115
CASENHISER CLOTHING COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, APRIL 1, APRIL 1,
1997 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................... $ 54,061 $(8,051) $(6,564)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation expense..................... 4,311 1,078 677
Changes in operating assets and
liabilities:
Inventories........................... (2,480) -- 160
Other current assets.................. (1,750) -- 900
Accounts payable and accrued
expenses............................ (51,820) 6,973 5,743
-------- ------- -------
Net cash provided by operating
activities............................... 2,322 -- 916
Increase in cash........................... 2,322 -- 916
Cash at beginning of period................ 11 11 2,333
-------- ------- -------
Cash at end of period...................... $ 2,333 $ 11 $ 3,249
======== ======= =======
</TABLE>
See accompanying notes.
F-28
<PAGE> 116
CASENHISER CLOTHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 1, 1998
1. ORGANIZATION AND NATURE OF OPERATIONS
Casenhiser Clothing Company, Inc. d/b/a Bridal Search built and maintained
an online database of wedding gowns, gown descriptions and photographs. This
database was licensed exclusively to The Knot, Inc. On April 2, 1998, The Knot,
Inc. acquired all of the assets of Bridal Search for $50,000 in cash and 162,540
shares of The Knot, Inc.'s common stock, and the licensing agreement was
terminated. In addition, The Knot, Inc. was required to issue up to 356,046
additional shares to Bridal Search upon the achievement of future performance
criteria, of which 178,031 shares were issued in November 1998. The remaining
178,015 shares were issuable upon the attainment of certain revenue based goals.
In August 1999, The Knot, Inc. entered into a Settlement and Release Agreement
whereby Bridal Search agreed to forego its rights to receive the remaining
178,015 shares related to revenue based goals in exchange for a payment of
$150,000.
Under the agreement, former management of Bridal Search are also entitled
to receive an additional 178,015 shares of The Knot, Inc.'s common stock,
contingent upon their employment by The Knot, Inc. which vest over four years.
As of June 30, 1999, 44,504 shares had vested pursuant to the agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates. The most
significant estimates included in the preparation of the financial statements
are related to asset lives.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and accounts payable approximate fair value
due to the short-term nature of these instruments.
INVENTORY
Inventory consists of finished goods. Inventory costs are determined
principally by using the first-in, first-out (FIFO) method, and are stated at
the lower of such cost or realizable value.
PROPERTY AND EQUIPMENT
Property and equipment is comprised primarily of office and computer
equipment and is stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated useful lives of the
related assets, five years.
F-29
<PAGE> 117
CASENHISER CLOTHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances such as significant declines in revenues, earnings or
cash flows or material adverse changes in the business climate, indicate that
the carrying amount of an asset may be impaired. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of the assets
to future estimated undiscounted net cash flows expected to be generated by the
assets. If the assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. To date, no impairment has incurred.
INCOME TAXES
The Company accounts for income taxes on the liability method as required
by Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". Under this method, deferred tax assets and liabilities are
recognized for the future tax consequence attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
The Company has elected to be taxed as an S Corporation for federal income
tax purposes. As such, the Company has not been subject to federal income tax
since the shareholder has included the corporation's taxable income or loss in
their individual income tax returns.
NET REVENUES BY TYPE
Net revenues by type are as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED APRIL 1,
DECEMBER 31, ----------------------
TYPE 1997 1997 1998
- ---- ------------ ----------- -------
(UNAUDITED)
<S> <C> <C> <C>
Licensing................................. $107,317 $ -- $37,157
Merchandise............................... 19,773 1,908 6,868
Advertising............................... 10,500 10,000 --
-------- ------- -------
Total..................................... $137,590 $11,908 $44,025
======== ======= =======
</TABLE>
REVENUE RECOGNITION
Licensing
Licensing revenue is recognized on a monthly basis in accordance with a
licensing agreement with The Knot, Inc.
F-30
<PAGE> 118
CASENHISER CLOTHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Merchandise
Merchandise revenues are derived from the sale of wedding supply and
novelty items and are recognized when the products are shipped to customers.
Such revenues include outbound shipping and handling charges. The Company
provides an allowance for estimated sales returns.
Advertising
Advertising revenues are derived principally from short-term advertising
contracts and recognized on a straight-line basis over the duration of the
contract.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense
approximated $3,400, $100, and $2,800 (unaudited) for the year ended December
31, 1997 and the periods ended April 1, 1998 and 1997, respectively.
CONCENTRATION OF CREDIT RISK
For the year ended December 31, 1997 and the period ended April 1, 1998,
one customer (The Knot, Inc.) accounted for 78% and 84% of net revenues,
respectively.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income". This statement establishes standards for
reporting and displaying comprehensive income and its components in a full set
of general purpose financial statements. The adoption of this standard has had
no impact on the Company's financial statements. Accordingly, the Company's
comprehensive net loss is equal to its net loss for all periods presented.
3. COMMITMENTS
OPERATING LEASES
The Company leased office space in California on a month to month basis.
Rent expense for the years ended December 31, 1997 and the periods ended April
1, 1998 and 1997 amounted to $1,000, $2,000 and $0 (unaudited), respectively.
4. YEAR 2000 (UNAUDITED)
The Company currently operates numerous date-sensitive computer
applications and systems throughout its business. As the century change
approaches, it will be essential for the Company to ensure that these systems
properly recognize the year 2000 and continue to process critical operation and
financial information. The Company has established processes for evaluating and
managing the risks and costs associated with preparing the Company's systems and
applications for the year 2000 change. The Company has substantially completed
these modifications and costs to allow thorough testing before the year 2000.
F-31
<PAGE> 119
BACK INSIDE COVER:
- Center of page contains four photos from various weddings.
- Bottom of page contains The Knot's Web site address and lists The Knot's
AOL keyword ("weddings").
<PAGE> 120
[THE KNOT LOGO]
<PAGE> 121
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
the underwriting discounts and commissions, payable by the registrant in
connection with the sale of the common stock being registered.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee....................................... $ 12,788
NASD filing fee............................................ 5,100
Nasdaq National Market listing fee......................... 95,000
Legal fees and expenses.................................... 350,000
Accounting fees and expenses............................... 250,000
Printing and engraving..................................... 250,000
Blue Sky fees and expenses................................. 10,000
Transfer Agent and Registrar fees and expenses............. 15,000
Miscellaneous.............................................. 12,112
----------
Total................................................. $1,000,000
==========
</TABLE>
- ---------------
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The registrant's Certificate of Incorporation in effect as of the date
hereof, and the registrant's Amended and Restated Certificate of Incorporation
to be in effect upon the closing of this offering (collectively, the
"Certificate") provides that, except to the extent prohibited by the Delaware
General Corporation Law, as amended (the "DGCL"), the registrant's directors
shall not be personally liable to the registrant or its stockholders for
monetary damages for any breach of fiduciary duty as directors of the
registrant. Under the DGCL, the directors have a fiduciary duty to the
registrant which is not eliminated by this provision of the Certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the registrant, for acts or omissions which are found by a
court of competent jurisdiction to be 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 prohibited by DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the Federal securities laws or state or Federal environmental laws. The
registrant intends to obtain liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or
II-1
<PAGE> 122
status as directors and officers, provided that this provision shall not
eliminate or limit the liability of a director: (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the registrant shall fully indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a director or
officer of the registrant, or is or was serving at the request of the registrant
as a director or officer of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding.
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our current directors and executive
officers to give them additional contractual assurances regarding the scope of
the indemnification provided in our certificate of incorporation and to provide
additional procedural protections in the event of litigation. At present, there
is no pending litigation or proceeding involving any director, officer, employee
or agent as to which indemnification will be required or permitted under the
Certificate. The registrant is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
We intend to obtain liability insurance for our directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Common Stock. On April 2, 1998, November 13, 1998 and April 2, 1999, the
registrant issued 162,540, 178,031 and 44,504 shares of common stock,
respectively, valued at $1.05 for financial reporting purposes, to Casenhiser
Clothing Company, Inc. d/b/a Bridal Search and certain members of its management
in connection with the acquisition of the assets of Bridal Search. On April 28,
1998 the registrant issued to each of its four founders 267,030 shares of common
stock valued at $1.05 for financial reporting purposes, in connection with a
recapitalization of the company. On July 30, 1999, the registrant issued 5,000
shares of common stock valued at $7.00 per share for financial reporting
purposes, to Jack Benoff in connection with the acquisition of Click Trips,
Inc. On August 18, 1999, the registrant issued 10,000 shares of common stock
valued at $8.00 per share for financial reporting purposes, to Denis Reggie in
connection with the acquisition of Wedding Photographers Network.
Preferred Stock and Warrants. On April 28, 1998, the registrant sold an
aggregate of 3,360,000 shares of Series A Preferred Stock to Hummer Winblad
Venture Partners III, L.P., Hummer Winblad Technology Fund III, L.P. and America
Online for an aggregate purchase price of $3.9 million. Upon the closing of this
offering, all of the outstanding shares of Series A Preferred Stock will convert
into an aggregate of 3,360,000 shares of common stock.
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<PAGE> 123
On April 13, 1999, the registrant sold 4,000,000 shares of Series B
Preferred Stock to QVC, Inc. for an aggregate of $15.0 million. Upon the closing
of this offering all of the outstanding shares of Series B Preferred Stock will
convert into an aggregate of 4,000,000 shares of common stock. In connection
with this sale, QVC received a warrant to purchase 1,700,000 shares of common
stock at an exercise price of $5.00 per share. The warrant becomes exercisable
upon the earlier of the fourth anniversary of the issuance of the warrant or the
initial public offering of the registrant's common stock.
On July 23, 1999, the registrant issued to America Online a warrant to
purchase 366,667 shares of common stock at a price equal to $7.20 per share, in
connection with the amended anchor tenant agreement between registrant and AOL.
The warrant is exercisable for eight years from the date of grant.
Options. The registrant from time to time has granted stock options to
employees, directors and consultants. The following table sets forth information
regarding such grants during the past three fiscal years.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS EXERCISE PRICES
----------------- ---------------
<S> <C> <C>
May 2, 1996 (inception) to December 31, 1996........ 0 $ 0
January 1, 1997 to December 31, 1997................ 98,825 $ 0.01
January 1, 1998 to December 31, 1998................ 583,000 $ 0.50
</TABLE>
The above securities were offered and sold by the registrant in reliance
upon exemptions from registration pursuant either to (i) Section 4(2) of the
Securities Act of 1933, as transactions not involving any public offering, or
(ii) Rule 701 under the Securities Act of 1933. No underwriters were involved in
connection with the sales of securities referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1** Amended and Restated Certificate of Incorporation
3.2 Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of this offering
3.3** Bylaws
3.4 Form of Amended and Restated Bylaws to be in effect upon the
closing of this offering
4.1 Specimen Common Stock certificate
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions defining
the rights of holders of common stock of the registrant
4.3** Common Stock Warrant Certificate of QVC Interactive
Holdings, Inc.
4.4** Warrant Agreement of America Online, Inc.
5.1 Opinion of Brobeck, Phleger & Harrison LLP
10.1** Employment Agreement between The Knot, Inc. and David Liu
10.2** Employment Agreement between The Knot, Inc. and Carley Roney
</TABLE>
II-3
<PAGE> 124
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.3** Employment Agreement between The Knot, Inc. and Richard
Szefc
10.4** Employment Agreement between The Knot, Inc. and Sandra
Stiles
10.5 1999 Stock Incentive Plan
10.6 Employee Stock Purchase Plan
10.7** Third Amended and Restated Investor Rights Agreement
10.8+** Services Agreement between The Knot, Inc. and QVC, Inc.
10.9+** Amended and Restated Anchor Tenant Agreement between The
Knot, Inc. and America Online, Inc.
10.10 Form of Indemnification Agreement
21.1** Subsidiaries
23.1 Consent of Ernst & Young LLP
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1)
24.1** Powers of Attorney (See Signature Page)
27.1** Financial Data Schedule
</TABLE>
- -------------------------
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act.
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts, Nine Months Ended
September 30, 1999
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter 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 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 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.
II-4
<PAGE> 125
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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 of 1933, shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of New York, State of New York, on this 10th day of November, 1999.
THE KNOT, INC.
By: /s/ DAVID LIU
------------------------------------
David Liu
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
/s/ DAVID LIU President, Chief Executive November 10, 1999
- --------------------------------------------------- Officer and Chairman of
David Liu the Board of Directors
(principal executive
officer)
* Chief Financial Officer, November 10, 1999
- --------------------------------------------------- Treasurer and Secretary
Richard Szefc (principal financial and
accounting officer)
* Chief Operating Officer, November 10, 1999
- --------------------------------------------------- Assistant Secretary and
Sandra Stiles Director
* Director November 10, 1999
- ---------------------------------------------------
John Link
* Director November 10, 1999
- ---------------------------------------------------
Ann Winblad
*By: /s/ DAVID LIU
----------------------------------------------
David Liu
as Attorney-in-Fact
</TABLE>
II-6
<PAGE> 127
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of The Knot, Inc. as
of December 31, 1997 and 1998 and September 30, 1999, and the related
consolidated statements of operations, stockholders' (deficit) equity and cash
flows for the period from May 2, 1996 (date of inception) to December 31, 1996,
the years ended December 31, 1997 and 1998, and the nine month period ended
September 30, 1999, and have issued our report thereon dated October 26, 1999.
Our audits also included the consolidated financial statement schedule listed in
Item 14(a). This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
New York, New York
October 26, 1999, except for Note 12 as to which the date is November 5, 1999
S-1
<PAGE> 128
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT
BEGINNING COSTS AND CHARGED TO NET OF SEPTEMBER 30,
OF YEAR EXPENSES OTHER ACCOUNTS RECOVERIES 1999
---------- ---------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts 1999................ $ -- $133,000 $ -- $ -- $133,000
Allowance for Loan Receivable
1999......................... $ -- $ 50,000 $ -- $ -- $ 50,000
</TABLE>
S-2
<PAGE> 129
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1** Amended and Restated Certificate of Incorporation
3.2 Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of this offering
3.3** Bylaws
3.4 Form of Amended and Restated Bylaws to be in effect upon the
closing of this offering
4.1 Specimen Common Stock certificate
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions defining
the rights of holders of common stock of the registrant
4.3** Common Stock Warrant Certificate of QVC Interactive
Holdings, Inc.
4.4** Warrant Agreement of America Online, Inc.
5.1 Opinion of Brobeck, Phleger & Harrison LLP
10.1** Employment Agreement between The Knot, Inc. and David Liu
10.2** Employment Agreement between The Knot, Inc. and Carley Roney
10.3** Employment Agreement between The Knot, Inc. and Richard
Szefc
10.4** Employment Agreement between The Knot, Inc. and Sandra
Stiles
10.5 1999 Stock Incentive Plan
10.6 Employee Stock Purchase Plan
10.7** Third Amended and Restated Investor Rights Agreement
10.8+** Services Agreement between The Knot, Inc. and QVC, Inc.
10.9+** Amended and Restated Anchor Tenant Agreement between The
Knot, Inc. and America Online, Inc.
10.10 Form of Indemnification Agreement
21.1** Subsidiaries
23.1 Consent of Ernst & Young LLP
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1)
24.1** Powers of Attorney (See Signature Page)
27.1** Financial Data Schedule
</TABLE>
- -------------------------
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act.
<PAGE> 1
Exhibit 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
THE KNOT, INC.
(Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware)
The Knot, Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: The present name of this corporation is "The Knot, Inc." The
name under which this corporation was originally incorporated was "Weddings.com,
Inc." The date of filing of the original Certificate of Incorporation of this
corporation with the Secretary of the State of Delaware was May 2, 1996. An
Amended and Restated Certificate of Incorporation of this corporation was filed
with the Secretary of State of the State of Delaware on April 27, 1998 and on
April 8, 1999.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Certificate of Incorporation of the
Corporation, declaring said amendment and restatement to be advisable and in the
best interests of the Corporation and its stockholders, and authorizing the
appropriate officers of the Corporation to solicit the consent of the
stockholders of the issued and outstanding Common Stock, $0.01 par value, and
Preferred Stock, $0.001 par value, voting as a single class and as separate
classes, all in accordance with the applicable provisions of Sections 228, 242
and 245 of the General Corporation Law of the State of Delaware;
THIRD: That the resolution setting forth the proposed amendment and
restatement is as follows:
RESOLVED, that the Amended and Restated of Certificate of
Incorporation of the Corporation be amended and restated in its
entirety as follows:
ARTICLE I
Name
The name of the Corporation is The Knot, Inc.
<PAGE> 2
ARTICLE II
Registered Office
The address of the registered office of the Corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle, State of Delaware 19801. The name of its
registered agent at such address is Corporation Trust Company.
ARTICLE III
Powers/Term
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law. The Corporation is to have perpetual existence.
ARTICLE IV
Capital Stock
A. Classes of Stock. The total number of shares of stock which the
Corporation shall have authority to issue is one hundred and five million
(105,000,000), consisting of five million (5,000,000) shares of Preferred Stock,
par value $0.001 per share (the "Preferred Stock"), and one hundred million
(100,000,000) shares of Common Stock, par value $0.01 per share (the "Common
Stock"). The consideration for the issuance of the shares shall be paid to or
received by the Corporation in full before their issuance and shall not be less
than the par value per share. The number of authorized shares of Common Stock
may be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the stock
of the Corporation entitled to vote, irrespective of the provisions of Section
242(b)(2) of the General Corporation Law of Delaware.
B. Common Stock.
(1) General. All shares of Common Stock will be identical and will
entitle the holders thereof to the same rights, powers and privileges. The
rights, powers and privileges of the holders of the Common Stock are subject to
and qualified by the rights of holders of any then outstanding Preferred Stock.
(2) Dividends. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as and when determined by the Board
of Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
(3) Dissolution, Liquidation or Winding Up. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or
2
<PAGE> 3
involuntary, each issued and outstanding share of Common Stock shall entitle the
holder thereof to receive an equal portion of the net assets of the Corporation
available for distribution to the holders of Common Stock, subject to any
preferential rights of any then outstanding Preferred Stock.
(4) Voting Rights. Except as otherwise required by law or this
Amended and Restated Certificate of Incorporation, each holder of Common Stock
shall have one vote in respect of each share of stock held of record by such
holder on the books of the Corporation for the election of directors and on all
matters submitted to a vote of stockholders of the Corporation. Except as
otherwise required by law or provided herein, holders of Preferred Stock shall
vote together with holders of Common Stock as a single class, subject to any
special or preferential voting rights of any then outstanding Preferred Stock.
There shall be no cumulative voting.
(5) Redemption. The Common Stock is not redeemable.
C. Preferred Stock. The Board of Directors is authorized, subject to
limitations prescribed by law, by the rules of a national securities exchange,
if applicable, and by the provisions of this ARTICLE IV, to provide for the
issuance of the shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and to fix the
designation, powers, preferences, and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:
(1) The number of shares constituting that series and the
distinctive designation of that series;
(2) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series;
(3) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(4) Whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
(5) Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
(6) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
3
<PAGE> 4
(7) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights or priority, if any, of payment of shares
of that series; and
(8) Any other relative rights, preferences and limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the Common Stock with respect to the same
dividend period.
If upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the assets available for distribution to holders
of shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
D. Preemptive Rights. No holder of any of the shares of any class or
series of stock or of options, warrants or other rights to purchase shares of
any class or series of stock or of other securities of the Corporation shall
have any preemptive right to purchase or subscribe for any unissued stock of any
class or series, or any unissued bonds, certificates of indebtedness, debentures
or other securities convertible into or exchangeable for stock of any class or
series or carrying any right to purchase stock of any class or series; but any
such unissued stock, bonds, certificates or indebtedness, debentures or other
securities convertible into or exchangeable for stock or carrying any right to
purchase stock may be issued pursuant to resolution of the Board of Directors of
the Corporation to such persons, firms, corporations or associations, whether or
not holders thereof, and upon such terms as may be deemed advisable by the Board
of Directors in the exercise of its sole discretion.
ARTICLE V
Directors
A. Number. The number of directors of the Corporation shall be such
number, not less than three (3) nor more than fifteen (15) (exclusive of
directors, if any, to be elected by holders of preferred stock of the
Corporation, voting separately as a class), as shall be set forth from time to
time in the bylaws, provided that no action shall be taken to decrease or
increase the authorized number of directors unless at least 66.67% of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the stockholders called for that purpose approve
such decrease or increase. Vacancies in the Board of Directors of the
Corporation, however caused, and newly created directorships shall be filled by
a vote of a majority of the directors then in office, whether or not a quorum,
and any director so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of the class to which the director has
been chosen expires and when the director's successor is elected and qualified.
4
<PAGE> 5
B. Classified Board of Directors. The Board of Directors shall be
and is divided into three classes: Class I, Class II and Class III, each of
which shall be as nearly equal in number as possible. Each director shall serve
for a term ending on the date of the third annual meeting of stockholders
following the annual meeting at which the director was elected; provided,
however, that each initial director in Class I shall hold office until the
annual meeting of stockholders in 2000; each initial director in Class II shall
hold office until the annual meeting of stockholders in 2001; and each initial
director in Class III shall hold office until the annual meeting of stockholders
in 2002. Notwithstanding the foregoing provisions of this ARTICLE V, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal.
Subject to the provisions of this ARTICLE V, should the number of
directors not be equally divisible by three, the excess director or directors
shall be assigned to Classes I or II as follows: (i) if there shall be an excess
of one directorship over a number equally divisible by three, such extra
directorship shall be classified in Class I; and (ii) if there shall be an
excess of two directorships over a number divisible by three, one shall be
classified in Class I and the other in Class II.
In the event of any increase or decrease in the authorized number of
directors, (1) each director then serving as such shall nevertheless continue as
a director of the class of which he is a member until the expiration of his
current term, or his earlier resignation, removal from office or death, and (2)
the newly created or eliminated directorship resulting from such increase or
decrease shall be appointed by the Board of Directors among the three classes of
directors so as to maintain such classes as nearly equal as possible.
C. Removal of Directors. Notwithstanding any other provisions of
this Amended and Restated Certificate of Incorporation or the bylaws of the
Corporation, any director or the entire Board of Directors of the Corporation
may be removed, at any time, but only for cause or by the affirmative vote of
the holders of not less than 66.67% of the outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class) cast at a meeting of the stockholders
called for that purpose. Notwithstanding the foregoing, whenever the holders of
any one or more series of preferred stock of the Corporation shall have the
right, voting separately as a class, to elect one or more directors of the
Corporation, the preceding provisions of this ARTICLE V shall not apply with
respect to the director or directors elected by such holders of preferred stock.
ARTICLE VI
Stockholder Meetings
Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of the Corporation. The stockholders of the
Corporation may not take any action by written consent in lieu of a meeting.
5
<PAGE> 6
ARTICLE VII
Limitation of Directors' Liability
Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. If the General Corporation Law is amended after approval by the
stockholders of this ARTICLE VII to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as so
amended. No amendment to or repeal of this provision shall apply to or have any
effect on the liability or alleged liability of any director of the Corporation
for or with respect to any acts or omissions of such director occurring prior to
such amendment.
ARTICLE VIII
Indemnification
The Corporation may, to the fullest extent permitted by Section 145
of the General Corporation Law of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation, or
is or was serving, or has agreed to serve, at the request of the Corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan) (all such persons being referred to hereafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with such action, suit or proceeding and any appeal
therefrom.
Indemnification may include payment by the Corporation of expenses
in defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the Indemnitee to repay
such payment if it is ultimately determined that such person is not entitled to
indemnification under this ARTICLE VIII, which undertaking may be accepted
without reference to the financial ability of such person to make such
repayment.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
6
<PAGE> 7
The indemnification rights provided in this ARTICLE VIII (i) shall
not be deemed exclusive of any other rights to which Indemnitees may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this ARTICLE VIII.
Any repeal or modification of the foregoing provisions of this
Article VIII shall not adversely affect any right or protection hereunder of any
Covered Person in respect of any act or omission occurring prior to the time of
such repeal or modification.
ARTICLE IX
Amendment of Bylaws
In furtherance of and not in limitation of powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
adopt, repeal, alter, amend and rescind the bylaws of the Corporation by vote of
66.67% of the Board of Directors.
ARTICLE X
Amendment of Certificate of Incorporation
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and this
Amended and Restated Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation. Notwithstanding the
foregoing, the provisions set forth in ARTICLES V, VI, VII, VIII, IX and this
ARTICLE X may not be repealed, altered, amended or rescinded in any respect
unless the same is approved by the affirmative vote of the holders of not less
than 66.67% of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as a single class) cast at a meeting of the stockholders called for that
purpose (provided that notice of such proposed repeal, alteration, amendment or
rescission is included in the notice of such meeting).
* * *
FOURTH: That said amendments were duly adopted in accordance with
the provisions of Sections 242 and 245 of the General Corporation Law.
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IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the Chief Executive Officer and the Secretary
of the Corporation this ___ day of October, 1999.
----------------------------------
David Liu, Chief Executive Officer
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Richard Szefc, Secretary
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Exhibit 3.4
AMENDED AND RESTATED BY-LAWS
OF
THE KNOT, INC.
ARTICLE I
CERTIFICATE OF INCORPORATION AND BYLAWS
Section 1. These By-Laws are subject to the Certificate of
Incorporation of the Corporation, as amended to date. In these By-Laws,
references to law, the Certificate of Incorporation and By-Laws mean the law,
the provisions of the Certificate of Incorporation and the By-Laws as from time
to time in effect.
ARTICLE II
OFFICES
Section 1. The registered office of the Corporation in the State of
Delaware shall be at 1013 Centre Road, in the city of Wilmington, County of New
Castle, State of Delaware. The registered agent at such address shall be
Corporation Trust Company.
Section 2. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the Corporation may require.
ARTICLE III
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
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Section 2. Annual meetings of stockholders shall be held at such
date and time as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting, at which they shall elect by a
plurality vote the directors to be elected at such meeting, and transact such
other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may only be called by the chairman of the board or the president
and shall be called by the chairman of the board, the president or secretary at
the request in writing of two-thirds of the Board of Directors.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of fifty percent (50%) of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
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Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Certificate of Incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the Certificate of
Incorporation, the Chairman of the Board may adjourn a meeting of stockholders
from time to time, without notice other than announcement at the meeting. No
notice of the time and place of an adjourned meeting need be given except as
required by law.
Section 12.
A. Annual Meetings of Stockholders
1. Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the stockholders may
be made at an annual meeting of stockholders only (a) pursuant to the
Corporation's notice of meeting (or any supplement thereto), (b) by or at the
direction of the Board of Directors or (c) by any stockholder of the Corporation
who was a stockholder of record at the time of giving of notice provided for in
this Section 12, who is entitled to vote at the meeting and who complies with
the notice procedures set forth in this Section 12.
2. For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(a)(1) of this Section 12, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
ninetieth (90th) day nor earlier than the close of business on the one hundred
twentieth (120th) day prior to the first anniversary of the date of the
preceding year's annual meeting; provided, however, that if either the date of
the annual meeting is more than thirty (30) days before or more than seventy
(70) days after such anniversary date, notice by the stockholder to be timely
must be so delivered not earlier than the close of business on the one hundred
twentieth (120th) day prior to such annual meeting and not later than the close
of business on the later of the ninetieth (90th) day prior to such annual
meeting or the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
Corporation. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each
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case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, the text of the proposal or
business (including the text of any resolutions proposed for consideration and
in the event that such business includes a proposal to amend the By-laws of the
Corporation, the language of the proposed amendment), the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner, (ii) the class and number of shares of capital stock of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner, (iii) a representation that the stockholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to propose such
business or nomination, and (iv) a representation whether the stockholder or the
beneficial owner, if any, intends or is part of a group which intends (a) to
deliver a proxy statement and/or form of proxy to holders of at least the
percentage of the Corporation's outstanding capital stock required to approve or
adopt the proposal or elect the nominee and/or (b) otherwise to solicit proxies
from stockholders in support of such proposal or nomination. The Corporation may
require any proposed nominee to furnish such other information as it may
reasonably require to determine the eligibility of such proposed nominee to
serve as a director of the Corporation.
3. Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Section 12 to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the Corporation
is increased and there is no public announcement by the Corporation naming all
of the nominees for director or specifying the size of the increased Board of
Directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 11 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive office of the Corporation
not later than the close of business on the tenth (10th) day following the day
on which such public announcement is first made by the Corporation.
B. Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time notice provided for in
this Section 12 is delivered to the Secretary of the Corporation, who is
entitled to vote at the meeting and upon such election, who complies with the
notice procedures set forth in this Section 12. If the Corporation calls a
special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder entitled to vote in
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such election of directors may nominate a person or persons (as the case may
be), for election to such position(s) as specified in the Corporation's notice
of meeting, if the stockholder's notice required by paragraph (A)(2) of this
Section 12 shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the close of business on the one
hundred twentieth (120) day prior to such special meeting and not later than the
later of (x) the close of business of the ninetieth (90th) day prior to such
special meeting or (y) the close of business of the tenth (10th) day following
the day on which public announcement is first made of the date of such special
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting. In no event shall the public announcement of an adjournment or
postponement of a special meeting commence a new time period (or extend any time
period) for the giving of a stockholder's notice as described above.
C. General.
1. Only such persons who are nominated in accordance with the
procedures set forth in this Section 12 shall be eligible to be elected at an
annual or special meeting of stockholders of the Corporation to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 12. Except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws, the chairman of the board shall
have the power and duty (a) to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this Section 12 (including
whether the stockholder or beneficial owner, if any, on whose behalf the
nomination or proposal is made solicited (or is part of a group which solicited)
or did not so solicit, as the case may be, proxies in support of such
stockholder's nominee or proposal in compliance with such stockholder's
representation as required by clause (A)(2)(c)(iv) of this Section 12) and (b)
if any proposed nomination or business was not made or proposed in compliance
with this Section 12, to declare that such nomination shall be disregarded or
that such proposed business shall not be transacted.
2. For purposes of this Section 12, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 and 15(d) of the Exchange Act.
3. Notwithstanding the foregoing provisions of this Section
12, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in this Section 12 shall be deemed to affect
any rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors pursuant
to any applicable provisions of the Certificate of Incorporation.
Notwithstanding any other provision of law, the Certificate of
Incorporation or these By-Laws, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least 66.67% of the votes which all the stockholders
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would be entitled to cast at any annual election of directors or class of
directors shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Section 12.
ARTICLE IV
DIRECTORS
Section 1. The number of directors which shall constitute the whole
Board shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 2 of this Article. The Board shall be divided into three classes as
nearly equal in number as possible. The members of each class shall be elected
for a term of three years and until their successors are elected and qualified.
The Board of Directors shall be classified in accordance with the provisions of
the Corporation's Certificate of Incorporation. Directors need not be
stockholders.
Section 2. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by 66.67% of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election at which such director's class is to be elected and until their
successors are duly elected and shall qualify, unless sooner displaced. If there
are no directors in office, then an election of directors may be held in the
manner provided by statute. If, at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole Board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office.
Section 3. The business of the Corporation shall be managed by or
under the direction of its Board of Directors which may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by statute
or by the Certificate of Incorporation or by these By-Laws directed or required
to be exercised or done by the stockholders.
Meetings of the Board of Directors
Section 4. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board. Members of the Board of Directors may participate in
regular or special meetings by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear each other. Such participation shall constitute presence in person.
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Section 6. Special meetings of the Board may be called by the
chairman of the board, the chief executive officer or the president on two (2)
days' notice to each director by mail or twenty-four (24) hours notice to each
director either personally or by telecopy; special meetings shall be called by
the chairman of the board, the chief executive officer, president or secretary
in like manner and on like notice on the written request of two directors unless
the Board consists of only one director, in which case special meetings shall be
called by the chairman of the board, the chief executive officer, the president
or secretary in like manner and on like notice on the written request of the
sole director.
Section 7. At all meetings of the Board a majority of the directors
fixed by Section 1 shall constitute a quorum for the transaction of business and
the act of a majority of the directors present at any meeting at which there is
a quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 8. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
Section 9. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Committees of Directors
Section 10. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the
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Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws of the Corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 11. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
Compensation of Directors
Section 12. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Removal of Directors
Section 13. Any director or the entire Board of Directors may be
removed only in accordance with the provisions of the Corporation's Certificate
of Incorporation.
ARTICLE V
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these By-Laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telecopy.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, a waiver thereof in
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writing, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VI
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the
Board of Directors and shall consist of a chief executive officer, chief
financial officer, president, treasurer and a secretary. The Board of Directors
may elect from among its members a Chairman of the Board and a Vice Chairman of
the Board. The Board of Directors may also choose one or more vice-presidents,
assistant secretaries and assistant treasurers. Any number of offices may be
held by the same person, unless the Certificate of Incorporation or these
By-Laws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a chief executive officer, a
president, a treasurer, and a secretary and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
Section 4. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors or a committee thereof.
Section 5. The officers of the Corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
The Chairman of the Board
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which such
individual shall be present. Such individual shall have and may exercise such
powers as are, from time to time, assigned to him by the Board and as may be
provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which such individual shall be present.
Such individual shall have and may exercise such powers as are, from time to
time, assigned to him by the Board and as may be provided by law.
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Chief Executive Officer
Section 8. Such individual shall have general and active management
of the business of the Corporation and shall see that all orders and resolutions
of the Board of Directors are carried into effect.
Section 9. Such individual shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the Corporation.
The President
Section 10.
The President shall conduct general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board are carried into effect, subject, however, to the right of the directors
to delegate any specific powers, except such as may be by statute exclusively
conferred on the President, to any other officer or officers of the Corporation.
The President shall have the general power and duties of supervision and
management usually vested in the office of President of a corporation. In the
absence of the Chairman and Vice Chairman of the Board, the President shall
preside at all meetings of the stockholders and the Board of Directors
Such individual shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
The Vice-Presidents
Section 11. In the absence of the president or in the event of his
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
The Secretary and Assistant Secretary
Section 12.
The secretary shall attend all meetings of the Board of Directors
and all meetings of the stockholders and record all the proceedings of the
meetings of the Corporation and of the Board of Directors in a book to be kept
for that purpose and shall perform like duties for the standing committees when
required. Such individual shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall
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perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision such individual shall be. Such individual
shall have custody of the corporate seal of the Corporation and he, or an
assistant secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his signature.
Section 13. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the Board of directors
may from time to time prescribe.
The Treasurer and Assistant Treasurers
Section 14. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors.
Section 15. The treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the president and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as treasurer and of the financial condition
of the Corporation.
Section 16. If required by the Board of Directors, such individual
shall give the Corporation a bond (which shall be renewed every six years) in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of his office and for
the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Corporation.
Section 17. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
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ARTICLE VII
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the Corporation shall be
entitled to have a certificate, signed by, or in the name of the Corporation by,
the chairman or vice-chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the Corporation, certifying the number of shares owned
by him in the Corporation.
If the Corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions or such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if such
individual were such officer, transfer agent or registrar at the date of issue.
Lost Certificates
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
12
<PAGE> 13
Transfer of Stock
Section 4. Upon surrender to the Corporation or the transfer agent
of the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Fixing Record Date
Section 5. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Registered Stockholders
Section 6. The Corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Dividends
Section 1. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the Certificate of Incorporation.
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<PAGE> 14
Section 2. Before payment of any dividend, there may be set aside
out of any funds of the Corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purposes as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Checks
Section 3. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Fiscal Year
Section 4. The fiscal year of the Corporation shall end on December
31, unless otherwise fixed by resolution of the Board of Directors.
Seal
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
Transactions with Interested Parties
Section 6. No contract or transaction between the Corporation and
one or more of the directors or officers, or between the Corporation and any
other corporation, partnership, association, or other organization in which one
or more of the directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because such director or officer is present at or participates in the meeting of
the Board of Directors or a committee of the Board of Directors which authorizes
the contract or transaction or solely because his, her or their votes are
counted for such purpose, if:
(1) The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum;
(2) The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon,
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<PAGE> 15
and the contract or transaction is specifically approved in good faith by vote
of the stockholders; or
(3) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IX
AMENDMENTS
These By-Laws may be repealed, altered, amended or rescinded by the
stockholders of the Corporation by vote of not less than 66.67% of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the stockholders called for that purpose (provided
that notice of such proposed repeal, alteration, amendment or rescission is
included in the notice of such meeting). In addition, in accordance with the
Corporation's Certificate of Incorporation, the Board of Directors may repeal,
alter, amend or rescind these By-Laws by vote of 66.67% of the Board of
Directors.
15
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
Number Shares
[The Knot Logo]
SEE REVERSE
FOR CERTAIN DEFINITIONS
THE KNOT, INC.
CUSIP 499184 10 9
</TABLE>
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
Common Stock
THIS CERTIFIES THAT
IS THE HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF $0.01 PAR VALUE, OF THE COMMON
STOCK OF
The Knot, Inc.
hereinafter called the "Corporation", transferable on the books of the
Corporation by the holder hereof in person, or by duly authorized attorney, upon
surrender of this certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be held subject to all the provisions of
the Certificate of Incorporation of the Corporation and all amendments thereto
(copies of which are on file in the office of the Transfer Agent), to all of
which the holder of this certificate by acceptance hereof assents. This
certificate is not valid unless countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
/s/ Richard Szefc /s/ David Liu
- --------------------------- ------------------------
CHIEF FINANCIAL OFFICER, [SEAL] CHIEF EXECUTIVE OFFICER,
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
American Stock Transfer & Trust Company
New York, NY
Transfer Agent and Registrar
- ---------------------------
<PAGE> 2
The Corporation will furnish to any shareholder upon request and
without charge a full statement of the designation, relative rights, preferences
and limitations of the shares of each class authorized to be issued and the
designation, relative rights, preferences and limitations of each series of
preferred shares which the Company is authorized to issue so far as the same
have been fixed, and the authority of the Board of Directors of the Company to
designate and fix the relative rights, preferences and limitations of other
series.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ____ Custodian ____
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act________________
in common (State)
Additional abbreviations may also be
used though not in the above list.
For Value Received, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_________________________________________
_________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________ Shares of the capital stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint ______________________________________________Attorney to transfer the
said stock on the books of the within-named Corporation with full power of
substitution in the premises. Dated ___________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER
Signature(s) Guaranteed:
__________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATION AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad 15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
2
<PAGE> 1
Exhibit 5.1
[BROBECK, PHLEGER & HARRISON LLP LETTERHEAD]
November 9, 1999
The Knot, Inc.
462 Broadway, 6th Floor
New York, NY 10013
Re: The Knot, Inc. Registration Statement on Form S-1
for up to 4,025,000 shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to The Knot, Inc., a Delaware corporation (the
"Company"), in connection with the proposed issuance and sale by the Company of
up to 4,025,000 shares of the Company's Common Stock (the "Shares") pursuant to
the Company's Registration Statement on Form S-1 (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act").
This opinion is being furnished in accordance with the requirements of
Item 16(a) of Form S-1.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Shares. Based on such review, we are of the opinion that the Shares have been
duly authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
This opinion letter is rendered as of the date first written above and we
disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.
<PAGE> 1
Exhibit 10.5
THE KNOT, INC.
1999 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1999 Stock Incentive Plan is intended to promote the
interests of The Knot, Inc., a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock,
(ii) the Salary Investment Option Grant Program under
which eligible employees may elect to have a portion of their base
salary invested each year in special options,
(iii) the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be issued
shares of Common Stock directly, either through the immediate purchase
of such shares or as a bonus for services rendered the Corporation (or
any Parent or Subsidiary),
(iv) the Automatic Option Grant Program under which
eligible non-employee Board members shall automatically receive options
at periodic intervals to purchase shares of Common Stock; and
(v) the Director Fee Option Grant Program under which
non-employee Board members may elect to have all or any portion of
their annual retainer fee otherwise payable in cash applied to a
special option grant.
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
<PAGE> 2
III. ADMINISTRATION OF THE PLAN
A. The following provisions shall govern the administration of the
Plan:
(i) The Board shall have the authority to administer
the Discretionary Option Grant and Stock Issuance Programs with respect
to Section 16 Insiders but may delegate such authority in whole or in
part to the Primary Committee.
(ii) Administration of the Discretionary Option
Grant and Stock Issuance Programs with respect to all other persons
eligible to participate in those programs may, at the Board's
discretion, be vested in the Primary Committee or a Secondary
Committee, or the Board may retain the power to administer those
programs with respect to all such persons.
(iii) Administration of the Automatic Option Grant
Program shall be self-executing in accordance with the terms of that
program.
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full power and authority
subject to the provisions of the Plan:
(i) to establish such rules as it may deem appropriate for
proper administration of the Plan, to make all factual determinations,
to construe and interpret the provisions of the Plan and the awards
thereunder and to resolve any and all ambiguities thereunder;
(ii) to determine, with respect to awards made under the
Discretionary Option Grant and Stock Issuance Programs, which eligible
persons are to receive such awards, the time or times when such awards
are to be made, the number of shares to be covered by each such award,
the vesting schedule (if any) applicable to the award, the status of a
granted option as either an Incentive Option or a Non-Statutory Option
and the maximum term for which the option is to remain outstanding;
(iii) to amend, modify or cancel any outstanding award
with the consent of the holder or accelerate the vesting of such award;
and
(iv) to take such other discretionary actions as permitted
pursuant to the terms of the applicable program.
Decisions of each Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties.
C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
D. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be
2
<PAGE> 3
entitled to full indemnification and reimbursement as Board members for their
service on such committee. No member of the Primary Committee or the Secondary
Committee shall be liable for any act or omission made in good faith with
respect to the Plan or any options or stock issuances under the Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board
of directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or
Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Only non-employee Board members shall be eligible to participate
in the Automatic Option Grant and Director Fee Option Grant Programs.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed Three
Million Eight Hundred Forty Nine Thousand Eight Hundred and Sixty Eight
(3,849,868) shares. Such authorized share reserve consists of (i) the number of
shares which remain available for issuance, as of the Underwriting Date, under
the Predecessor Plan, including the shares subject to the outstanding options to
be incorporated into the Plan and the additional shares which would otherwise be
available for future grant, plus (ii) an increase of One Million (1,000,000)
shares authorized by the Board subject to stockholder approval prior to the
Underwriting Date.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of each calendar
year during the term of the Plan, beginning with the 2001 calendar year, by an
amount equal to the lesser of (i) two percent (2%) of the shares of Common Stock
outstanding on the last trading day of the immediately preceding calendar year,
and (ii) One Million (1,000,000) shares or such lesser number of shares
determined by the Board.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than Five Hundred Thousand (500,000) shares of Common Stock in the
aggregate per calendar year, beginning with
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<PAGE> 4
the 1999 calendar year; provided, however, that for the calendar year in which
such person first commences Service, the limit shall be increased to One Million
(1,000,000) shares.
D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent those options
expire, terminate or are cancelled for any reason prior to exercise in full.
Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the original exercise or issue price paid per share, pursuant to
the Corporation's repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent options
or direct stock issuances under the Plan. However, should the exercise price of
an option under the Plan be paid with shares of Common Stock or should shares of
Common Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be reduced
by the gross number of shares for which the option is exercised or which vest
under the stock issuance, and not by the net number of shares of Common Stock
issued to the holder of such option or stock issuance. Shares of Common Stock
underlying one or more stock appreciation rights exercised under the Plan shall
NOT be available for subsequent issuance.
E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities by which the share reserve is
to increase each calendar year pursuant to the automatic share increase
provisions of the Plan, (iii) the number and/or class of securities for which
any one person may be granted options, separately exercisable stock appreciation
rights and direct stock issuances under the Plan per calendar year, (iv) the
number and/or class of securities for which grants are subsequently to be made
under the Automatic Option Grant Program to new and continuing non-employee
Board members, (v) the number and/or class of securities and the exercise price
per share in effect under each outstanding option under the Plan and (vi) the
number and/or class of securities and price per share in effect under each
outstanding option incorporated into this Plan from the Predecessor Plan. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
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<PAGE> 5
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator at the time of the option grant and may be less than, equal to or
greater than the Fair Market Value per share of Common Stock on the option grant
date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section II of
Article Seven and the documents evidencing the option, be payable in one or more
of the following forms:
(i) in cash or check made payable to the Corporation;
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise
Date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable instructions
to (a) a Corporation-approved brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares
plus all applicable Federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of such
exercise and (b) the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete
the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
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<PAGE> 6
C. CESSATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options outstanding at the time of the Optionee's cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by his or
her Beneficiary.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number
of vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding to the extent the option is not otherwise
at that time exercisable for vested shares.
(iv) Should the Optionee's Service be terminated for
Misconduct or should the Optionee engage in Misconduct while his or her
options are outstanding, then all such options shall terminate
immediately and cease to be outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding:
(i) to extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service to
such period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term, and/or
(ii) to permit the option to be exercised, during the
applicable post-Service exercise period, for one or more additional
installments in which the Optionee would have vested had the Optionee
continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to
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<PAGE> 7
repurchase, at the exercise price paid per share, any or all of those unvested
shares. The terms upon which such repurchase right shall be exercisable
(including the period and procedure for exercise and the appropriate vesting
schedule for the purchased shares) shall be established by the Plan
Administrator and set forth in the document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-Statutory Option may, to the
extent permitted by the Plan Administrator, be assigned in whole or in part
during the Optionee's lifetime (i) as a gift to one or more members of the
Optionee's immediate family, to a trust in which Optionee and/or one or more
such family members hold more than fifty percent (50%) of the beneficial
interest or to an entity in which more than fifty percent (50%) of the voting
interests are owned by one or more such family members or (ii) pursuant to a
domestic relations order. The terms applicable to the assigned portion shall be
the same as those in effect for the option immediately prior to such assignment
and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
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<PAGE> 8
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. Each option outstanding at the time of a Change in Control but
not otherwise fully-vested shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Change in
Control, assumed or otherwise continued in full force and effect by the
successor corporation (or parent thereof) pursuant to the terms of the Change in
Control, (ii) such option is replaced with a cash incentive program of the
successor corporation which preserves the spread existing at the time of the
Change in Control on the shares of Common Stock for which the option is not
otherwise at that time exercisable and provides for subsequent payout in
accordance with the same vesting schedule applicable to those option shares or
(iii) the acceleration of such option is subject to other limitations imposed by
the Plan Administrator at the time of the option grant. Each option outstanding
at the time of the Change in Control shall terminate as provided in Section
III.C. of this Article Two.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control, except to
the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continue in full force and effect
pursuant to the terms of the Change in Control or (ii) such accelerated vesting
is precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.
C. Immediately following the consummation of the Change in Control,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof) or otherwise
expressly continued in full force and effect pursuant to the terms of the Change
in Control.
D. Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities which would have been
issuable to the Optionee in consummation of such Change in Control had the
option been exercised immediately prior to such Change in Control. Appropriate
adjustments to reflect such Change in Control shall also be made to (i) the
exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same, (ii)
the maximum number and/or class of securities available for issuance over the
remaining term of the Plan and (iii) the maximum number and/or class of
securities for which any one person may be granted options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year.
E. The Plan Administrator may at any time provide that one or more
options will automatically accelerate in connection with a Change in Control,
whether or not those options are assumed or otherwise continued in full force
and effect pursuant to the terms of the Change in Control. Any such option shall
accordingly become exercisable, immediately prior to the effective date of such
Change in Control, for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully-vested
shares of
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<PAGE> 9
Common Stock. In addition, the Plan Administrator may at any time provide that
one or more of the Corporation's repurchase rights shall not be assignable in
connection with such Change in Control and shall terminate upon the consummation
of such Change in Control.
F. The Plan Administrator may at any time provide that one or more
options will automatically accelerate upon an Involuntary Termination of the
Optionee's Service within a designated period (not to exceed eighteen (18)
months) following the effective date of any Change in Control in which those
options do not otherwise accelerate. Any options so accelerated shall remain
exercisable for fully-vested shares until the earlier of (i) the expiration of
the option term or (ii) the expiration of the one (1) year period measured from
the effective date of the Involuntary Termination. In addition, the Plan
Administrator may at any time provide that one or more of the Corporation's
repurchase rights shall immediately terminate upon such Involuntary Termination.
G. The Plan Administrator may at any time provide that one or more
options will automatically accelerate in connection with a Hostile Take-Over.
Any such option shall become exercisable, immediately prior to the effective
date of such Hostile Take-Over, for all of the shares of Common Stock at the
time subject to that option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. In addition, the Plan Administrator may
at any time provide that one or more of the Corporation's repurchase rights
shall terminate automatically upon the consummation of such Hostile Take-Over.
Alternatively, the Plan Administrator may condition such automatic acceleration
and termination upon an Involuntary Termination of the Optionee's Service within
a designated period (not to exceed eighteen (18) months) following the effective
date of such Hostile Take-Over. Each option so accelerated shall remain
exercisable for fully-vested shares until the expiration or sooner termination
of the option term.
H. The portion of any Incentive Option accelerated in connection
with a Change in Control or Hostile Take Over shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.
IV. STOCK APPRECIATION RIGHTS
The Plan Administrator may, subject to such conditions as it may
determine, grant to selected Optionees stock appreciation rights which will
allow the holders of those rights to elect between the exercise of the
underlying option for shares of Common Stock and the surrender of that option in
exchange for a distribution from the Corporation in an amount equal to the
excess of (a) the Option Surrender Value of the number of shares for which the
option is surrendered over (b) the aggregate exercise price payable for such
shares. The distribution may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
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<PAGE> 10
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee may implement the Salary Investment Option
Grant Program for one or more calendar years beginning after the Underwriting
Date and select the Section 16 Insiders and other highly compensated Employees
eligible to participate in the Salary Investment Option Grant Program for each
such calendar year. Each selected individual who elects to participate in the
Salary Investment Option Grant Program must, prior to the start of each calendar
year of participation, file with the Plan Administrator (or its designate) an
irrevocable authorization directing the Corporation to reduce his or her base
salary for that calendar year by an amount not less than Five Thousand Dollars
($5,000.00) nor more than Fifty Thousand Dollars ($50,000.00). The Primary
Committee shall have complete discretion to determine whether to approve the
filed authorization in whole or in part. To the extent the Primary Committee
approves the authorization, the individual who filed that authorization shall be
granted an option under the Salary Investment Grant Program on the first trading
day in January for the calendar year for which the salary reduction is to be in
effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or
more documents in the form approved by the Plan Administrator; provided,
however, that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the approved reduction in
the Optionee's base salary for the calendar year, and
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B is the Fair Market Value per share of Common Stock
on the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
in a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar year for
which the salary reduction is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.
D. CESSATION OF SERVICE. Each option outstanding at the time of the
Optionee's cessation of Service shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the option term or (ii) the
expiration of the three (3)-year period following the Optionee's cessation of
Service. To the extent the option is held by the Optionee at the time of his or
her death, the option may be exercised by his or her Beneficiary. However, the
option shall, immediately upon the Optionee's cessation of Service, terminate
and cease to remain outstanding with respect to any and all shares of Common
Stock for which the option is not otherwise at that time exercisable.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile Take-Over while
the Optionee remains in Service, each outstanding option shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of the Change in Control or Hostile Take-Over, become fully exercisable
with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. Each such option accelerated in connection
with a Change in Control shall terminate upon the Change in Control, except to
the extent assumed by the successor corporation (or parent thereof) or otherwise
continued in full force and effect pursuant to the terms of the Change in
Control. Each such option accelerated in connection with a Hostile Take-Over
shall remain exercisable until the expiration or sooner termination of the
option term.
B. Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to such
Change in Control. Appropriate adjustments shall also be made to the exercise
price payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding options. The Optionee shall in return be entitled to a
cash distribution from the Corporation in an amount equal to the excess of (i)
the Option Surrender Value of the shares of Common Stock at the time subject to
each surrendered option (whether or not the Optionee is otherwise at the time
vested in those shares) over (ii) the aggregate exercise price payable for such
shares. Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation.
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<PAGE> 12
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
options made under the Discretionary Option Grant Program.
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<PAGE> 13
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening options.
Shares of Common Stock may also be issued under the Stock Issuance Program
pursuant to share right awards which entitle the recipients to receive those
shares upon the attainment of designated performance goals or Service
requirements. Each such award shall be evidenced by one or more documents which
comply with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share of Common Stock subject to direct
issuance shall be fixed by the Plan Administrator and may be less than, equal to
or greater than the Fair Market Value per share of Common Stock on the issue
date.
2. Subject to the provisions of Section II of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).
B. VESTING/ISSUANCE PROVISIONS.
1. The Plan Administrator may issue shares of Common Stock which
are fully and immediately vested upon issuance or which are to vest in one or
more installments over the Participant's period of Service or upon attainment of
specified performance objectives. Alternatively, the Plan Administrator may
issue share right awards which shall entitle the recipient to receive a
specified number of vested shares of Common Stock upon the attainment of one or
more performance goals or Service requirements established by the Plan
Administrator.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to his or her unvested
shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
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<PAGE> 14
3. The Participant shall have full stockholder rights with
respect to the issued shares of Common Stock, whether or not the Participant's
interest in those shares is vested. Accordingly, the Participant shall have the
right to vote such shares and to receive any regular cash dividends paid on such
shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock, or should the performance
objectives not be attained with respect to one or more such unvested shares of
Common Stock, then those shares shall be immediately surrendered to the
Corporation for cancellation, and the Participant shall have no further
stockholder rights with respect to those shares. To the extent the surrendered
shares were previously issued to the Participant for consideration paid in cash
or cash equivalent (including the Participant's purchase-money indebtedness),
the Corporation shall repay to the Participant the cash consideration paid for
the surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to the
surrendered shares.
5. The Plan Administrator may waive the surrender and
cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the cessation of the
Participant's Service or the non-attainment of the performance objectives
applicable to those shares. Such waiver shall result in the immediate vesting of
the Participant's interest in the shares of Common Stock as to which the waiver
applies. Such waiver may be effected at any time, whether before or after the
Participant's cessation of Service or the attainment or non-attainment of the
applicable performance objectives.
6. Outstanding share right awards shall automatically terminate,
and no shares of Common Stock shall actually be issued in satisfaction of those
awards, if the performance goals or Service requirements established for such
awards are not attained. The Plan Administrator, however, shall have the
authority to issue shares of Common Stock in satisfaction of one or more
outstanding share right awards as to which the designated performance goals or
Service requirements are not attained.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. All of the Corporation's outstanding repurchase rights shall
terminate automatically, and all the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Change in
Control, except to the extent (i) those repurchase rights are assigned to the
successor corporation (or parent thereof) or otherwise continue in full force
and effect pursuant to the terms of the Change in Control or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
B. The Plan Administrator may at any time provide for the
automatic termination of one or more of those outstanding repurchase rights and
the immediate vesting of the shares of Common Stock subject to those terminated
rights upon (i) a Change in Control or Hostile Take-Over or (ii) an Involuntary
Termination of the Participant's Service within a designated period (not to
exceed eighteen (18) months) following the effective date of any
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<PAGE> 15
Change in Control or Hostile Take-Over in which those repurchase rights are
assigned to the successor corporation (or parent thereof) or otherwise continue
in full force and effect.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be
held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
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ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Options shall be made on the dates specified below:
1. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase Fifteen Thousand (15,000) shares of Common
Stock, provided that individual has not previously been in the employ of the
Corporation (or any Parent or Subsidiary).
2. On the date of each Annual Stockholders Meeting beginning with
the 2000 Annual Stockholder Meeting, each individual who is to continue to serve
as a non-employee Board member shall automatically be granted a Non-Statutory
Option to purchase Five Thousand (5,000) shares of Common Stock.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial 15,000-share option shall vest,
and the Corporation's repurchase right shall lapse, in a series of three (3)
successive equal annual installments over the Optionee's period of continued
service as a Board member, with the first such installment to vest upon the
Optionee's completion of one (1) year of Board service measured from the option
grant date. Each annual 5,000-share option shall vest, and the Corporation's
repurchase right shall lapse, upon the Optionee's completion of one (1) year of
Board service measured from the option grant date.
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<PAGE> 17
E. CESSATION OF BOARD SERVICE. The following provisions shall govern
the exercise of any options outstanding at the time of the Optionee's cessation
of Board service:
(i) Any option outstanding at the time of the Optionee's
cessation of Board service for any reason shall remain exercisable for
a twelve (12)-month period following the date of such cessation of
Board service, but in no event shall such option be exercisable after
the expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by his or
her Beneficiary.
(iii) Following the Optionee's cessation of Board service, the
option may not be exercised in the aggregate for more than the number
of shares for which the option was exercisable on the date of such
cessation of Board service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Board service,
terminate and cease to be outstanding for any and all shares for which
the option is not otherwise at that time exercisable.
(iv) However, should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares at
the time subject to the option shall immediately vest so that such
option may, during the twelve (12)-month exercise period following such
cessation of Board service, be exercised for all or any portion of
those shares as fully-vested shares of Common Stock.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile Take-Over, the
shares of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option may,
immediately prior to the effective date of such Change in Control or Hostile
Take-Over, became fully exercisable for all of the shares of Common Stock at the
time subject to such option and maybe exercised for all or any of those shares
as fully-vested shares of Common Stock. Each such option accelerated in
connection with a Change in Control shall terminate upon the Change in Control,
except to the extent assumed by the successor corporation (or parent thereof) or
otherwise continued in full force and effect pursuant to the terms of the Change
in Control. Each such option accelerated in connection with a Hostile Take-Over
shall remain exercisable until the expiration or sooner termination of the
option term.
B. All outstanding repurchase rights shall automatically terminate
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Change in Control or Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding options. The Optionee shall in return be entitled to a
cash distribution from the Corporation in an amount equal to the excess of (i)
the Option Surrender Value of the shares of Common Stock at
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<PAGE> 18
the time subject to each surrendered option (whether or not the option is
otherwise at the time exercisable for those shares) over (ii) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the surrender of the option to the Corporation.
D. Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to such
Change in Control. Appropriate adjustments shall also be made to the exercise
price payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for options made
under the Discretionary Option Grant Program.
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ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Board may implement the Director Fee Option Grant Program as of
the first day of any calendar year beginning after the Underwriting Date. Upon
such implementation of the Program, each non-employee Board member may elect to
apply all or any portion of the annual retainer fee otherwise payable in cash
for his or her service on the Board to the acquisition of a special option grant
under this Director Fee Option Grant Program. Such election must be filed with
the Corporation's Chief Financial Officer prior to the first day of the calendar
year for which the election is to be in effect. Each non-employee Board member
who files such a timely election with respect to the annul retainer fee shall
automatically be granted an option under this Director Fee Option Grant Program
on the first trading day in January in the calendar year for which that fee
would otherwise be payable.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms
and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and one-third
percent (33-1/3%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject
to the non-employee Board member's election, and
B is the Fair Market Value per share of Common Stock
on the option grant date.
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<PAGE> 20
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each month of Board service during the
calendar year in which the option is granted. Each option shall have a maximum
term of ten (10) years measured from the option grant date.
D. CESSATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options, then each such option shall remain exercisable, for any or
all of the shares for which the option is exercisable at the time of such
cessation of Board service, until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service. However, each option
held by the Optionee at the time of such cessation of Board service shall
immediately terminate and cease to remain outstanding with respect to any and
all shares of Common Stock for which the option is not otherwise at that time
exercisable.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's
service as a Board member cease by reason of death or Permanent Disability, then
each option held by such Optionee shall immediately become exercisable for all
the shares of Common Stock at the time subject to that option, and the option
may be exercised for any or all of those shares as fully-vested shares until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service.
Should the Optionee die after cessation of Board service but
while holding one or more options, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Board service (less any shares subsequently purchased by
Optionee prior to death), by the Optionee's Beneficiary. Such right of exercise
shall lapse, and the option shall terminate, upon the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the three (3)-year period
measured from the date of the Optionee's cessation of Board service.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile Take-Over
while the Optionee remains in Board service, each outstanding option held by
such Optionee shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Change in Control or Hostile
Take-Over, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. Each such option
accelerated in connection with a Change in Control shall terminate upon the
Change in Control, except to the extent assumed by the successor corporation (or
parent thereof) or otherwise expressly continued in full force and effect
pursuant to the terms of the Change in Control. Each such option accelerated in
connection with a Hostile Take-Over shall remain exercisable until the
expiration or sooner termination of the option term.
B. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding options. The Optionee shall in return be entitled to a
cash distribution from the Corporation in an
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<PAGE> 21
amount equal to the excess of (i) the Option Surrender Value of the shares of
Common Stock at the time subject to each surrendered option (whether or not the
Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for options made
under the Discretionary Option Grant Program.
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<PAGE> 22
ARTICLE SEVEN
MISCELLANEOUS
I. NO IMPAIRMENT OF AUTHORITY
Outstanding awards shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
II. FINANCING
The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Discretionary Option Grant Program or
the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one or
more installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan with the right to use shares of Common Stock in satisfaction of all or part
of the Withholding Taxes incurred by such holders in connection with the
exercise of their options or the vesting of their shares. Such right may be
provided to any such holder in either or both of the following formats:
Stock Withholding: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
Stock Delivery: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
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<PAGE> 23
IV. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on November 3, 1999. The Plan
shall become effective immediately upon the Underwriting Date. However, the
Salary Investment Option Grant and Director Fee Option Grant Programs shall not
be implemented until such time as the Primary Committee or the Board may deem
appropriate. Options may be granted under the Discretionary Option Grant Program
at any time on or after the Underwriting Date. However, no options granted under
the Plan may be exercised, and no shares shall be issued under the Plan, until
the Plan is approved by the Corporation's stockholders. If such stockholder
approval is not obtained within twelve (12) months after the adoption of the
Plan by the Board, then all options previously granted under this Plan shall
terminate and cease to be outstanding, and no further options shall be granted
and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and
no further options or direct stock issuances shall be made under the Predecessor
Plan after the Underwriting Date. All options outstanding under the Predecessor
Plan on the Underwriting Date shall be incorporated into the Plan at that time
and shall be treated as outstanding options under the Plan. However, each
outstanding option so incorporated shall continue to be governed solely by the
terms of the documents evidencing such option, and no provision of the Plan
shall be deemed to affect or otherwise modify the rights or obligations of the
holders of such incorporated options with respect to their acquisition of shares
of Common Stock.
C. One or more provisions of the Plan, including (without limitation)
the option/vesting acceleration provisions of Article Two relating to Changes in
Control, may, in the Plan Administrator's discretion, be extended to one or more
options incorporated from the Predecessor Plan which do not otherwise contain
such provisions.
D. The Plan shall terminate upon the earliest of (i) November 2, 2009,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Change in Control. Upon such plan
termination, all outstanding options and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
V. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess
23
<PAGE> 24
shares actually issued under those programs shall be held in escrow until there
is obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VIII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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<PAGE> 25
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under the Plan.
B. BENEFICIARY shall mean, in the event the Plan Administrator
implements a beneficiary designation procedure, the person designated by an
Optionee or Participant, pursuant to such procedure, to succeed to such person's
rights under any outstanding awards held by him or her at the time of death. In
the absence of such designation or procedure, the Beneficiary shall be the
personal representative of the estate of the Optionee or Participant or the
person or persons to whom the award is transferred by will or the laws of
descent and distribution.
C. BOARD shall mean the Corporation's Board of Directors.
D. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through any of the following transactions:
(i) a merger, consolidation or reorganization approved by the
Corporation's stockholders, unless securities representing more than
fifty percent (50%) of the total combined voting power of the voting
securities of the successor corporation are immediately thereafter
beneficially owned, directly or indirectly and in substantially the
same proportion, by the persons who beneficially owned the
Corporation's outstanding voting securities immediately prior to such
transaction,
(ii) any stockholder-approved transfer or other disposition of
all or substantially all of the Corporation's assets, or
(iii) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board
recommends such stockholders accept.
E. CODE shall mean the Internal Revenue Code of 1986, as amended.
F. COMMON STOCK shall mean the Corporation's common stock.
G. CORPORATION shall mean The Knot, Inc., a Delaware corporation, and
any corporate successor to all or substantially all of the assets or voting
stock of The Knot, Inc. which shall by appropriate action adopt the Plan.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the director fee option
grant program in effect under the Plan.
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I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.
J. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
(iv) For purposes of any options made prior to the
Underwriting Date, the Fair Market Value shall be determined by the
Plan Administrator, after taking into account such factors as it deems
appropriate.
M. HOSTILE TAKE-OVER shall mean:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept, or
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<PAGE> 27
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time the Board approved such
election or nomination.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation or Parent or
Subsidiary employing the individual which materially reduces his or her
duties and responsibilities or the level of management to which he or
she reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonus under any
performance based bonus or incentive programs) by more than fifteen
percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without
the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any intentional wrongdoing by such
person, whether by omission or commission, which adversely affects the business
or affairs of the Corporation (or any Parent or Subsidiary) in a material
manner. This shall not limit the grounds for the dismissal or discharge of any
person in the Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
S. OPTION SURRENDER VALUE shall mean the Fair Market Value per share of
Common Stock on the date the option is surrendered to the Corporation or, in the
event of a Hostile Take-Over, effected through a tender offer, the highest
reported price per share of Common Stock paid by the tender offeror in effecting
such Hostile Take-Over, if greater. However, if the surrendered option is an
Incentive Option, the Option Surrender Value shall not exceed the Fair Market
Value per share.
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<PAGE> 28
T. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
X. PLAN shall mean the Corporation's 1999 Stock Incentive Plan, as set
forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant, Salary Investment Option Grant and
Stock Issuance Programs with respect to one or more classes of eligible persons,
to the extent such entity is carrying out its administrative functions under
those programs with respect to the persons under its jurisdiction. However, the
Primary Committee shall have the plenary authority to make all factual
determinations and to construe and interpret any and all ambiguities under the
Plan to the extent such authority is not otherwise expressly delegated to any
other Plan Administrator.
Z. PREDECESSOR PLAN shall mean the Corporation's pre-existing 1997 Long
Term Incentive Plan in effect immediately prior to the Underwriting Date
hereunder.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program with
respect to all eligible individuals.
BB. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment grant program in effect under the Plan.
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<PAGE> 29
CC. SECONDARY COMMITTEE shall mean a committee of one (1) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
DD. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
EE. SERVICE shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
FF. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
GG. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
HH. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
II. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
JJ. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
KK. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
LL. WITHHOLDING TAXES shall mean the Federal, state and local income
and employment withholding tax liabilities to which the holder of Non-Statutory
Options or unvested shares of Common Stock may become subject in connection with
the exercise of those options or the vesting of those shares.
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<PAGE> 1
Exhibit 10.6
THE KNOT, INC.
EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of The Knot, Inc., a Delaware corporation, by providing eligible
employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll-deduction based employee stock
purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret
and construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with the
requirements of Section 423 of the Code. Decisions of the Plan Administrator
shall be final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The maximum number of shares of Common Stock which
may be issued in the aggregate under the Plan shall initially not exceed Three
Hundred Thousand (300,000) shares.
B. The number of shares available for issuance under the Plan shall
automatically increase on the first business day of each calendar year,
beginning in the year 2001, by the lesser of (i) the number of shares of Common
Stock issued under the Plan in the immediately preceding calendar year or (ii)
300,000 shares or such other lesser number determined by the Board.
C. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to the maximum number and class of securities issuable in the aggregate
under the Plan, (ii) the maximum number and class of securities purchasable per
Participant and in the aggregate on any one Purchase Date and (iii) the number
and class of securities and the price per share in effect under each outstanding
purchase right in order to prevent the dilution or enlargement of benefits
thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive offering periods until such time as (i) the
maximum number of shares of
<PAGE> 2
Common Stock available for issuance under the Plan shall have been purchased or
(ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. However, the initial offering period shall
commence at the Effective Time and terminate on the last business day in January
2002. Subsequent offering periods shall commence as designated by the Plan
Administrator.
C. Each offering period shall be comprised of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from the first
business day in February each year to the last business day in July of the same
year and from the first business day in August each year to the last business
day in January of the following year. However, the first Purchase Interval in
effect under the initial offering period shall commence at the Effective Time
and terminate on the last business day in July 2000.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new offering
period shall have a duration of twenty-four (24) months, unless a shorter
duration is established by the Plan Administrator within five (5) business days
following the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of an
offering period under the Plan may enter that offering period on such start date
or on any subsequent Semi-Annual Entry Date within that offering period,
provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after the
start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.
C. The date an individual enters an offering period shall be designated
his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock during an offering period may be any multiple
of one percent (1%) of
2
<PAGE> 3
the Base Salary paid to the Participant during each Purchase Interval within
that offering period, up to a maximum of fifteen percent (15%). The deduction
rate so authorized shall continue in effect throughout the offering period,
except to the extent such rate is changed in accordance with the following
guidelines:
(i) The Participant may, at any time during the offering
period, reduce his or her rate of payroll deduction to become effective
as soon as possible after filing the appropriate form with the Plan
Administrator. The Participant may not, however, effect more than one
(1) such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of any new
Purchase Interval within the offering period, increase the rate of his
or her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the fifteen percent
(15%) maximum) shall become effective on the start date of the first
Purchase Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day following the
Participant's Entry Date into the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of that offering period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be required
to be held in any segregated account or trust fund and may be commingled with
the general assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination of
the Participant's purchase right in accordance with the provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a separate
purchase right for each offering period in which he or she participates. The
purchase right shall be granted on the Participant's Entry Date into the
offering period and shall provide the Participant with the right to purchase
shares of Common Stock, in a series of successive installments over the
remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
3
<PAGE> 4
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant (other than Participants whose payroll deductions
have previously been refunded pursuant to the Termination of Purchase Right
provisions below) on each such Purchase Date. The purchase shall be effected by
applying the Participant's payroll deductions for the Purchase Interval ending
on such Purchase Date to the purchase of whole shares of Common Stock at the
purchase price in effect for the Participant for that Purchase Date.
C. PURCHASE PRICE. The purchase price per share at which Common Stock
will be purchased on the Participant's behalf on each Purchase Date within the
offering period shall be equal to eighty-five percent (85%) of the lower of (i)
the Fair Market Value per share of Common Stock on the Participant's Entry Date
into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common Stock
purchasable by a Participant on each Purchase Date during the offering period
shall be the number of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during the Purchase Interval
ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed One Thousand (1,000) shares, subject to periodic adjustments in the event
of certain changes in the Corporation's capitalization. In addition, the maximum
number of shares of Common Stock purchasable in the aggregate by all
Participants on any one Purchase Date under the Plan shall not exceed One
Hundred Fifty Thousand (150,000) shares, subject to periodic adjustments in the
event of certain changes in the corporation's capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to the
purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable on the Purchase Date
shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall govern
the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next scheduled
Purchase Date in the offering period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions
shall be collected from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during the Purchase
Interval in which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares on
the next Purchase Date. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected
with respect to the terminated right shall be refunded as soon as
possible.
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<PAGE> 5
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted. In
order to resume participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before his or her scheduled Entry
Date into that offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in
status) while his or her purchase right remains outstanding, then that
purchase right shall immediately terminate, and all of the
Participant's payroll deductions for the Purchase Interval in which the
purchase right so terminates shall be immediately refunded. However,
should the Participant cease to remain in active service by reason of
an approved unpaid leave of absence, then the Participant shall have
the right, exercisable up until the last business day of the Purchase
Interval in which such leave commences, to (a) withdraw all the payroll
deductions collected to date on his or her behalf for that Purchase
Interval or (b) have such funds held for the purchase of shares on his
or her behalf on the next scheduled Purchase Date. In no event,
however, shall any further payroll deductions be collected on the
Participant's behalf during such leave. Upon the Participant's return
to active service (i) within ninety (90) days following the
commencement of such leave or, (ii) prior to the expiration of any
longer period for which such Participant's right to reemployment with
the Corporation is guaranteed by either statute or contract, his or her
payroll deductions under the Plan shall automatically resume at the
rate in effect at the time the leave began unless the Participant
withdraws from the Plan prior to his or her return. An individual who
returns to active employment following a leave of absence which exceeds
in duration the applicable clause (i) or (ii) time period shall be
treated as a new Employee for purposes of the Plan and must, in order
to resume participation in the Plan, re-enroll in the Plan (by making a
timely filing of the prescribed enrollment forms) on or before his or
her scheduled Entry Date into the offering period.
G. CHANGE OF CONTROL. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Change of Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change of Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
Stock on the Participant's Entry Date into the offering period in which such
Change of Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change of Control. However, the
applicable limitation on the number of shares of Common Stock purchasable by all
Participants in the aggregate shall not apply to any such purchase.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Change of Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change of Control.
5
<PAGE> 6
H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares of
Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only by the
Participant and shall not be assignable or transferable by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder rights
with respect to the shares subject to his or her outstanding purchase right
until the shares are purchased on the Participant's behalf in accordance with
the provisions of the Plan and the Participant has become a holder of record of
the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans (within the meaning of
Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise
permit such Participant to purchase more than Twenty-Five Thousand Dollars
($25,000) worth of stock of the Corporation or any Corporate Affiliate
(determined on the basis of the Fair Market Value per share on the date or dates
such rights are granted) for each calendar year such rights are at any time
outstanding.
B. For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each
successive Purchase Date during the offering period on which such right
remains outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock
under one (1) or more other purchase rights at a rate equal to
Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the date
or dates of grant) for each calendar year such rights were at any time
outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions which the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.
6
<PAGE> 7
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on November 3, 1999 and shall
become effective at the Effective Time, provided no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate upon
the earliest of (i) the last business day in January 2010, (ii) the date on
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Corporate Transaction. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
X. AMENDMENT/TERMINATION OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at any
time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the recognition of compensation
expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following amendments or
revisions to the Plan without the approval of the Corporation's stockholders:
(i) increase the number of shares of Common Stock issuable under the Plan,
except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify eligibility requirements for participation in the
Plan.
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<PAGE> 8
XI. GENERAL PROVISIONS
A. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
B. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation; however, each Plan Participant shall bear all
costs and expenses incurred by such individual in the sale or other disposition
of any shares purchased under the Plan.
C. The provisions of the Plan shall be governed by the laws of the
State of New York without regard to that State's conflict-of-laws rules.
8
<PAGE> 9
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
The Knot, Inc.
Click Trips, Inc.
<PAGE> 10
APPENDIX
The following definitions shall be in effect under the Plan:
A. BASE SALARY shall mean the regular base salary paid to a Participant
by one or more Participating Companies during such individual's period of
participation in the Plan, plus any pre-tax contributions made by the
Participant to any Code Section 401(k) salary deferral plan or any Code Section
125 cafeteria benefit program now or hereafter established by the Corporation or
any Corporate Affiliate. Base Salary shall not include any overtime payments,
bonuses, commissions, profit-sharing distributions or other incentive-type
payments, or any contributions (other than Code Section 401(k) or Code Section
125 contributions) made on the Participant's behalf by the Corporation or any
Corporate Affiliate to any employee benefit or welfare plan now or hereafter
established
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE OF CONTROL shall mean a change of ownership of the
Corporation pursuant to any of the following transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly, by a person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by or is under common
control with the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE AFFILIATE shall mean any parent or subsidiary corporation
of the Corporation (as determined in accordance with Code Section 424), whether
now existing or subsequently established.
A-1
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G. CORPORATION shall mean The Knot, Inc., a Delaware corporation, and
any corporate successor to all or substantially all of the assets or voting
stock of The Knot, Inc. which shall by appropriate action adopt the Plan.
H. EFFECTIVE TIME shall mean the time at which the Underwriting
Agreement is executed. Any Corporate Affiliate which becomes a Participating
Corporation after such Effective Time shall designate a subsequent Effective
Time with respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a).
J. ENTRY DATE shall mean the date an Eligible Employee first commences
participation in the offering period in effect under the Plan. The earliest
Entry Date under the Plan shall be the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If there
is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(iii) For purposes of the initial offering period which begins
at the Effective Time, the Fair Market Value shall be deemed to be
equal to the price per share at which the Common Stock is sold in the
initial public offering pursuant to the Underwriting Agreement.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
M. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
A-2
<PAGE> 12
N. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
O. PLAN shall mean the Corporation's Employee Stock Purchase Plan, as
set forth in this document.
P. PLAN ADMINISTRATOR shall mean the committee of two (2) or more Board
members appointed by the Board to administer the Plan.
Q. PURCHASE DATE shall mean the last business day of each Purchase
Interval. The initial Purchase Date shall be July 31, 2000.
R. PURCHASE INTERVAL shall mean each successive six (6)-month period
within the offering period at the end of which there shall be purchased shares
of Common Stock on behalf of each Participant.
S. SEMI-ANNUAL ENTRY DATE shall mean the first business day in February
and August each year on which an Eligible Employee may first enter an offering
period.
T. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
U. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the Corporation's
initial public offering of its Common Stock.
A-3
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Exhibit 10.10
FORM OF INDEMNIFICATION AGREEMENT
Agreement dated as of _________________, between The Knot, Inc., a
Delaware corporation (the "Company", which for the purposes of this Agreement
shall include any Subsidiary as defined herein), and ____________ (the
"Indemnitee").
WHEREAS, the Company desires to attract and retain highly qualified
individuals, such as the Indemnitee, to serve the Company;
WHEREAS, the Company desires to retain the Indemnitee to provide
services to it;
WHEREAS, the Company and the Indemnitee recognize the significant risk of
personal liability for Agents (as defined herein) which arises from corporate
litigation practices;
WHEREAS, the Company and the Indemnitee further recognize that liability
insurance for the Company's Agents, when available, is often available only at
significant expense and provides for coverage of limited scope and that
competent and experienced persons are often unable or unwilling to serve as
Agents unless they are protected by comprehensive liability insurance or
indemnification;
WHEREAS, the Indemnitee is willing to serve the Company, subject to
certain conditions, including execution and delivery of this Agreement by the
Company in order that the Indemnitee be furnished the indemnity provided for
herein;
WHEREAS, the Company's Restated Certificate of Incorporation ("Charter")
and By-Laws do not prohibit or restrict contracts between the Company and its
Agents with respect to indemnification of such Agents; and
WHEREAS, in view of such considerations, the Company desires to provide,
independent from the indemnification to which the Indemnitee is otherwise
entitled by law and under the Company's Charter and By-Laws, indemnification to
the Indemnitee and the Expense Advances (as defined herein), all as set forth in
this Agreement to the maximum extent permitted by law;
NOW, THEREFORE, to induce the Indemnitee to serve the Company and in
consideration of these premises and the mutual agreements set forth in this
Agreement, as well as other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Indemnitee
hereby agree as follows:
1. Definitions. For the purposes of this Agreement,
(a) Agent. "Agent" means any person who (i) is or was a director,
officer, employee, trustee or other agent or fiduciary of the Company; (ii) is
or was serving at the request, for the convenience, or to represent the
interests of the Company or a Company
<PAGE> 2
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employee benefit plan, its participants or its beneficiaries, as a director,
officer, employee, trustee or other agent or fiduciary of another corporation,
limited liability company, partnership, joint venture, trust or other entity
(including, without limitation, any employee benefit plan); or (iii) was a
director, officer, employee, trustee or other agent or fiduciary of a
corporation, limited liability company, partnership, joint venture, trust or
other entity which was a predecessor of the Company, or was a director, officer,
employee, trustee or other agent or fiduciary of any other such entity at the
request of such predecessor. The use of the term "Agent" shall not be construed
to alter the legal relationship between an Agent, as defined herein, and the
Company.
(b) Change in Control. "Change in Control" means that after the date
of this Agreement any of the following shall occur: (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Act")), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company acting in such capacity
or a corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Act), directly or indirectly, of securities of the Company representing more
than 50% of the total voting power represented by the Company's then outstanding
voting securities; (ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of Directors of the
Company cease to be a majority thereof (otherwise than through death, disability
or retirement in accordance with the Company's normal retirement policies);
(iii) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, limited liability company, partnership,
joint venture, trust or other entity other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 50% of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such a merger or
consolidation; or (iv) the stockholders of the Company approve a plan of
complete or substantial liquidation of the Company or an agreement for the sale
or disposition by the Company of (in one transaction or a series of related
transactions) all or substantially all of the Company's assets.
(c) Claim. "Claim" means any threatened, pending or completed
action, suit, proceeding or alternative dispute resolution mechanism, or any
hearing, inquiry or investigation, whether conducted by the Company or any other
party, which the Indemnitee believes in good faith might lead to the institution
of any such action, suit, proceeding, alternative dispute resolution mechanism,
hearing, inquiry or investigation, whether civil, criminal, administrative,
investigative or any other type whatsoever, with respect to an Indemnifiable
Event.
(d) References to the "Company" shall include, in addition to The
Knot, Inc., any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which The Knot, Inc. (or
any of its wholly owned subsidiaries) is a party which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, trustees or other agents or fiduciaries, so that
if the Indemnitee is or was a director, officer, employee, trustee or other
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as a
<PAGE> 3
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director, officer, employee, trustee or other agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, the Indemnitee shall stand in the same position under the provisions
of this Agreement with respect to the resulting or surviving corporation as the
Indemnitee would have with respect to such constituent corporation if its
separate existence had continued.
(e) Expense Advance. "Expense Advance" means a payment to the
Indemnitee of Expenses in advance of the settlement of or final judgment on
any Claim.
(f) Expenses. "Expenses" means all costs and liabilities of any type
or nature whatsoever (including, without limitation, all attorneys' fees and
related disbursements and other out-of-pocket costs, judgments, fines, penalties
and amounts paid in settlements) paid or incurred by or imposed upon the
Indemnitee in the investigation, defense, settlement or appeal of, or otherwise
in connection with, a Claim (including, without limitation, being a witness) or
in establishing or enforcing a right to indemnification under this Agreement,
the Company's Charter or By-Laws, Section 145 of the General Corporation Law of
the State of Delaware or otherwise, and any federal, state, local or foreign
taxes imposed on the Indemnitee as a result of the actual or deemed receipt of
any payments under this Agreement.
(g) Indemnifiable Event. "Indemnifiable Event" means any event or
occurrence related to the fact that the Indemnitee is or was a director,
officer, employee, trustee or other agent or fiduciary of the Company, or any
subsidiary of the Company, or is or was serving at the request of the Company as
a director, officer, employee, trustee or other agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action or inaction on the part of the Indemnitee while serving in such
capacity.
(h) Independent Legal Counsel. "Independent Legal Counsel" means an
attorney or firm of attorneys, selected in accordance with the provisions of
Section 8(a), whether or not in the event of a Change in Control.
(i) Potential Change in Control. "Potential Change in Control" means
that after the date of this Agreement any of the following shall occur: (i) any
person or entity publicly announces an intention to take or to consider taking
actions which if consummated might result in a Change in Control or (ii) the
Company's Board of Directors adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(j) Reviewing Party. "Reviewing Party" means the person or body
appointed by the Company's Board of Directors pursuant to Section 11(d) and in
accordance with applicable law, which person or body shall be either members of
the Company's Board of Directors who are not interested in the particular Claim
or Independent Legal Counsel. If there has been a Change in Control or Potential
Change in Control, the Reviewing Party shall be Independent Legal Counsel.
(k) Subsidiary. "Subsidiary" means any corporation, limited
liability company, partnership, joint venture, trust or other entity of which
more than 50% of the outstanding voting securities are owned directly or
indirectly by the Company, by the Company and one or more other Subsidiaries, or
by one or more other Subsidiaries.
<PAGE> 4
-4-
2. Agreement to Serve. The Indemnitee agrees to serve the Company as an
Agent, at its will (or under separate agreement if such agreement exists), in
the capacity in which the Indemnitee has been requested to serve by the Company,
so long as the Indemnitee is duly appointed or elected and qualified in
accordance with the Charter and By-Laws of the Company, or until such time as
the Indemnitee tenders the Indemnitee's resignation in writing, provided,
however, that nothing contained in this Agreement is intended to create any
right to continued service by the Indemnitee.
3. Basic Indemnification. Subject to the terms of this Agreement:
(a) Claims Other than Derivative Claims in Favor of the Company. As
to all Claims other than derivative Claims in favor of the Company, the Company
shall indemnify the Indemnitee against all Expenses.
(b) Derivative Claims for Judgment in Favor of the Company. As to
all derivative Claims in favor of the Company, the Company shall indemnify the
Indemnitee against all Expenses, provided that no indemnification shall be made
as to such derivative Claim if the Indemnitee has been finally adjudged to be
liable to the Company in connection with such Claim or any claim, issue or
matter therein, unless and only to the extent that the Court of Chancery of
Delaware or the court in which the Claim was brought shall determine that,
despite the adjudication of liability but in view of all the circumstances, the
Indemnitee is fairly and reasonably entitled to indemnity for such Expenses
which the Court of Chancery or such other court shall deem proper.
(c) Standard of Conduct Required for Entitlement to Basic
Indemnification. The Indemnitee shall be entitled to indemnification under
Sections 3(a) and (b) above if the Indemnitee acted in good faith and in a
manner the Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, provided that in the case of any criminal action or
proceeding, the Indemnitee had no reasonable cause to believe the Indemnitee's
conduct was unlawful and, in the case of Section 3(b), subject to the exclusion
set forth therein. The termination of any Claim by judgment, order, settlement
(whether with or without court approval), conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that (i)
the Indemnitee did not act in good faith and in a manner which the Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, (ii) the Indemnitee had reasonable cause to believe that the
Indemnitee's conduct was unlawful or (iii) a court determined that
indemnification is not permitted by applicable law or pursuant to Section 3(b).
In addition, neither the failure of any Reviewing Party to have made a
determination as to whether the Indemnitee has met the standard of conduct set
forth in this Section 3(c) or had any particular belief, nor an actual
determination by any Reviewing Party that the Indemnitee has not met such
standard of conduct or did not have such belief, shall be a defense to the
Indemnitee's right to indemnification or create a presumption that the
Indemnitee did not meet any particular standard of conduct or did not have any
particular belief. If the Indemnitee acted in good faith and in a manner the
Indemnitee reasonably believed to be in or not opposed to the best interest of
the participants and beneficiaries of an employee benefit plan, the Indemnitee
shall be deemed to have acted in a manner in or not opposed to the best
interests of the Company.
<PAGE> 5
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(d) Success on the Merits. To the extent that the Indemnitee has
been successful on the merits or otherwise (including, without limitation,
dismissal or withdrawal of a Claim with or without prejudice) in defense of any
Claim or in defense of any claim, issue or matter therein, the Company shall
indemnify the Indemnitee against Expenses in connection with such Claim.
4. Additional Indemnification Rights. The Company further agrees to
indemnify the Indemnitee in connection with any Claim and to make Expense
Advances to the Indemnitee, in each case to the fullest extent as may be
provided for under the Company's Charter, By-Laws, vote of the stockholders or
disinterested directors and/or applicable law notwithstanding that any such
indemnification or Expense Advance is not specifically authorized by the other
provisions of this Agreement. It is the intent of the parties hereto that (i) in
the event of any change, after the date of this Agreement, in any applicable
law, statute or rule which expands the right of a Delaware corporation to
indemnify or make Expense Advances to an Agent to a greater degree than would be
afforded currently under the Company's Charter, By-Laws, vote of the
stockholders or disinterested directors and this Agreement, the Indemnitee shall
enjoy by this Agreement the greater benefits afforded by such change; (ii) in
the event of any change, after the Date of this Agreement, in any applicable
law, statute or rule which narrows the right of a Delaware corporation to
indemnify or make Expense Advances to an Agent to a greater degree than would be
afforded currently under the Company's Charter, By-Laws, vote of the
stockholders or disinterested directors and this Agreement, such change, to the
extent not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder except as set forth in Section 5(a) hereof; and (iii) this
Agreement be interpreted and enforced so as to provide indemnification and
Expense Advances under such circumstances as set forth in this Agreement, if
any, in which the providing of indemnification or Expense Advances would
otherwise be discretionary.
5. Exclusions. Any other provision of this Agreement to the contrary
notwithstanding, the Company shall not be obligated to indemnify or provide
Expenses Advances to the Indemnitee:
(a) to the extent any such indemnification or Expense Advance would
be prohibited under applicable law; or
(b) to the extent that the Indemnitee actually received from any
other source (including an insurer) amounts otherwise payable hereunder;
(c) to the extent the Claims are initiated or brought voluntarily by
the Indemnitee and not by way of defense, counterclaim or crossclaim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Charter or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether the Indemnitee ultimately is determined to be entitled to
such indemnification, Expense Advances, or insurance recovery, as the case may
be;
<PAGE> 6
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(d) to the extent any Expenses are incurred by the Indemnitee with
respect to any action instituted (i) by the Indemnitee to enforce or interpret
this Agreement, if a court having jurisdiction over such action makes a final
judicial determination (as to which all rights of appeal therefrom have been
exhausted or have lapsed) that each of the material assertions made by the
Indemnitee as a basis for such action was not made in good faith or was
frivolous, or (ii) by or in the name of the Company to enforce or interpret this
Agreement, if a court having jurisdiction over such action makes a final
judicial determination (as to which all rights of appeal therefrom have been
exhausted or have lapsed) that each of the material defenses asserted by the
Indemnitee in such action was made in bad faith or was frivolous;
(e) for Expenses and the payment of profits arising from the
purchase and sale by the Indemnitee of securities in violation of Section 16(b)
of the Securities Exchange Act of 1934, as amended, or any similar successor
statute;
provided that notwithstanding the foregoing provisions of this Section 5, the
Indemnitee shall be entitled under Section 6 to receive Expense Advances with
respect to any Claim unless and until a court having jurisdiction over such
Claim shall have made a final determination (as to which all rights of appeal
therefrom shall have been exhausted or lapsed) that the Indemnitee is prohibited
from receiving indemnification with respect thereto.
6. Expense Advances. Within five business days of receipt by the Company
of an undertaking (the "Undertaking"), substantially in the form attached hereto
as Exhibit 1, by or on behalf of the Indemnitee to repay the amount of any
Expense Advance with respect to any Claim if and to the extent that it shall
ultimately be determined that the Indemnitee is not entitled to indemnification
for such amount, the Company shall make Expense Advances to the Indemnitee. The
Undertaking shall be unsecured and shall bear no interest.
7. Non-Exclusivity; Continuation. The indemnification and Expense Advances
pursuant to this Agreement shall not be deemed exclusive of any other rights to
which the Indemnitee may be entitled under the Company's Charter or By-Laws, any
vote of the Company's stockholders or disinterested directors, any other
agreement, any law or otherwise, both as to actions in the Indemnitee's official
capacity and as to actions in another capacity while an Agent. All agreements
and obligations of the Company contained in this Agreement shall continue as to
the Indemnitee while the Indemnitee is an Agent and after the Indemnitee has
ceased to be an Agent.
8. Change in Control; Potential Change in Control.
(a) The Company agrees that if there is a Change in Control, then
with respect to all matters concerning the rights of the Indemnitee to
indemnification and Expense Advances under this Agreement, the Company's Charter
or By-Laws, any vote of the Company's stockholders or disinterested directors,
any other agreement, any law or otherwise, the Company shall seek legal advice
only from Independent Legal Counsel. For all purposes of this Agreement, such
Independent Legal Counsel shall be such person or firm selected by the
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld) which has not otherwise performed services for the Company or the
Indemnitee within the prior three years (other than in connection with such
matters). The Independent Legal Counsel shall,
<PAGE> 7
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among other things, render its written opinion to the Company and the Indemnitee
as to whether and to what extent the Indemnitee is permitted to be indemnified
and receive Expense Advances. The Company agrees to pay the fees and expenses of
the Independent Legal Counsel relating to its engagement pursuant to this
Agreement.
(b) In the event of a Potential Change in Control, the Company may,
in its sole discretion, create a trust for the benefit of the Indemnitee and
from time to time fund such trust in such amounts as the Company's Board of
Directors may determine to satisfy Expenses reasonably anticipated or proposed
to be incurred or paid from time to time in connection with any Claims. The
terms of any trust established pursuant hereto shall provide that upon a Change
in Control (i) the trust shall not be revoked or the principal thereof invaded,
without the written consent of the Indemnitee, (ii) the trustee shall advance
(solely to the extent of trust assets), within two business days of a request by
the Indemnitee, all Expenses to the Indemnitee (and the Indemnitee hereby agrees
to reimburse the trust under the circumstances under which the Indemnitee would
be required to reimburse the Company under Section 6), (iii) the trustee shall
promptly pay (solely to the extent of trust assets) to the Indemnitee all
amounts for which the Indemnitee shall be entitled to indemnification pursuant
to this Agreement or otherwise, and (iv) all unexpended funds in such trust
shall revert to the Company upon a final determination by the Reviewing Party or
a court of competent jurisdiction, as the case may be, that the Indemnitee has
been fully indemnified (or is not entitled to be indemnified) under the terms of
this Agreement as to all Claims. The trustee shall be a person or entity
reasonably satisfactory to the Indemnitee. Nothing in this Section 8(b) shall
relieve the Company of any of its obligations under any other provision of this
Agreement.
9. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement or otherwise to indemnification or Expense Advances
by the Company for a portion, but not all, of any Expenses incurred by the
Indemnitee, the Company shall indemnify or provide Expense Advances to the
Indemnitee (as the case may be) for the portion thereof to which the Indemnitee
is entitled.
10. Contribution. If indemnification is unavailable by reason of a court
decision described in Section 11(e) based on grounds other than that set forth
in Section 5(a), then in respect of any Claim in which the Company is jointly
liable with the Indemnitee (or would be if joined in such Claim), the Company
shall contribute to the amount of the Indemnitee's Expenses in such proportion
as is appropriate to reflect (i) the relative benefits received by the Company
on the one hand and by the Indemnitee on the other hand from the transaction
from which such Claim arose, and (ii) the relative fault of the Company on the
one hand and of the Indemnitee on the other hand in connection with the events
which resulted in such Expenses, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of the
Indemnitee on the other shall be determined by reference to, among other things,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent the circumstances resulting in such Expenses. The Company
agrees that it would not be just and equitable if contribution pursuant to this
Section 10 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.
11. Procedures.
<PAGE> 8
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(a) Timing of Payments. All payments of Expenses (including, without
limitation, Expense Advances) by the Company to the Indemnitee pursuant to this
Agreement shall be made to the fullest extent permitted by law as soon as
practicable after written demand by the Indemnitee therefor is presented to the
Company, but in no event later than thirty (30) business days after such written
demand by the Indemnitee is presented to the Company, except in the case of
Expense Advances, which shall be made no later than ten (10) business days after
such written demand by the Indemnitee is presented to the Company.
(b) Notice. Promptly after receipt by the Indemnitee of notice of
the commencement, or the threat of commencement, of any Claim, the Indemnitee
shall, if the Indemnitee believes that indemnification or Expense Advances with
respect thereto may be sought from the Company by the Indemnitee pursuant to
this Agreement, notify the Company of the commencement or threat of commencement
thereof; the Indemnitee's notice to the Company may, but need not, be
substantially in the form attached hereto as Exhibit 2. Any failure of the
Indemnitee to provide such notice to the Company shall not, however, relieve the
Company of any liability which it may have to the Indemnitee unless and to the
extent such failure causes material adverse impact upon the interests of the
Company. If, at the time it receives such notice from the Indemnitee, the
Company has directors' and officers' liability insurance in effect, the Company
shall give prompt notice of the commencement, or the threat of commencement, of
such Claim to the insurers in accordance with the procedures set forth in the
respective applicable insurance policies. The Company shall thereafter take all
necessary or desirable action to cause such insurers to pay, on behalf of the
Indemnitee, all amounts payable as a result of such Claim in accordance with the
terms of such policies; provided that no such payments by such insurers shall
relieve the Company of any liability or obligation which it may have to the
Indemnitee except as and to the extent expressly provided under this Agreement.
(c) Assumption of Defense. If the Company shall be obligated to pay
Expenses arising in connection with any Claim against the Indemnitee, the
Company shall be entitled to assume the defense of such Claim, with counsel
approved by the Indemnitee (whose approval shall not be unreasonably withheld),
upon the delivery to the Indemnitee of notice of its election to do so. After
delivery of such notice, approval of such counsel by the Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to the
Indemnitee under this Agreement for any fees and expenses of counsel
subsequently incurred by the Indemnitee with respect to the same Claim, provided
that (i) the Indemnitee shall have the right to employ the Indemnitee's own
counsel in connection with any Claim at the Indemnitee's expense; (ii) if (A)
the employment of counsel by the Indemnitee shall have been previously
authorized by the Company, (B) the Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and the Indemnitee
in the conduct of such defense, or (C) the Company shall not, in fact, have
employed counsel to assume the defense of such Claim, in each such case the fees
and expenses of the Indemnitee's counsel shall be paid by the Company; and (iii)
the Company shall not settle any Claim in any manner which would impose any
penalty, limitation or unindemnified Expense on the Indemnitee without the
Indemnitee's consent.
(d) Determination of Entitlement to Indemnification. In the event of
any demand by the Indemnitee for indemnification under this Agreement or
otherwise, the
<PAGE> 9
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Board of Directors of the Company shall promptly designate a Reviewing Party.
The Reviewing Party shall determine that indemnification is proper if it finds
that the Indemnitee has met the required standard of conduct set forth in
Section 3(c) and that indemnification is not prohibited pursuant to Section 5.
If the Reviewing Party is more than one member of the Company's Board of
Directors, it shall act by a majority vote. If the Reviewing Party is
Independent Legal Counsel, the determination of the Reviewing Party shall be
rendered in the form of a written legal opinion. Subject to Sections 11(e) and
12, any indemnification under Sections 3 and 4 (unless ordered by a court or
pursuant to Section 3(d)) shall be made by the Company only as authorized in the
specific case and upon the determination of the Reviewing Party that the
Indemnitee is entitled to indemnification in the circumstances because the
Indemnitee has met the standard of conduct set forth in Section 3(c) and that
indemnification is not prohibited pursuant to Section 5. The Indemnitee's demand
for indemnification shall create a presumption that the Indemnitee is entitled
to indemnification and the Reviewing Party shall have 30 days from the date of
receipt of the Indemnitee's demand in which to render in writing and deliver to
the Indemnitee its determination. If the Reviewing Party makes no timely
determination, the Reviewing Party shall be deemed to have determined that the
Indemnitee is entitled to the indemnification demanded. If the Reviewing Party
determines, which determination shall be based upon clear and convincing
evidence sufficient to rebut the aforesaid presumption of entitlement, that the
Indemnitee is not entitled to indemnification, in whole or in part, in the
circumstances because the Indemnitee has not met the standard of conduct set
forth in Section 3(c) or because the indemnification is prohibited pursuant to
Section 5, the Indemnitee shall (i) be entitled to obtain a favorable
determination or to appeal such negative determination in the manner provided in
Sections 11(e) and 12 and (ii) not be required to reimburse the Company for any
Expense Advances or Expenses theretofore paid to or on behalf of the Indemnitee
until a final determination has been made with respect to the Indemnitee's legal
entitlement to indemnification (as to which all rights of appeal therefrom shall
have been exhausted or shall have lapsed).
(e) Indemnitee's Rights on Unfavorable Determination.
Notwithstanding a determination by a Reviewing Party or any forum listed in
Section 12 that the Indemnitee is not entitled to indemnification with respect
to a specific Claim, or any claim, issue or matter therein, the Indemnitee shall
have the right to apply to the Court of Chancery of Delaware or any other court
of competent jurisdiction for the purpose of determining and enforcing the
Indemnitee's right to indemnification pursuant to this Agreement or otherwise
and the Company hereby consents to service of process and agrees to appear in
any such proceeding. Such court shall find that the Indemnitee is entitled to
indemnification unless the Company shall prove by clear and convincing evidence
that (i) the Indemnitee did not meet the applicable standard of conduct required
to entitle the Indemnitee to such indemnification or that indemnification is
prohibited pursuant to Section 5, and (ii) the requirements of Section 3(d) have
not been met.
12. Appeal of a Reviewing Party's Determination of No Right to
Indemnification.
(a) The Indemnitee shall be entitled to select from the following
alternatives a forum in which the validity of a Reviewing Party's determination
that the Indemnitee is not entitled to indemnification will be heard, which
forum shall determine that the Indemnitee is entitled to such indemnification
unless such forum determines that there is clear and convincing evidence that
(i) the Indemnitee did not meet the applicable standard of conduct required to
<PAGE> 10
-10-
entitle the Indemnitee to such indemnification or that indemnification is
prohibited pursuant to Section 5, and (ii) the requirements of Section 3(d) have
not been met:
(A) those members of the Company's Board of Directors who are
disinterested parties with respect to the Claim, acting by a majority vote;
(B) Independent Legal Counsel, in a written opinion; or
(C) those stockholders of the Company who are disinterested parties
with respect to the Claim, acting by a majority vote.
(b) As soon as practicable, and in no event later than 30 days after
notice of the Indemnitee's choice of forum pursuant to Section 12(a), the
Company shall, at its own expense, submit to the selected forum in such manner
as the Indemnitee or the Indemnitee's counsel may reasonably request, the basis
for the determination that the Indemnitee is not entitled to indemnification,
and the Company shall act in the utmost good faith to assure the Indemnitee a
complete opportunity to defend against and appeal such determination.
13. Binding Effect; Successors and Assigns. This Agreement shall bind and
inure to the benefit of the successors, heirs, personal and legal
representatives and assigns of the parties hereto, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all,
substantially all or a substantial part of the business or assets of the
Company. The Company shall require and cause any successor (whether direct or
indirect, and whether by purchase, merger, consolidation or otherwise) to all,
substantially all or a substantial part of the business or assets of the
Company, by written agreement in form and substance satisfactory to the
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place.
14. Expenses and Expense Advances to Enforce the Agreement. It is the
intent of the Company that the Indemnitee shall not be required to incur any
Expenses arising from any effort to enforce the Indemnitee's rights under this
Agreement, because incurring such Expenses would substantially detract from the
benefits intended to be extended to the Indemnitee hereunder. Accordingly, if it
should appear to the Indemnitee that the Company has failed to comply with any
of its obligations under this Agreement or if the Company or any other person or
entity (other than the Court of Chancery of Delaware or any other court of
competent jurisdiction in a final determination, as which all rights of appeal
therefrom shall have been exhausted or shall have lapsed) takes any action to
declare this Agreement or any provision hereof void or unenforceable, or
institutes any action, suit or proceeding designed (or having the effect of
being designed) to deny or recover from the Indemnitee the benefits intended to
be provided to the Indemnitee hereunder, the Company hereby irrevocably
authorizes the Indemnitee from time to time to retain counsel of the
Indemnitee's choice to represent the Indemnitee in connection with the
enforcement of the Indemnitee's rights under this Agreement. If the Indemnitee
is successful in whole or in part in enforcing the Indemnitee's rights under
this Agreement, the Company shall pay and be solely responsible for any and all
costs and liabilities (including, without limitation, all attorneys' fees and
related disbursements and other out-of-pocket costs) incurred by the Indemnitee
in connection therewith.
<PAGE> 11
-11-
15. Notices. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) when
delivered by hand or (ii) if mailed by certified or registered mail with postage
prepaid, on the third business day after the mailing date. Addresses for notice
to either party shall be as shown on the signature page of this Agreement or as
subsequently modified by the addressee by such written notice.
16. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including, without limitation, all portions of any paragraph of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and (iii) to
the fullest extent possible, any such provision held to be invalid, illegal or
unenforceable shall be reformed so as to be valid, legal and enforceable and to
give effect to the intent manifested by such provision.
17. Modifications, Amendments, and Waivers. No modification or amendment
of this Agreement, or waiver of any of the provisions hereof, shall be binding
unless executed in writing by both of the parties hereto, in the case of a
modification or amendment, or by the waiving party, in the case of a waiver. No
waiver of any such provision shall be deemed to constitute a waiver of such
provision on any other occasion or a waiver of any other provision.
18. Consent to Jurisdiction. The Company and the Indemnitee each hereby
irrevocably consent to the non-exclusive jurisdiction of the Court of Chancery
of Delaware for any purpose in connection with any action or proceeding which
arises out of or relates to this Agreement.
19. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of Delaware, as applied to contracts between
Delaware residents entered into and to be performed entirely within Delaware.
20. Subrogation. In the event of payment by the Company under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of the Indemnitee, who agrees, at the sole expense of
the Company, to execute all papers reasonably required and to do all other acts
and things that may be reasonably necessary on the part of the Indemnitee to
secure such rights, including the execution of documents necessary to enable the
Company to bring suit to enforce such rights.
21. Integration and Entire Agreement. This Agreement sets forth the entire
understanding between the parties hereto and supersedes and merges all previous
written and oral negotiations, commitments, understandings and agreements
relating to the subject matter hereof.
22. No Construction as Employment Agreement. In the case of any Indemnitee
who is an employee of the Company, nothing contained in this Agreement shall be
construed as
<PAGE> 12
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giving the Indemnitee any right to be retained in the employ of the
Company or affiliated entities.
23. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
<PAGE> 13
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
THE KNOT, INC.
By:________________________ ____________________________
Name:______________________ Indemnitee
Title:_______________________
Address: ____________________ Address: _____________________
____________________ _____________________
____________________ _____________________
<PAGE> 14
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Exhibit 1
UNDERTAKING
1. This Undertaking is submitted pursuant to the Indemnification Agreement
dated as of ________________ between The Knot, Inc., a Delaware corporation (the
"Company"), and the undersigned (the "Agreement"). Capitalized terms used but
not defined herein shall have the respective meanings set forth in the
Agreement.
2. I am requesting certain Expense Advances in connection with a Claim.
3. I hereby undertake to repay such Expense Advances if it shall
ultimately be determined that I am not entitled to be indemnified by the Company
therefor under the Agreement or otherwise.
4. The Expense Advances are, in general, all related to:
Signed: ______________________________
Dated: ______________________________
<PAGE> 15
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Exhibit 2
NOTICE AND DEMAND FOR INDEMNIFICATION
1. This Notice and Demand for Indemnification is submitted pursuant to the
Indemnification Agreement dated as of _________________ between The Knot, Inc.,
a Delaware corporation (the "Company"), and the undersigned (the "Agreement").
Capitalized terms used but not defined herein shall have the respective meanings
set forth in the Agreement.
2. I am notifying the Company as to the following Claim:
3. I am requesting indemnification and Expense Advances with respect to
such Claim to the full extent provided for in the Agreement or to which I may
otherwise be entitled.
Signed: ______________________________
Dated: ______________________________
<PAGE> 1
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 reports dated October 26, 1999 (except for Note 12 as to which the
date is November 5, 1999) with respect to the financial statements of The Knot,
Inc. and our report dated August 18, 1999, with respect to the financial
statements of Casenhiser Clothing Company, Inc. included in Amendment No. 2 to
the Registration Statement (Form S-1 No. 333-87345) and related Prospectus of
The Knot, Inc. dated November 10, 1999.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
New York, New York
November 10, 1999
