<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1999
REGISTRATION NO. 333-87345
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE KNOT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<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:
<TABLE>
<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>
------------------------
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- --------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(3)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per
share................................. 4,025,000 $10.00 $40,250,000 $11,190
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 525,000 shares which the underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purposes of computing the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933, as amended.
(3) Previously paid.
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 26, 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
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................. 1
RISK FACTORS........................ 5
FORWARD-LOOKING STATEMENTS.......... 20
TRADEMARKS.......................... 20
ASSUMPTIONS......................... 20
USE OF PROCEEDS..................... 21
DIVIDEND POLICY..................... 21
CAPITALIZATION...................... 22
DILUTION............................ 23
SELECTED FINANCIAL DATA............. 24
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS........... 25
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>
------------------
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.
i
<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 and
advertising contracts and production contracts related to the development of
online sites and tools. 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.
1
<PAGE> 6
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").
THE OFFERING
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<S> <C>
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 22, 1999. This information
excludes 3,849,868 shares of common stock reserved for issuance under our 1999
Stock Incentive Plan, of which 1,729,415 shares are issuable upon the exercise
of stock options outstanding as of November 22, 1999, and 2,066,667 shares of
common stock issuable upon the exercise of warrants outstanding as of November
22, 1999.
2
<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<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>
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
3
<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.
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.
4
<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 results of operations 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."
6
<PAGE> 11
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
7
<PAGE> 12
notice. If the carrying of our sites on AOL is discontinued, we would lose
members, sponsors and advertisers and 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."
BECAUSE WEDDINGS OCCUR MORE FREQUENTLY IN THE SECOND AND THIRD QUARTERS OF THE
CALENDAR YEAR, 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 from quarter to quarter.
WE MAY BE UNABLE TO CONTINUE TO BUILD AWARENESS OF THE KNOT BRAND NAME WHICH
WOULD NEGATIVELY IMPACT OUR BUSINESS AND CAUSE OUR SPONSORSHIP AND ADVERTISING
REVENUES TO DECLINE.
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 business 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.
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<PAGE> 13
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 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. The related
increases in expenses 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 FUTURE REVENUES AND
PROSPECTS WOULD 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
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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.
WE HAVE A SMALL NUMBER OF SPONSORS AND ADVERTISERS AND THE LOSS OF A NUMBER OF
THESE WOULD RESULT IN A DECLINE IN OUR REVENUES.
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
would cause our revenues to decline. 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. If we fail to enter into a sufficient number of
large contracts during a particular period, our revenues for that period would
be adversely affected. For more information on our advertising revenues, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
OUR BUSINESS AND PROSPECTS WOULD SUFFER IF WE ARE UNABLE 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 and prospects
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 AND ANY INFRINGEMENT COULD REQUIRE US TO INCUR SUBSTANTIAL COSTS AND
DISTRACT OUR MANAGEMENT.
Although we avoid infringing known proprietary rights of third parties,
including licensed content, we may be subject to claims alleging infringement of
third-party
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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 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 approximately 97% 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.
INCREASED COMPETITION IN OUR MARKETS COULD REDUCE OUR MARKET SHARE, THE NUMBER
OF OUR ADVERTISERS, OUR ADVERTISING REVENUES AND OUR MARGINS.
The Internet advertising and online wedding markets are new, rapidly
evolving and intensely competitive, and we expect such competition to intensify
in the future.
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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
- 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. 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.
IF SALES TO SPONSORS OR ADVERTISERS FORECASTED IN A PARTICULAR PERIOD ARE
DELAYED OR DO NOT OTHERWISE OCCUR, OUR RESULTS OF OPERATIONS FOR A PARTICULAR
PERIOD WOULD BE MATERIALLY AND ADVERSELY AFFECTED.
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, we would generate less sponsorship
and advertising revenues during that period and our results of operations for
that period would suffer.
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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, 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. Any system disruption or failure, security breach or other damage that
interrupts or delays our operations could cause us to lose users, sponsors and
advertisers and adversely affect our business and results of 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. To date, we have not experienced significant problems with
the services that these third parties provide to us. 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,
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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 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 could divert our technical resources away
from the technological development we need to succeed.
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.
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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 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
IF THE USE OF THE INTERNET AND COMMERCIAL ONLINE SERVICES AS MEDIA FOR COMMERCE
DOES NOT CONTINUE TO GROW, OUR BUSINESS AND PROSPECTS WOULD BE MATERIALLY AND
ADVERSELY AFFECTED.
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.
IF USERS EXPERIENCE DIFFICULTIES BECAUSE OF CAPACITY CONSTRAINTS OF THE
INFRASTRUCTURE OF THE INTERNET AND OTHER COMMERCIAL ONLINE SERVICES, POTENTIAL
USERS MAY NOT BE ABLE TO ACCESS OUR SITES AND OUR BUSINESS AND PROSPECTS WOULD
BE HARMED.
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
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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 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,
we could lose users and market share to our competitors. 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.
IF WE BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
RELATED TO DOING BUSINESS ONLINE, OUR SPONSORSHIP, ADVERTISING AND MERCHANDISE
REVENUES COULD DECLINE AND OUR BUSINESS AND PROSPECTS COULD SUFFER.
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. Laws and regulations may
be adopted covering
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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
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. The adoption or
modification of laws or regulations relating to the Internet and other online
services could cause our sponsorship, advertising and merchandise revenues to
decline and our business and prospects to suffer.
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. To date, we have no experience in
developing localized versions of our sites for international markets and in
marketing and selling internationally. If we decide to expand internationally
and we cannot overcome these challenges, our business will suffer. 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
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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 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;
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- 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.
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 would result in unfavorable returns,
which 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.
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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.
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.
ASSUMPTIONS
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.
20
<PAGE> 25
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 not
allocated the net proceeds of this offering for specific uses. We expect to use
the proceeds for general corporate purposes. The actual amounts expended for
specific 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.
21
<PAGE> 26
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.
22
<PAGE> 27
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $10.6 million, or approximately $1.01 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 $38.9 million, or $2.79 per share. This
represents an immediate increase in pro forma net tangible book value of $1.78
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $6.21 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.......................................... $1.01
Increase per share attributable to new investors.......... 1.78
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.79
-----
Dilution in pro forma net tangible book value per share to
new investors............................................. $6.21
=====
</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% $1.87
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.
23
<PAGE> 28
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>
24
<PAGE> 29
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 of facilities costs.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------
CASENHISER
CLOTHING PRO
THE KNOT, INC. COMPANY, INC. ADJUSTMENTS FORMA
-------------- ---------------- ----------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<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 14% 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. We generated $47,000 and
$74,000 of usage 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. 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, we pay carriage
fees to AOL. For the nine months ended September 30, 1999, we paid $750,000 in
carriage fees to AOL. For the year ended December 31, 1998, we did not pay
carriage fees to AOL. We are obligated to pay carriage fees to AOL of $250,000
for the three months ended December 31, 1999 and $300,000 each quarter
thereafter for the remainder of the agreement.
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
27
<PAGE> 32
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 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 a $854,000 increase in revenues generated
from additional sponsorship and production contracts and a $266,000 increase in
revenues generated 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 a $453,000 increase related to the
acquisition of Bridalink.com in July 1999 and a $240,000 increase related to 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 a $58,000 increase in sales of
our gown guide which was published at the end of June 1999, partially offset by
a $43,000 decrease in 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 access 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 of $317,000 and through The Knot Registry of $169,000, and a
$141,000 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
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<PAGE> 34
continue to change, we expect our cost of revenues to continue to fluctuate as a
percentage of net revenues.
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 a $908,000
increase resulting from our hiring additional staff to enhance the content and
functionality of our sites, partially offset by a $241,000 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 a $750,000 increase in carriage fees
paid under our anchor tenant agreement with AOL, which went into effect on
January 1, 1999, a $519,000 increase in personnel costs related to the hiring of
additional sales and marketing personnel and a $331,000 increase in 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.
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This increase was primarily due to a $650,000 increase in personnel costs and a
$198,000 increase in 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.
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 a $153,000 increase in depreciation
due to the increase in property and equipment purchases and an additional
$118,000 of 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
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<PAGE> 36
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.
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. These increases in cost of
revenues were primarily due to the increased number of sponsors and advertisers
resulting in an increased expense of $35,000 for the year ended December 31,
1998 and $45,000 for the year ended December 31, 1997. These increases in cost
of revenues were also due to an increase in Internet access and hosting services
expenses of $13,000 for the year ended December 31, 1998 and $5,000 for the year
ended December 31, 1997. 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. 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.
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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 increase
for the year ended December 31, 1998 was primarily a result of a $236,000
increase in personnel costs, which include sales commissions, and a $95,000
increase in costs incurred to retain an outside public relations firm. The
increase for the year ended December 31, 1997 was primarily a result of a
$107,000 increase in personnel costs and a $68,000 increase in commissions we
paid to AOL. 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.
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. The increase for the year ended December
31, 1998 was primarily due to a $119,000 increase in facilities expenses and a
$105,000 increase in personnel costs. 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.
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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 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
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<PAGE> 39
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.
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 of $6.0 million as adjusted for depreciation and amortization of $1.2
million and an increase in accounts receivable of $717,000, other current assets
of $646,000 and inventories of $389,000, partially offset by increases in
accounts payable and accrued expenses of $788,000 and deferred revenue of
$788,000. 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 of $1.9 million, $1.1
million and $752,000, respectively, adjusted for depreciation and amortization
of $242,000, $105,000 and $9,000, respectively.
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 of $1.2 million and cash paid for business acquisitions of $335,000.
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
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<PAGE> 40
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.
As of September 30, 1999, we had a commitment under our amended anchor
tenant agreement with AOL in the amount of $3.9 million, of which $1.2 million
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 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. The common stock was valued at $7.00 per share for financial
reporting purposes. 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. The common stock was valued at $7.00 per share
for financial reporting purposes. 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. The common stock was valued at $8.00 per share for financial reporting
purposes. 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.
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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 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.
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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 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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<PAGE> 44
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. We have no present plans or
commitments with respect to acquisitions or alliances and we are not currently
engaged in any negotiations with respect to these opportunities.
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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 approximately 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 22, 1999, we had a total of 110 employees, of which 53 were
involved in product and content development, 35 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 22, 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
stock option 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 1997 Long Term 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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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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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. For the nine months ended September 30, 1999, the Company purchased
merchandise and incurred warehouse fulfillment and distribution costs in the
approximate amounts of $26,000 and $60,000, respectively, under the Services
Agreement.
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, we pay carriage fees to AOL. For the nine months ended
September 30, 1999, we paid $750,000 in carriage fees to AOL. For the year ended
December 31, 1998, we did not pay AOL carriage fees. Under the terms of the
agreement, AOL may terminate the agreement
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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.
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 22, 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 22, 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,
LLC(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 22, 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 22, 1999, 252,519 of
the 505,037 shares held by each
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founder subject to vesting, had vested. The Knot has the right to repurchase
all or any 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 22, 1999.
(5) Mr. Link's address is c/o QVC, Studio Park, West Chester, PA 19380.
(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 4,000,000
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 19380.
(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
22, 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 are included as exhibits to the
registration statement of which this prospectus forms a part. The material terms
of our amended and restated certificate of incorporation and bylaws are
summarized below.
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 22, 1999, there were 10,473,103 shares of our common stock
outstanding held of record by seventeen (17) 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 our 1999 Stock Incentive Plan. As of November
22, 1999, there were outstanding options to purchase a total of 1,729,415 shares
of common stock, of which options to purchase approximately 229,259 will be
exercisable upon the closing of this offering. Since we intend to file a
registration statement on Form S-8 as soon as
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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.
74
<PAGE> 79
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.
75
<PAGE> 80
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 22, 1999, options to purchase 1,729,415 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.
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<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-24
Balance Sheets as of December 31, 1997 and April 1, 1998.... F-25
Statements of Operations for the year ended December 31,
1997 and the period ended April 1, 1997 (Unaudited) and
April 1, 1998............................................. F-26
Statements of Shareholder's (Deficit) Equity for the year
ended December 31, 1997 and the period ended April 1,
1998...................................................... F-27
Statements of Cash Flows for the year ended December 31,
1997 and the period ended April 1, 1997 (Unaudited) and
April 1, 1998............................................. F-28
Notes to Financial Statements............................... F-29
</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 gain on
extinguishment of debt............. (752,286) (1,095,494) (1,899,384) (1,220,906) (6,008,360)
Extraordinary gain on extinguishment
of debt............................ -- -- 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 gain on
extinguishment of debt.......... $ (.46) $ (.67) $ (.76) $ (.52) $ (1.96)
Extraordinary gain on
extinguishment of debt.......... -- -- .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 gain on
extinguishment of debt......................... $(752,286) $(1,095,494) $(1,899,384) $(1,220,906) $(6,008,360)
Adjustments to reconcile net loss before
extraordinary gain on extinguishment of debt
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.
The Company paid commissions to AOL in the approximate amounts of $0,
$68,000, $16,000 and $16,000 (unaudited) for the period from Inception through
December 31, 1996, the years ended December 31, 1997 and 1998 and for the nine
months ended September 30, 1998, respectively.
The Company earned usage fees from AOL in the approximate amounts of $0,
$74,000, $47,000 and $47,000 (unaudited) for the period from Inception through
December 31, 1996, the years ended December 31, 1997 and 1998 and for the nine
months ended September 30, 1998, respectively.
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
F-14
<PAGE> 102
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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.
On April 28, 1998, AOL exchanged the note payable of $2,047,018, which
included accrued interest of $197,018, and the AOL Warrant for 800,000 shares of
Series A Convertible Preferred Stock (see Note 8) valued at $937,600. At the
date of exchange, AOL was solely a creditor of the Company, since the AOL
Warrant was worthless. In accordance with SFAS No. 15, "Accounting by Debtors
and Creditors for Troubled Debt Restructurings" this transaction was accounted
for as a troubled debt restructuring and an extraordinary gain on the
extinguishment of debt was recognized.
On September 30, 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.
The company paid carriage fees to AOL in the amount of $750,000 for the
nine months ended September 30, 1999.
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.
At September 30, 1999, the Company is obligated to pay carriage fees to AOL
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>
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%,
F-15
<PAGE> 103
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
For the nine months ended September 30, 1999, the Company purchased
merchandise and incurred warehousing, fulfillment and distribution costs in the
approximate amounts of $26,000 and $60,000, respectively, under the Services
Agreement.
The Company also has an agreement with QVC to sell merchandise through a
co-branded site accessible from within QVC's on-line site.
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.
F-16
<PAGE> 104
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-17
<PAGE> 105
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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, the AOL
Note in the amount of $2,047,018, which included accrued interest of $197,018
and the AOL Warrant were exchanged for 800,000 shares of Series A Convertible
Preferred Stock valued at $937,600 (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).
F-18
<PAGE> 106
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 1997 Long Term 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.
F-19
<PAGE> 107
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<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 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>
F-20
<PAGE> 108
THE KNOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-21
<PAGE> 109
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-22
<PAGE> 110
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.
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.
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>
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 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
II-1
<PAGE> 122
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.
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
II-2
<PAGE> 123
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
10.3** Employment Agreement between The Knot, Inc. and Richard
Szefc
</TABLE>
II-3
<PAGE> 124
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
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 has been requested for certain portions omitted from
this Exhibit pursuant to Rule 406 promulgated under the Securities Act.
Confidential portions of this Exhibit have been separately filed with the
Securities and Exchange Commission.
(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. 4 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 26th 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 26, 1999
- --------------------------------------------------- Officer and Chairman of
David Liu the Board of Directors
(principal executive
officer)
* Chief Financial Officer, November 26, 1999
- --------------------------------------------------- Treasurer and Secretary
Richard Szefc (principal financial and
accounting officer)
* Chief Operating Officer, November 26, 1999
- --------------------------------------------------- Assistant Secretary and
Sandra Stiles Director
* Director November 26, 1999
- ---------------------------------------------------
John Link
* Director November 26, 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 has been requested for certain portions omitted from
this Exhibit pursuant to Rule 406 promulgated under the Securities Act.
Confidential portions of this Exhibit have been separately filed with the
Securities and Exchange Commission.
<PAGE> 1
3,500,000 SHARES
THE KNOT, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
__________ __, 1999
Credit Suisse First Boston Corporation
Hambrecht & Quist Llc
Salomon Smith Barney Inc.,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. The Knot, Inc., a Delaware corporation ("COMPANY"),
proposes to issue and sell 3,500,000 shares ("FIRM SECURITIES") of its Common
Stock, par value $.01 per share ("SECURITIES"), and also proposes to issue and
sell to the Underwriters, at the option of the Underwriters, an aggregate of not
more than 525,000 additional shares ("OPTIONAL SECURITIES") of its Securities as
set forth below. The Firm Securities and the Optional Securities are herein
collectively called the "OFFERED SECURITIES". As part of the offering
contemplated by this Agreement, Hambrecht & Quist LLC (the "DESIGNATED
UNDERWRITER") has agreed to reserve out of the Firm Securities purchased by it
under this Agreement, up to 175,000 shares, for sale to the Company's directors,
officers, employees and other parties associated with the Company (collectively,
"PARTICIPANTS"), as set forth in the Prospectus (as defined herein) under the
heading "Underwriters" (the "DIRECTED SHARE PROGRAM"). The Firm Securities to be
sold by the Designated Underwriter pursuant to the Directed Share Program (the
"DIRECTED SHARES") will be sold by the Designated Underwriter pursuant to this
Agreement at the public offering price. Any Directed Shares not orally confirmed
for purchase by a Participant by the end of the
<PAGE> 2
business day on which this Agreement is executed will be offered to the public
by the Underwriters as set forth in the Prospectus. The Company hereby agrees
with the several Underwriters named in Schedule A hereto ("UNDERWRITERS") as
follows:
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-87345) relating to the Offered
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("COMMISSION") and either (i) has been
declared effective under the Securities Act of 1933, as amended ("ACT"),
and is not proposed to be amended or (ii) is proposed to be amended by
amendment or post-effective amendment. If such registration statement
("INITIAL REGISTRATION STATEMENT") has been declared effective, either (i)
an additional registration statement ("ADDITIONAL REGISTRATION STATEMENT")
relating to the Offered Securities may have been filed with the Commission
pursuant to Rule 462(b) ("RULE 462(b)") under the Act and, if so filed,
has become effective upon filing pursuant to such Rule and the Offered
Securities all have been duly registered under the Act pursuant to the
initial registration statement and, if applicable, the additional
registration statement or (ii) such an additional registration statement
is proposed to be filed with the Commission pursuant to Rule 462(b) and
will become effective upon filing pursuant to such Rule and upon such
filing the Offered Securities will all have been duly registered under the
Act pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("RULE 462(c)") under the
Act or, in the case of the additional registration statement, Rule 462(b).
For purposes of this Agreement, "EFFECTIVE TIME" with respect to the
initial registration statement or, if filed prior to the execution and
delivery of this Agreement, the additional registration statement means
(i) if the Company has advised the Representatives that it does not
propose to amend such registration statement, the date and time as of
which such registration statement, or the most recent post-effective
amendment thereto (if any) filed prior to the execution and delivery of
this Agreement, was declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c), or (ii) if the Company has
advised the Representatives that it proposes to file an amendment or
post-effective amendment to such registration statement, the date and time
as of which such registration statement, as amended by such amendment or
post-effective amendment, as the case may be, is declared effective by the
Commission. If an additional registration statement has not been filed
prior to the execution and delivery of this Agreement but the Company has
advised the
<PAGE> 3
Representatives that it proposes to file one, "EFFECTIVE TIME" with
respect to such additional registration statement means the date and time
as of which such registration statement is filed and becomes effective
pursuant to Rule 462(b). "EFFECTIVE DATE" with respect to the initial
registration statement or the additional registration statement (if any)
means the date of the Effective Time thereof. The initial registration
statement, as amended at its Effective Time, including all information
contained in the additional registration statement (if any) and deemed to
be a part of the initial registration statement as of the Effective Time
of the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration
statement as of its Effective Time pursuant to Rule 430A(b) ("RULE
430A(b)") under the Act, is hereinafter referred to as the "INITIAL
REGISTRATION STATEMENT". The additional registration statement, as amended
at its Effective Time, including the contents of the initial registration
statement incorporated by reference therein and including all information
(if any) deemed to be a part of the additional registration statement as
of its Effective Time pursuant to Rule 430A(b), is hereinafter referred to
as the "ADDITIONAL REGISTRATION STATEMENT". The Initial Registration
Statement and the Additional Registration Statement are herein referred to
collectively as the "REGISTRATION STATEMENTS" and individually as a
"REGISTRATION STATEMENT". The form of prospectus relating to the Offered
Securities, as first filed with the Commission pursuant to and in
accordance with Rule 424(b) ("RULE 424(b)") under the Act or (if no such
filing is required) as included in a Registration Statement, is
hereinafter referred to as the "PROSPECTUS". No document has been or will
be prepared or distributed in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all respects to the requirements of
the Act and the rules and regulations of the Commission ("RULES AND
REGULATIONS") and did not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) on the
Effective Date of the Additional Registration Statement (if any), each
Registration Statement conformed, or will conform, in all respects to the
requirements of the Act and the Rules and Regulations and did not include,
or will not include, any untrue statement of a material fact and did not
omit, or will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
(iii) on the date of this Agreement, the Initial Registration Statement
and, if the Effective Time of the Additional Registration Statement is
prior to the execution and delivery of this Agreement, the Additional
Registration
3
<PAGE> 4
Statement each conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the
Prospectus is included, each Registration Statement and the Prospectus
will conform, in all respects to the requirements of the Act and the Rules
and Regulations, and neither of such documents includes, or will include,
any untrue statement of a material fact or omits, or will omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement: on the Effective Date of the Initial Registration Statement,
the Initial Registration Statement and the Prospectus will conform in all
respects to the requirements of the Act and the Rules and Regulations,
neither of such documents will include any untrue statement of a material
fact or will omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and no
Additional Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only
such information is that described as such in Section 7(b) hereof.
(c) The Company has not distributed and, prior to the later of (a) any
Closing Date (as defined herein) and (b) the completion of the
distribution of the Offered Securities, will not distribute any offering
material in connection with the offering of the Offered Securities other
than a Registration Statement, any preliminary prospectus contained
therein or the Prospectus or any amendment or supplement thereto.
(d) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus; and the Company is
duly qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
condition (financial or otherwise), business, prospects, properties or
results of operations of the Company and its subsidiaries taken as a whole
("MATERIAL ADVERSE EFFECT").
(e) Each subsidiary of the Company has been duly incorporated and is an
existing corporation in good standing under the laws of the jurisdiction
of its
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<PAGE> 5
incorporation, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus; and
each subsidiary of the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires
such qualification, except where the failure to be so qualified would not
have a Material Adverse Effect; all of the issued and outstanding capital
stock of each subsidiary of the Company has been duly authorized and
validly issued and is fully paid and nonassessable; and the capital stock
of each subsidiary owned by the Company, directly or through subsidiaries,
is owned free from liens, encumbrances and defects.
(f) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized; all outstanding shares of
capital stock of the Company are, and, when the Offered Securities have
been delivered and paid for in accordance with this Agreement on each
Closing Date (as defined below), such Offered Securities will have been,
validly issued, fully paid and nonassessable and will conform to the
description thereof contained in the Prospectus; and the stockholders of
the Company have no preemptive rights with respect to the Securities. The
authorized capital stock of the Company conforms to the description
thereof contained in the Prospectus. The information set forth under the
caption "Capitalization" in the Prospectus is true and complete. The
descriptions of the Company's stock option, stock purchase and other stock
plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus, accurately and fairly
present the information required to be shown with respect to such plans,
arrangements, options and rights. Without limiting the generality of the
preceding sentence, there are no outstanding options, warrants,
subscriptions, rights, calls, convertible securities, commitments of sale
or liens or other rights granted or issued by the Company to purchase
Securities or other securities of the Company, other than as disclosed in
the Prospectus.
(g) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection
with this offering.
(h) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person, or to require the Company to include
such securities in the securities registered pursuant
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<PAGE> 6
to any other registration statement filed by the Company under the Act.
(i) The Company has filed a registration statement pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended ("EXCHANGE ACT"),
to register the Securities and has filed an application to list the
Securities on the Nasdaq National Market; and the Securities have been
approved for listing on the Nasdaq Stock Market's National Market subject
to notice of issuance.
(j) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and such
as may be required under state securities or Blue Sky laws or the by-laws
or rules and regulations of the National Association of Securities
Dealers, Inc. ("NASD").
(k) Neither the Company nor any subsidiary of the Company is (i) in
violation of the charter or by-laws of the Company or any such subsidiary,
(ii) in default in the performance of any obligation, agreement, covenant
or condition contained in any indenture, loan agreement, mortgage, lease
or other agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or any subsidiary of
the Company is a party or by which the Company or any subsidiary of the
Company or any of their properties is bound or (iii) in violation of any
applicable law or any rule, regulation, judgment, order or decree of any
court or any governmental body or agency having jurisdiction over the
Company, any subsidiary of the Company or any of their properties which
violations individually or in the aggregate could have a Material Adverse
Effect.
(l) The execution, delivery and performance of this Agreement, and the
issuance and sale of the Offered Securities will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over
the Company or any subsidiary of the Company or any of their properties,
or any agreement or instrument to which the Company or any such subsidiary
is a party or by which the Company or any such subsidiary is bound or to
which any of the properties of the Company or any such subsidiary is
subject, or the charter or by-laws of the Company or any such subsidiary,
and will not result in the suspension, termination or revocation of any
Authorization (as defined below) of the Company or any subsidiary of the
Company or any other impairment of the rights of the holder of any such
Authorization, and the Company has full power and authority to enter into
this
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<PAGE> 7
Agreement and to authorize, issue and sell the Offered Securities as
contemplated by this Agreement.
(m) This Agreement has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement on the part of the
Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
or affecting creditors' rights generally or by general equitable
principles.
(n) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and all
other properties and assets owned by them, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and
except as disclosed in the Prospectus, the Company and its subsidiaries
hold any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use
made or to be made thereof by them.
(o) The Company and its subsidiaries possess adequate certificates,
authorities or permits ("AUTHORIZATIONS") issued by appropriate
governmental agencies or bodies necessary to conduct the business now
operated by them and have not received any notice of proceedings relating
to the revocation or modification of any Authorization that, if determined
adversely to the Company or any of its subsidiaries, would individually or
in the aggregate have a Material Adverse Effect.
(p) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
might have a Material Adverse Effect.
(q) The Company and its subsidiaries own, possess valid and enforceable
licenses to or other rights to use, or can acquire on reasonable terms,
adequate trademarks, trade names and other rights to inventions, know-how,
patents, copyrights, confidential information and other intellectual
property (collectively, "INTELLECTUAL PROPERTY") currently employed by the
Company and its subsidiaries in connection with the business now operated
by them, except where the failure to own or possess such Intellectual
Property would not, singly or in the aggregate, have a Material Adverse
Effect. The Company has duly registered with all required authorities the
domain name of its sites on the World Wide Web
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<PAGE> 8
("DOMAIN NAMES") located at http://www.theknot.com,
http:///www.bridalink.com and http://www.clicktrips.com, and is the sole
and exclusive owner of and possesses all rights necessary to use the
Domain Names. Neither the Company, nor its subsidiaries, has received any
notice of a claim, nor does any of them have knowledge of facts for any
such claim, that: (i) challenges the Company's or its subsidiaries' rights
in or to any Intellectual Property; (ii) challenges the validity or scope
of any Intellectual Property; (iii) any third party has or will be able to
establish any rights in the Intellectual Property, except for the
ownership rights of the owners of the Intellectual Property which is
licensed to the Company or the rights of parties to whom the Company has
granted licenses of such Intellectual Property; (iv) the Intellectual
Property infringes or otherwise violates any patent, copyright, trade
secret, trademark or other proprietary right of any third party; or (v)
there is infringement of the Intellectual Property by any third party,
which, in the case of any such claim specified in clauses (i), (ii),
(iii), (iv) or (v) above, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse
Effect. The Company has agreements in place with each employee, consultant
or other person or party engaged by the Company for the assignment to the
Company of all intellectual property and exploitation rights in the work
performed and the protection of the trade secrets and confidential
information of the Company and of third parties which have been developed
by such person for or on behalf of the Company.
(r) Except as disclosed in the Prospectus, neither the Company nor any
of its subsidiaries is in violation of any statute, any rule, regulation,
decision or order of any governmental agency or body or any court,
domestic or foreign, relating to the use, disposal or release of hazardous
or toxic substances or relating to the protection or restoration of the
environment or human exposure to hazardous or toxic substances
(collectively, "ENVIRONMENTAL LAWS"), owns or operates any real property
contaminated with any substance that is subject to any environmental laws,
is liable for any off-site disposal or contamination pursuant to any
environmental laws, or is subject to any claim relating to any
environmental laws, which violation, contamination, liability or claim
would individually or in the aggregate have a Material Adverse Effect; and
the Company is not aware of any pending investigation which might lead to
such a claim.
(s) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company, any of its
subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or
in the aggregate have a Material Adverse Effect, or would materially and
adversely affect the ability of the Company to perform its obligations
under this Agreement, or which are otherwise material in
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<PAGE> 9
the context of the sale of the Offered Securities; and no such actions,
suits or proceedings are, to the Company's knowledge, threatened or
contemplated.
(t) The financial statements included in each Registration Statement
and the Prospectus present fairly the financial position of the Company
and its consolidated subsidiaries as of the dates shown and their results
of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with the generally accepted
accounting principles in the United States applied on a consistent basis
and the schedules included in each Registration Statement present fairly
the information required to be stated therein; and the assumptions used in
preparing the pro forma financial statements included in each Registration
Statement and the Prospectus provide a reasonable basis for presenting the
significant effects directly attributable to the transactions or events
described therein, the related pro forma adjustments give appropriate
effect to those assumptions, and the pro forma columns therein reflect the
proper application of those adjustments to the corresponding historical
financial statement amounts; and the other financial and statistical
information and date set forth in each Registration Statement and the
Prospectus (and any amendment or supplement thereto) are, in all material
respects, accurately presented and prepared on a basis consistent with
such financial statements and the books and records of the Company.
(u) Except as disclosed in the Prospectus, since the date of the latest
audited financial statements included in the Prospectus there has been no
material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or
other), business, properties or results of operations of the Company and
its subsidiaries taken as a whole, and, except as disclosed in or
contemplated by the Prospectus, there has been no dividend or distribution
of any kind declared, paid or made by the Company on any class of its
capital stock.
(v) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof
as described in the Prospectus, will not be an "investment company" as
defined in the Investment Company Act of 1940, as amended.
(w) Furthermore, the Company represents and warrants to the
Underwriters that (i) the Registration Statement, the Prospectus and any
preliminary prospectus comply, and any further amendments or supplements
thereto will comply, with any applicable laws or regulations of foreign
jurisdictions in which the Prospectus or any preliminary prospectus, as
amended or supplemented, if applicable, are
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<PAGE> 10
distributed in connection with the Directed Share Program, and that (ii)
no authorization, approval, consent, license, order, registration or
qualification of or with any government, governmental instrumentality or
court, other than such as have been obtained, is necessary under the
securities law and regulations of foreign jurisdictions in which the
Directed Shares are offered outside the United States.
(x) The Company has not offered, or caused the Underwriters to offer,
any offered Securities to any person pursuant to the Directed Share
Program with the specific intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or
type of business with the Company or (ii) a trade journalist or
publication to write or publish favorable information about the Company or
its products.
(y) No relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company or any of
its subsidiaries on the other hand, which is required by the Act to be
disclosed in the Registration Statement or the Prospectus which is not so
disclosed.
(z) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(aa) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than
those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due pursuant to such returns or pursuant to any assessment
received by the Company or any of its subsidiaries have been paid, other
than those being contested in good faith and for which adequate reserves
have been provided.
(bb) The Company has reviewed its operations and those of any third
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<PAGE> 11
parties with which the Company has a material relationship to evaluate the
extent to which the business or operations of the Company will be affected
by the Year 2000 Problem. As a result of such review, the Company has no
reason to believe, and does not believe, that the Year 2000 Problem will
have a Material Adverse Effect. The "YEAR 2000 PROBLEM" as used herein
means any significant risk that computer hardware or software used in the
receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not be able to reliably
distinguish dates beginning on January 1, 2000 from dates prior to January
1, 2000.
(cc) The Company has not at any time during the last five (5) years (i)
made any unlawful contribution to any candidate for foreign office or
failed to disclose fully any contribution in violation of law, or (ii)
made any payment to any federal or state governmental officer or official,
or other person charged with similar public or quasi-public duties, other
than payments required or permitted by the laws of the United States or
any jurisdiction thereof.
(dd) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of
Securities to facilitate the sale or resale of the Offered Securities.
(ee) The Company carries, or is covered by, insurance in such amounts
and covering such risks as is adequate for the conduct of its business and
the value of its respective properties and as is customary for companies
engaged in similar business.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $ per share, the respective numbers
of shares of Firm Securities set forth opposite the names of the Underwriters in
Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters, against payment of the purchase price in
Federal (same day) funds by official bank check or checks or wire transfer to an
account at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC")
drawn to the order of the Company at the office of Brobeck, Phleger & Harrison
LLP, 1633 Broadway, 47th Floor, New York,
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<PAGE> 12
NY 10019, at 10:00 A.M., New York time, on , 1999, or at such
other time not later than seven full business days thereafter as CSFBC and
the Company determine, such time being herein referred to as the "FIRST
CLOSING DATE". For purposes of Rule 15c6-1 under the Exchange Act, the
First Closing Date (if later than the otherwise applicable settlement
date) shall be the settlement date for payment of funds and delivery of
securities for all the Offered Securities sold pursuant to the offering.
The certificates for the Firm Securities so to be delivered will be in
definitive form, in such denominations and registered in such names as
CSFBC requests and will be made available for checking and packaging at
the above office of Brobeck, Phleger & Harrison LLP at least 24 hours
prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "OPTIONAL CLOSING DATE", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "CLOSING DATE"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, against payment of
the purchase price therefor in Federal (same day) funds by official bank check
or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to
the order of the Company, at the above office of Brobeck, Phleger & Harrison
LLP. The certificates for the Optional Securities being purchased on each
Optional Closing Date will be in definitive form, in such denominations and
registered in such names as CSFBC requests upon reasonable notice prior to such
Optional Closing Date and will be
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made available for checking and packaging at the above office of Brobeck,
Phleger & Harrison LLP at a reasonable time in advance of such Optional Closing
Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement
is prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred
as of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement
or, if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later
date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed
or the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not
effect such amendment or supplementation without CSFBC's consent; and the
Company will also advise CSFBC promptly of the effectiveness of each
Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or the Prospectus and of the
institution by the Commission of any stop order proceedings in respect of
a Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.
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(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will promptly
notify CSFBC of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of,
any such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "AVAILABILITY DATE" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"AVAILABILITY DATE" means the 90th day after the end of such fourth fiscal
quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (four of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CSFBC reasonably requests. The Prospectus shall
be so furnished on or prior to 3:00 P.M., New York time, on the business
day following the later of the execution and delivery of this Agreement or
the Effective Time of the Initial Registration Statement. All other
documents shall be so furnished as soon as available. The Company will pay
the expenses of printing and distributing to the Underwriters all such
documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will
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continue such qualifications in effect so long as required for the
distribution.
(g) During the period of five years hereafter, the Company will furnish
to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Exchange Act or mailed to stockholders, and (ii)
from time to time, such other information concerning the Company as CSFBC
may reasonably request.
(h) The Company will pay all expenses incident to the performance of
its obligations under this Agreement, including, without limitation, (i)
for any filing fees and other expenses (including fees and disbursements
of counsel) incurred in connection with qualification of the Offered
Securities for sale and determination of their eligibility for investment
under the laws of such jurisdictions as CSFBC designates and the printing
of memoranda relating thereto, (ii) for the filing fee incident to, and
the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the NASD of the Offered Securities, (iii)
for any travel expenses of the Company's officers and employees and any
other expenses of the Company in connection with attending or hosting
meetings with prospective purchasers of the Offered Securities, and (iv)
for expenses incurred in distributing preliminary prospectuses and the
Prospectus (including any amendments and supplements thereto) to the
Underwriters.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Commission a registration statement under the Act
relating to, any additional shares of its Securities or securities
convertible into or exchangeable or exercisable for any shares of its
Securities, or publicly disclose the intention to make any such offer,
sale, pledge, disposition or filing, without the prior written consent of
CSFBC, other than (i) the Company's issuance of Securities upon the
exercise of warrants and stock options that are presently outstanding and
described as such in the Prospectus or which may be issued hereafter under
the Company's option plans described in the Prospectus, (ii) the Company's
granting of options pursuant to the Company's option plans described in
the Prospectus and (iii) the Company's issuance of Securities under the
employee stock purchase plan described in the Prospectus. Prior to the
date of this Agreement, the Company has obtained and delivered to counsel
for the Underwriters the executed Lock-up Agreements (as defined).
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(j) To use its best efforts to list for quotation the Securities on the
Nasdaq National Market and to maintain the listing of the Securities on
the Nasdaq National Market.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company
prior to the Closing Date or any Optional Closing Date, as the case may
be, and to satisfy all conditions precedent to the delivery of the Offered
Securities.
(l) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Securities, to file an Additional
Registration Statement with the Commission registering the Securities not
so covered in compliance with Rule 462(b) by 10:00 P.M., New York City
time, on the date of this Agreement and to pay to the Commission the
filing fee for such Additional Registration Statement at the time of the
filing thereof or to give irrevocable instructions for the payment of such
fee pursuant to Rule 111(b) under the Act.
(m) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required
by the NASD or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. The Designated Underwriter
will notify the Company as to which Participants will need to be so
restricted. The Company will direct the transfer agent to place stop
transfer restrictions upon such securities for such period of time.
(n) The Company will pay all fees and disbursements of counsel incurred
by the Underwriters in connection with the Directed Share Program and
stamp duties, similar taxes or duties or other taxes, if any, incurred by
the underwriters in connection with the Directed Share Program.
Furthermore, the company covenants with the Underwriters that the
company will comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the
Directed Shares are offered in connection with the Directed Share Program.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company
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herein, to the accuracy of the statements of Company officers made pursuant to
the provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions precedent:
(a) The Representatives shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall
be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of Ernst & Young LLP confirming
that they are independent public accountants within the meaning of the Act
and the applicable published Rules and Regulations thereunder and stating
to the effect that:
(i) in their opinion the financial statements and schedules examined
by them and included in the Registration Statements comply as to
form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii) above, a
reading of the latest available interim financial statements of the
Company, inquiries of officials of the Company who have
responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused
them to believe that:
(A) the unaudited financial statements included in the
Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the related published Rules and Regulations or
any material modifications should be made to such unaudited
financial statements for them to be in conformity with
generally accepted accounting principles;
(B) at the date of the latest available balance sheet
read by
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such accountants, or at a subsequent specified date not more
than three business days prior to the date of such letter,
there was any change in the capital stock or any increase in
short-term indebtedness or long-term debt of the Company and
its consolidated subsidiaries or, at the date of the latest
available balance sheet read by such accountants, there was
any decrease in consolidated net current assets or net assets,
as compared with amounts shown on the latest balance sheet
included in the Prospectus; or
(C) for the period from the closing date of the latest
income statement included in the Prospectus to the closing
date of the latest available income statement read by such
accountants there were any decreases, as compared with the
corresponding period of the previous year and with the period
of corresponding length ended the date of the latest income
statement included in the Prospectus, in consolidated net
sales, or any increases in loss from operations or in the
total or per share amounts of net loss,
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial
information are derived from the general accounting records of the
Company and its subsidiaries subject to the internal controls of the
Company's accounting system or are derived directly from such
records by analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and other
procedures specified in such letter and have found such dollar
amounts, percentages and other financial information to be in
agreement with such results, except as otherwise specified in such
letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "REGISTRATION STATEMENTS" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii) if the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement
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but the Effective Time of the Additional Registration is subsequent to
such execution and delivery, "REGISTRATION STATEMENTS" shall mean the
Initial Registration Statement and the additional registration statement
as proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"PROSPECTUS" shall mean the prospectus included in the Registration
Statements.
(b) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the
date of this Agreement or such later date as shall have been consented to
by CSFBC. If the Effective Time of the Additional Registration Statement
(if any) is not prior to the execution and delivery of this Agreement,
such Effective Time shall have occurred not later than 10:00 P.M., New
York time, on the date of this Agreement or, if earlier, the time the
Prospectus is printed and distributed to any Underwriter, or shall have
occurred at such later date as shall have been consented to by CSFBC. If
the Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement, the Prospectus shall have been
filed with the Commission in accordance with the Rules and Regulations and
Section 5(a) of this Agreement. Prior to such Closing Date, no stop order
suspending the effectiveness of a Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or,
to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as one enterprise which, in the judgment of a majority
in interest of the Underwriters including the Representatives, is material
and adverse and makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
Offered Securities; (ii) any downgrading in the rating of any debt
securities of the Company by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Act), or
any public announcement that any such organization has under surveillance
or review its rating of any debt securities of the Company (other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); (iii) any material
suspension or material limitation of trading in securities generally on
the New York Stock Exchange, or any setting of minimum prices for trading
on such exchange, or any suspension of trading of any securities of the
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<PAGE> 20
Company on any exchange or in the over-the-counter market; (iv) any
banking moratorium declared by U.S. Federal or New York authorities; or
(v) any outbreak or escalation of major hostilities in which the United
States is involved, any declaration of war by Congress or any other
substantial national or international calamity or emergency if, in the
judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
Offered Securities.
(d) The Representatives shall have received an opinion, dated such
Closing Date, of Brobeck, Phleger & Harrison LLP, counsel for the Company,
to the effect that:
(i) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware, with corporate power and authority to own, lease and
operate its properties and to conduct its business as described in
the Registration Statements and the Prospectus (and any amendment or
supplement thereto); and each of the Company and the Company's
subsidiaries is duly qualified to do business as a foreign
corporation in good standing in each of the jurisdictions listed on
Exhibit A hereto;
(ii) To such counsel's knowledge, Click Trips, Inc. is the
only subsidiary of the Company. Click Trips, Inc. is in good
standing in the Commonwealth of Pennsylvania.
(iii) All the shares of capital stock of the Company
outstanding prior to the issuance of the Offered Securities have
been duly authorized and validly issued, to our knowledge, are FULLY
PAID AND nonassessable;
(iv) The Offered Securities have been duly authorized and,
when issued and delivered to the Underwriters against payment
therefor in accordance with the terms of the Underwriting Agreement,
will be validly issued, fully paid and nonassessable and free of (A)
any preemptive rights arising under the restated certificate of
incorporation and by-laws of the Company or the Delaware General
Corporation Law or (B) to such counsel's knowledge, similar rights
that entitle or will entitle any person to acquire any shares of
capital stock of the Company upon the issuance and sale of the
Offered Securities;
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<PAGE> 21
(v) To such counsel's knowledge, except as described in the
Prospectus, no holder of any securities of the Company or any other
person has the right, contractual or otherwise, to cause the Company
to sell or otherwise issue to them, or to permit them to underwrite
the sale of, any of the Shares or the right to have any Common Stock
or other securities of the Company included in the Registration
Statement or the right, as a result of the filing of the
Registration Statement, to require the Company to register under the
Securities Act any shares of Common Stock or other securities of the
Company, and any registration rights in connection with the
Registration Statement and the offering contemplated thereby have
been waived;
(vi) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of
the proceeds thereof as described in the Prospectus, will not be an
"investment company" or a person "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940,
as amended;
(vii) No consent, approval, authorization or other order of,
or registration or filing with, any governmental body, agency or
official or any court is required on the part of the Company (except
(A) as have been obtained under the Act and the Exchange Act or (B)
such as may be required under state securities or Blue Sky laws
governing the purchase and distribution of the Offered Securities,
as to which such counsel need not express an opinion) for the valid
issuance and sale of the Offered Securities to the Underwriters as
contemplated by this Agreement;
(viii) Neither the offer, sale or delivery of the Offered
Shares, the execution, delivery or performance by the Company of
this Agreement, compliance by the Company with the provisions of
this Agreement nor consummation by the Company of the transactions
contemplated by this Agreement (A) violates the restated certificate
of incorporation or the by-laws, or other organizational documents,
of the Company, or (B) constitutes a breach of, or a default under,
any agreement, indenture, lease or other instrument to which the
Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or any of their respective
properties is bound that is an exhibit to the Registration
Statement, which breach or default would reasonably be expected to
have a material adverse effect on the condition (financial or
other), business, properties or results of operations of the Company
and its subsidiaries taken as a whole or (C) will result in any
violation of any existing law or
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<PAGE> 22
regulation (other than applicable state securities and Blue Sky
laws, as to which such counsel need not express an opinion), or any
ruling, judgment, injunction, order or decree known to us and
applicable to the Company or any of its subsidiaries or any of their
respective properties;
(ix) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver the Offered
Securities to the Underwriters as provided in this Agreement; this
Agreement has been duly authorized, executed and delivered by this
Company;
(x) The Registration Statements were declared effective under
the Act as of the dates and times specified in such opinion; to the
knowledge of such counsel, no stop order suspending the
effectiveness of a Registration Statement or any part thereof has
been issued and no proceedings for that purpose have been instituted
or are pending before or contemplated by the Commission; and any
required filing of the Prospectus pursuant to Rule 424(b) has been
made in accordance with Rule 424(b).
(xi) All of the Offered Securities have been approved for
quotation on the Nasdaq National Market, upon issuance as
contemplated in this Agreement;
(xii) To such counsel's knowledge, (A) there are no legal or
governmental proceedings or investigations pending or threatened to
which the Company or any of its subsidiaries is a party, or to which
the property of the Company or any of its subsidiaries is subject,
which are required to be described in any Registration Statement or
the Prospectus (or any amendment or supplement thereto) that are not
so described and (B) there are no agreements, contracts, indentures,
leases or other documents that are required to be described in any
Registration Statement or the Prospectus or to be filed as exhibits
to any Registration Statement that are not so described or filed, as
the case may be; and
(xiii) The statements set forth under the caption "Description
of Capital Stock" in the Prospectus, insofar as such statements
purport to summarize certain provisions of the capital stock of the
Company, provide a fair summary of such provisions in all material
respects; the form of certificate for the Securities conforms in all
material respects to the requirements of the Delaware General
Corporation Law; the description in the Registration Statement and
the Prospectus of the restated certificate of
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<PAGE> 23
incorporation and the by-laws of the Company fairly presents the
information required to be presented by the Act and the applicable
rules and regulations thereunder in all material respects; and the
statements set forth under the caption "Shares Eligible for Future
Sale" in the Prospectus, insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to
therein, provide a fair summary of such legal matters, documents and
proceedings in all material respects.
In addition, such counsel shall state that, in connection with
the preparation of the Registration Statements and the Prospectus,
such counsel has participated in conferences with certain officers
and other representatives of the Company, its independent public
accounts, the Underwriters and the Underwriters' counsel at which
the contents of the Registration Statements, the Prospectus and
related matters were discussed. Such counsel shall further state
that, although such counsel is not passing upon, and does not assume
any responsibility for, and has not independently checked or
verified, the accuracy, completeness or fairness of the information
contained in the Registration Statements and the Prospectus, based
upon such counsel's participation as described above, (i) such
counsel is of the opinion that each Registration Statement and the
Prospectus (other than the consolidated financial statements,
including the notes and schedules thereto, and the other financial
and statistical data included in such Registration Statement and the
Prospectus, as to which such counsel need not express such belief),
and each amendment or supplement thereto, as of their respective
effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and
Regulations; (ii) no facts have come to the attention of such
counsel which have caused such counsel to believe that the
Registration Statements (other than the consolidated financial
statements, including the notes and schedules thereto, and the other
financial and statistical data included in the Registration
Statements, as to which such counsel need not express such belief),
at the time the Registration Statements became effective, contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and (iii) no facts have come to
the attention of such counsel which have caused such counsel to
believe that, as of the date of the Prospectus and as of the Closing
Date, that the Prospectus (other than the consolidated financial
statements, including the notes and schedules thereto, and the other
financial and statistical data included in the Prospectus, as to
which such counsel need not express such belief) contained or
contains any untrue statement of a material fact or
23
<PAGE> 24
omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(e) The Representatives shall have received from Testa, Hurwitz &
Thibeault, LLP, counsel for the Underwriters, such opinion or opinions,
dated such Closing Date, with respect to the incorporation of the Company,
the validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them to
pass upon such matters. In rendering such opinion, Testa, Hurwitz &
Thibeault, LLP may assume as to all matters governed by New York law that
the laws of the State of New York are identical in all respects to the
laws of the Commonwealth of Massachusetts.
(f) The Representatives shall have received a certificate, dated
such Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied
hereunder at or prior to such Closing Date; no stop order suspending the
effectiveness of any Registration Statement has been issued and no
proceedings for that purpose have been instituted or are contemplated by
the Commission; the Additional Registration Statement (if any) satisfying
the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed
pursuant to Rule 462(b), including payment of the applicable filing fee in
accordance with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and, subsequent
to the date of the most recent financial statements in the Prospectus,
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(g) The Representatives shall have received a letter, dated such
Closing Date, of Ernst & Young LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to
in such subsection will be a date not more than three days prior to such
Closing Date for the purposes of this subsection.
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(h) The Representatives shall have received from each person who is
a director or executive officer of the Company, and from all other holders
of shares of Securities or securities convertible into or exchangeable or
exercisable for any shares of Securities, an agreement dated on or before
the date of this Agreement (collectively, the "LOCK-UP AGREEMENTS"), to
the effect that, for a period of 180 days after the initial public
offering of Securities pursuant to this Agreement, such person not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of Securities or securities convertible into or
exchangeable or exercisable for any shares of Securities, or publicly
disclose the intention to make any such offer, sale, pledge or disposal
without the prior written consent of CSFBC.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
requests. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below; and provided, further,
however, that with respect to any untrue statement or alleged untrue statement
in or omission or alleged omission from any preliminary prospectus, the
foregoing indemnity agreement contained in this subsection (a) shall not inure
to the
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benefit of any Underwriter from whom the person asserting any losses, claims,
damages or liabilities purchased the Offered Securities concerned, to the
extent, but only to the extent, that a prospectus relating to such Offered
Securities was required to be delivered by such Underwriter under the Act in
connection with such purchase and any such loss, claim, damage, or liability of
such Underwriter results from the fact that there was not sent or given to such
person, at or prior to the written confirmation of the sale of such Offered
Securities to such person, a copy of the Prospectus, if the Company had
previously furnished copies thereof to such Underwriter.
In connection with the offer and sale of the Directed Shares, the Company
agrees, promptly upon a request in writing, to indemnify and hold harmless the
Designated Underwriter from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) incurred by it as a result of the failure of eligible employees
and persons having business relationships with the Company to pay for and accept
delivery of the Directed Shares which, by the end of the first business day
following the date of this Agreement, were subject to a properly confirmed
agreement to purchase.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, its directors and officers and each person, if any who
controls the Company within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: the concession and reallowance figures appearing in the fourth
paragraph under the caption "Underwriting" and the information contained in the
sixth and the final paragraphs under the caption "Underwriting".
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(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. Notwithstanding anything contained herein to
the contrary, if indemnity may be sought pursuant to the last paragraph in
Section 7 (a) hereof in respect of such action or proceeding, then in addition
to such separate firm for the indemnified parties, the indemnifying party shall
be liable for the reasonable fees and expenses of not more than one separate
firm (in addition to any local counsel) for the Designated Underwriter for the
defense of any losses, claims, damages and liabilities arising out of the
Directed Share Program, and all persons, if any, who control the Designated
Underwriter within the meaning of either Section 15 of the Act of Section 20 of
the Exchange Act. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action in respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified party unless
such settlement (i) includes an unconditional release of such indemnified party
from all liability on any claims that are the subject matter of such action and
(ii) does not include a statement as to, or an admission of, fault, culpability
or a failure to act by or on behalf of an indemnified party.
(d) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the
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statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in addition
to any liability which the Company may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if any, who controls the
Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including
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any of the Underwriters, but if no such arrangements are made by such Closing
Date, the non-defaulting Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the Offered
Securities that such defaulting Underwriters agreed but failed to purchase on
such Closing Date. If any Underwriter or Underwriters so default and the
aggregate number of shares of Offered Securities with respect to which such
default or defaults occur exceeds 10% of the total number of shares of Offered
Securities that the Underwriters are obligated to purchase on such Closing Date
and arrangements satisfactory to CSFBC and the Company for the purchase of such
Offered Securities by other persons are not made within 36 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company, except as provided in Section 9
(provided that if such default occurs with respect to Optional Securities after
the First Closing Date, this Agreement will not terminate as to the Firm
Securities or any Optional Securities purchased prior to such termination). As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company
will reimburse the Underwriters for all out-of-pocket expenses (including fees
and disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
the Representatives, c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, NY 10010-3629, Attention: Investment Banking Department --
Transactions
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<PAGE> 30
Advisory Group, or, if sent to the Company, will be mailed, delivered or
telegraphed and confirmed to it at 462 Broadway, Sixth Floor, New York, NY
10013, Attention: Chief Executive Officer, with a copy to Alexander D. Lynch,
Esq., Brobeck, Phleger & Harrison LLP, 1633 Broadway, 47th Floor, New York, NY
10019; provided, however, that any notice to an Underwriter pursuant to Section
7 will be mailed, delivered or telegraphed and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
30
<PAGE> 31
If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
THE KNOT, INC.
By:
-----------------------------------------
Chief Executive Officer
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
Credit Suisse First Boston Corporation
Hambrecht & Quist LLC
Salomon Smith Barney Inc.
Acting on behalf of themselves and as the
Representatives of the several Underwriters
By: Credit Suisse First Boston Corporation
By:
-----------------------------------------
[Insert title]
31
<PAGE> 32
SCHEDULE A
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF
----------- FIRM SECURITIES
---------------
<S> <C>
Credit Suisse First Boston Corporation............
Hambrecht & Quist LLC.............................
Salomon Smith Barney Inc. ........................
---------------
Total........................... ===============
</TABLE>
<PAGE> 1
Exhibit 10.8
****CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933,
AS AMENDED.
SERVICES AGREEMENT
This SERVICES AGREEMENT (this "Agreement") is made this 13th day of
April, 1999, by and between QVC, Inc., a Delaware corporation ("QVC"), and The
Knot, Inc., a Delaware corporation ("Company"), individually a "Party," and
collectively, the "Parties."
WHEREAS, Company is the owner and operator of a site on the world wide
web located at the domain name address of www.theknot.com (the "Company Site" or
"Company's Site");
WHEREAS, the purpose of the Company Site is to provide content,
commerce and services related to weddings to users who visit the Company Site;
WHEREAS, it is anticipated that customers of Company (individually a
"Customer" and collectively "Customers") will order goods by means of the
Company Site to be delivered to the Customers or recipients designated by the
Customers (individually a "Recipient" and collectively the "Recipients"); and
WHEREAS, Company and QVC desire that QVC provide certain fulfillment,
customer service and information technology services to the Company on the terms
and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Term. This Agreement shall be for a term (the "Term") commencing on the date
hereof and, unless sooner terminated as provided herein, terminating on the
earlier of (i) the date five years after the Commencement Date (defined below),
or (ii) the date that is four years after the date of closing of an underwritten
public offering of the securities of Company with a per share price greater than
$7.50 and aggregate proceeds in excess of $10,000,000. Upon the expiration or
termination of this Agreement, other than pursuant to Section 12.2, the term of
this Agreement shall be automatically extended for a period of 180 days or such
shorter period as Company shall notify QVC.
2. Transition Period. Commencing on the date hereof and continuing for a period
agreed to by the Parties, but in no event more than one hundred eighty (180)
days hereafter, QVC and Company shall consult regarding the establishment of
procedures for the transactions contemplated by this Agreement (the "Transition
Period"). The last day of such period shall be referred to herein as the
"Commencement Date." The parties shall exercise reasonable commercial efforts to
cause the Commencement Date to occur as soon as possible after the date hereof.
3. Orders.
3.1. A function of the Company Site is to accept orders from Customers
for the purchase of goods from Company. For the purposes of this Agreement, all
of the goods ordered from the Company Site will be classified as (i) goods
purchased by Company from QVC from those
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<PAGE> 2
goods then available for sale to the public by QVC through its televised
shopping programming (individually a "QVC Good" and collectively "QVC Goods"),
(ii) goods purchased by Company from QVC from those goods (other than QVC Goods)
then available for sale to the public through the iQVC internet site
(individually an "iQVC Good" and collectively the "iQVC Goods) which goods are
not usually held at a warehouse facility designated by QVC, (iii) goods other
than QVC Goods or iQVC Goods purchased by Company and held at a QVC warehouse
facility in anticipation of orders from Customers (individually a "Company Good"
and collectively the "Company Goods"), and (iv) goods other than QVC Goods and
iQVC Goods purchased by Company and not held at a QVC warehouse facility
(individually a "Third Party Good" and collectively the "Third Party Goods").
Notwithstanding the foregoing, the QVC Goods and the iQVC Goods shall not
include (i) goods advertised by QVC as being "exclusive" to QVC or iQVC, and
(ii) goods for which the vendor to QVC of such QVC Goods or iQVC Goods (a "QVC
Vendor") has not licensed QVC to sell or re-sell the QVC Goods or the iQVC Goods
to Company. QVC Goods, iQVC Goods, Company Goods and Third Party Goods shall be
referred to herein individually as a "Good" and collectively as the "Goods."
3.2. Commencing on the Commencement Date, at least once each day during
the Term, Company shall transmit electronically to QVC in a file format
established by QVC and acceptable to Company, an order file for each order of
Goods received by Company through the Company Site (an "Electronic Order"). For
each Electronic Order, Company shall pay QVC a fee (the "Electronic Order Fee")
of US [****]. In the event that the Company elects pursuant to Section 8 of this
Agreement to have QVC perform order taking functions for Goods ordered by means
of telephone, facsimile or any means other than an Electronic Order (a
"Telephonic Order"), Company shall pay QVC a fee (the "Telephonic Order Fee") of
US $[****] for each Good ordered by means of a Telephonic Order. Electronic
Orders and Telephonic Orders are referred to herein individually as an "Order"
and collectively as the "Orders." The Electronic Order Fees and the Telephonic
Order Fees are collectively referred to herein as the "Order Fees."
4. Purchase of Goods from QVC.
4.1. Commencing on the Commencement Date, from time to time during the
Term, Company may purchase QVC Goods and iQVC Goods from QVC.
4.2. The price of each QVC Good and iQVC Good purchased by Company
shall be an amount equal to [****] of the cost paid by QVC for such QVC Good or
iQVC Good, including all taxes, tariffs and duties, however, excluding all QVC
mark-ups relating to shipping and handling and storage charges.
4.3. The transmission by Company to QVC of an Electronic Order will
constitute an offer by Company to purchase the QVC Goods and iQVC Goods
referenced in the Electronic Order. Each Telephonic Order shall be deemed to be
an offer by Company to purchase the QVC Goods and iQVC Goods referenced in the
Telephonic Order. During the Transition Period, the Parties will establish
procedures for the modification and cancellation of Orders.
4.4. Company shall provide QVC with resale tax certificates when and in
the form reasonably requested by QVC from time to time.
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[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
2
<PAGE> 3
5. Fulfillment Services.
5.1. After the receipt by QVC of an Order for a QVC Good, QVC shall
segregate such QVC Good from inventory held for sale by QVC and locate such QVC
Good in a portion of a warehouse facility designated by QVC for the storage of
Goods purchased by Company (the "Company Location"). Upon such segregation,
title to the QVC Good shall pass to Company, but, subject to the provisions of
Section 13.3, QVC shall be liable for loss or damages to any QVC Goods resulting
from theft, mishandling, breakage or destruction by QVC while in the possession
of QVC. In addition to the purchase price referred to in Section 4.2. and the
Order Fee, Company shall pay to QVC a warehouse fee of US$9.25 for each QVC
Good so segregated.
5.2. After the receipt by QVC of an Order for an iQVC Good, QVC shall
order such iQVC Good from QVC's vendor of such iQVC Good (a "QVC Vendor"). As
indicated in the Order, QVC shall instruct the iQVC Vendor either (i) to ship
the iQVC Good to a warehouse facility designated by QVC, in which event [****]
provided however to the extent that the iQVC Goods exceed such weight and
dimension standards, QVC shall pay [****] of the shipping charges and Company
shall pay the balance, or (ii) to ship the iQVC Good directly to the Customer or
the Recipient, in which event Company will pay the shipping charges or reimburse
QVC for the shipping charges paid by QVC. Title to the iQVC Good shall pass to
Company at such time as the iQVC Good is received at the warehouse facility
designated by QVC and is segregated. QVC shall make commercially reasonable
efforts to cause the iQVC Goods being shipped directly to the Customer or the
Recipient to be shipped without any indication to the Customer or Recipient that
the Order for iQVC Goods was processed through QVC.
5.3. When iQVC Goods are received at a warehouse facility from an iQVC
Vendor, QVC shall verify that the Customer, stock keeping unit and quantity of
iQVC Goods received correspond to those subject to the Order. QVC will not
perform product quality inspection. Visible carrier damage on iQVC Goods
received, if any, will be reported to the shipper. QVC will issue a replacement
order on behalf of Company with the iQVC Vendor. QVC agrees that it will assign
to Company any rights that QVC possesses to pursue a claim that Company has
against the iQVC vendor with respect to such damaged iQVC Good. Company assumes
the risk of loss to all iQVC Goods in transit from the QVC Vendor to the
warehouse facility designated by QVC. After the receipt of such iQVC Good, QVC
will place such iQVC Good in the Company Location. In addition to the purchase
price referred to in Section 4.2. and the Order Fee, Company shall pay to QVC a
warehouse fee of US $9.25 for each iQVC Good placed in the Company Location.
Subject to the provisions of Section 13.3, QVC shall be liable for loss or
damages to any iQVC Goods resulting from theft, mishandling, breakage or
destruction by QVC while in the possession of QVC.
5.4. Company may from time to time purchase Company Goods in reasonable
anticipation of Orders. Company may have such Company Goods shipped to a QVC
warehouse facility designated by QVC and Company shall pay the shipping charges
for such shipments. Company shall notify (the "Company Goods Notice") QVC of
each such shipment. When
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[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
3
<PAGE> 4
Company Goods are received at a warehouse facility designated by QVC, QVC shall
promptly verify that the stock keeping unit and quantity of Company Goods
received correspond to those set forth in the Company Goods Notice and shall
promptly notify Company of any discrepancies with respect to such information
between the Company Goods Notice and the Company Goods received. QVC will not
perform product quality inspection. Visible carrier damage on Company Goods
received, if any will be reported to the shipper and the Company. Company
assumes the risk of loss to all Company goods in transit from the vendor of the
Company Goods to the QVC warehouse facility. After the receipt of such Company
Goods, QVC will place such Company Goods in the Company Location. Company shall
pay to QVC a warehouse fee of US $9.25 for each Company Good placed in the
Company Location. Title to Company Goods will not pass to QVC. Notwithstanding
the foregoing, in the event that a single package of Company Goods contains
multiple items of the same Company Goods, Company shall pay to QVC a warehouse
fee of US $9.25 for each such package of Company Goods placed in the Company
Location and [****] for each "pick" of one or more Company Goods contained in
such package in fulfillment of an Order, which [****] charge shall be made at
the time of the picking.
5.5. After the receipt by QVC of an Order for a Third Party Good, QVC
shall retransmit such Order to Company. As indicated in the Order, Company shall
instruct the vendor of the Third Party Good (a "Third Party Vendor") either (i)
to ship the Third Party Good with documentation specified by QVC to a QVC
warehouse facility designated by QVC, in which event the shipping charges will
be paid by QVC for Third Party Goods weighing up to 15 pounds and not exceeding
the shipper's standard rate cube/volume dimensions, or (ii) to ship the Third
Party Good with documentation specified by QVC directly to the Customer or
Recipient, in which event the shipping charges will be paid by Company or
Company will reimburse QVC for the shipping charges paid by QVC. QVC shall not
be paid a warehouse fee of US $9.25 for Third Party Goods shipped directly to
the Customer or Recipient. Company shall pay the Third Party Vendor's selling
price for the Third Party Good directly to the Third Party Vendor. Title to
Third Party Goods will not pass to QVC. Company shall notify, or shall cause the
Third Party Vendor to notify, QVC in a manner established by QVC, of the
shipment of each Third Party Good directly to the Customer or the Recipient.
5.6. When Third Party Goods are received from a Third Party Vendor, QVC
shall verify that the Customer, stock keeping unit and quantity of Third Party
Goods received correspond to those subject to the Order. QVC will not perform
product quality inspection. Visible carrier damage on Third Party Goods
received, if any, will be reported to the shipper and QVC will issue a
replacement order on behalf of Company with the Third Party Vendor. Company
assumes the risk of loss to all Third Party Goods in transit from the Third
Party Vendor to the QVC warehouse facility. After the receipt of such Third
Party Good, QVC will place such Third Party Good in the Company Location. In
addition to the Order Fee, Company shall pay to QVC a warehouse fee of US $9.25
for each Third Party Good placed in the Company Location and for each
replacement of a Third Party Good placed in the Company Location.
5.7. If the Order for a Good located in the Company Location specifies
that the Good is to be gift wrapped, QVC will gift wrap the Good prior to
shipment to the Recipient in gift wrapping paper provided by Company. Company
will pay to QVC US [****] for each Good gift wrapped. In QVC'S reasonable
discretion, certain oversized Goods may not be eligible for gift wrapping.
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[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
4
<PAGE> 5
5.8. On or about the date on which Order provides for a Good to be
shipped, QVC will deliver the Good to a shipper designated by QVC. QVC will make
reasonable efforts to ship all Goods to a Customer or a Recipient consistent
with the shipping instructions is the Order. Each package of Goods shipped by
QVC will include (i) a packing slip prepared by QVC based on the information
contained in Order for such Goods and (ii) instructions for the return of the
Goods by the Customer. QVC shall make commercially reasonable efforts to cause
the Goods to be shipped by QVC to be shipped without any indication to the
Customer or Recipient that the Order for the Goods was processed through QVC.
5.9. Company, at its sole expense, shall provide QVC with an adequate
supply of gift wrapping paper, shipping boxes and packaging materials for use by
QVC in the packaging and shipping of Goods. QVC shall be under no obligation to
gift wrap or ship any Goods for which it does not have adequate gift wrapping
paper, shipping boxes and packaging materials. QVC will make commercially
reasonable efforts to regularly notify Company of the inventory of such
materials and the need for additional materials.
5.10. All Goods delivered by QVC to a shipper shall be manifested by
QVC in a form mutually acceptable to the Parties. Company shall pay all
shipper's charges directly to shipper and, if Company elects for its shipments
to be insured, pay all insurance charges.
5.11. The Company Location shall consist of an area for the storage of
Goods designated for specific Customers or Recipients ("Customer Storage Area")
and an area for the storage of other Goods owned by Company ("Company Storage
Area"). The Company Storage Area shall be divided into the "OK Company Storage
Area" and the "Not OK Company Storage Area." In the event that a Customer or a
Recipient alters the Order with respect to Goods which have already been placed
in a Customer Storage Area, QVC shall relocate such Goods from the Customer
Storage Area to the OK Company Storage Area. In the event that Orders are
received for Goods located in the OK Company Storage Area, QVC shall make a
reasonable effort to use such Goods to fill the Orders instead of using the
procedures described in Sections 5.1., 5.2. and 5.4.
5.12 Notwithstanding anything to the contrary contained herein, QVC
shall not be obligated to receive, warehouse or ship any goods which do not
comply with QVC policies; provided that QVC has provided Company in a timely
manner with all changes to QVC policies relating to receiving, warehousing or
shipping. By way of example, and not of limitation, QVC shall not be obligated
to receive warehouse or ship any hazardous materials, foods, pornographic
materials, goods containing alcohol, firearms and ammunition or goods that
exceed QVC's size, weight or value limitations.
5.13 QVC shall use commercially reasonable care for the safekeeping and
safe handling of all Goods in its possession.
5.14. Company shall have access to QVC's warehouse facilities at
reasonable times for the purpose of performing inspections of the Goods and
examining warehouse procedures.
5.15. From time to time, Company and QVC shall consult regarding the
advisability of including certain goods sold by QVC through its televised
shopping program and through iQVC
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<PAGE> 6
but which are likely to be subject to "stock-outs" among the goods that may be
ordered by Customers from the Company Site.
5.16. The fulfillment services complimenting by this Agreement shall be
available to Company, Customer and Recipient five days per week fifty-two weeks
per year excluding federal holidays.
6. Returns.
6.1. Pursuant to the returns policy of Company, Customers and
Recipients may return Goods to Company under conditions established by Company.
QVC shall designate a QVC warehouse facility as the site to which returns of QVC
Goods, iQVC Goods and Company Goods shall be made. QVC agrees to notify Company
in a timely manner of any returns received on behalf of Company.
6.2. QVC shall inspect any returns received to determine whether the
return packaging is empty, contains a QVC Good, an iQVC Good or a Company Good,
or contains another good. If the return packaging is empty, QVC will notify
Company of such receipt. If the return packaging contains a Good, QVC will
determine whether the packaging of the Good was opened after shipment; if it was
opened or if there is visible damage to the packaging, QVC will locate the Good
in the Not OK Company Storage Area; if it was not opened and there is not
visible damage to the packaging, QVC will locate the Good in the OK Company
Storage Area. If the return packaging contains anything other than a Good, QVC
will locate the package in the Not OK Company Storage Area.
6.3. Company shall pay to QVC a returns processing fee of US $9.25 for
each empty package, each returned Good, and for each other good received at a
QVC warehouse facility. Company shall not pay a returns processing fee of US
$9.25 for each returned Good if the reason for the return was that the
incorrect Good was shipped by QVC to the Customer or Recipient.
6.4. From time to time, Company and QVC shall review the contents of
the Company Storage Area. Company shall notify QVC of the disposition of the
such contents which shall be shipped, at Company's expense, to locations
designated by Company.
7. Order Management System.
7.1. A record of each Order will be maintained on Company's and on
QVC's order management system by Company and QVC, respectively.
7.2. Each Electronic Order will include attributes established by QVC
and Company including the Customer's name, account number, Goods ordered
(including the QVC SKU number for each Good), gift wrap selection, Recipient's
name and address, gift message, payment method, requested ship date and whether
the Goods will be shipped from a QVC warehouse facility. The same information
will be recorded by QVC with respect to each Telephonic Order.
7.3. QVC's order management system, sourcing and manifesting system and
returns system (the "Systems") will handle the forward flow of each Order
through its life cycle. Among
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<PAGE> 7
other functions, the Systems will add and/or update the Customer's records,
insert each Order for QVC Goods into the QVC system, transmit by means of QVC
electronic document interchange ordering and shipping instructions to iQVC
Vendors and Company for iQVC Goods and Third Party Goods, respectively, cause a
"fraud check" to be conducted with respect to the method of payment, cause
picking orders and packing slips to be produced for Goods stored at Company
Locations, identify on a daily basis the QVC Goods and iQVC Goods which are then
out of stock, communicate to Company on at least a daily basis the status of
each pending Order (e.g. canceled, picked, backordered, shipped, billed),
transmit billing information to Company's credit card clearing house for
shipped-confirmed Orders (but not transfers of funds or credits between the
credit card clearing house and Company), accept return of Goods from Customers
and Recipients, and post credits for returned Goods to Company's credit card
clearing house (but not transfers of funds or credits between the credit card
clearing house and Company) with respect to returned Goods.
7.4. QVC will establish and maintain methods of reporting to Company
such reports and in such formats as shall be mutually agreed, including reports
of perpetual inventory located at a Company Location, projected Goods shipped,
actual sales, order history of each Customer and Recipient, credit card
transactions between Company and Company's credit card clearing house.
7.5. Except for the customer services to be provided pursuant to
Section 8 of this Agreement, all communications with Customers and Recipients
shall be conducted by Company.
7.6. In the event Company desires QVC to provide additional information
technology services, the Parties will enter into good faith negotiations to
determine the scope of such services. For such services, Company shall pay QVC a
fee of [****] per hour per person providing such services.
8. Customer Services.
8.1. Upon notice from Company to QVC that QVC is to commence processing
Telephonic Orders, QVC shall exercise commercially reasonable efforts to
commence processing Telephonic Orders as soon as possible, but in no event shall
QVC commence processing Telephonic Orders later 180 days after the receipt of
such notice.
8.2. In the event that Company desires QVC to provide additional
customer services, the Parties will enter into good faith negotiations to
determine the scope of such services. For such services, Company shall pay QVC a
fee of [****] per hour per person providing such services.
9. Payments.
9.1. On a monthly basis, QVC will provide Company with a detailed and
itemized invoice for the amount of charges due to QVC under the terms of this
Agreement. Company shall make payment of such charges which are not the subject
of a good faith dispute to QVC, within 30 days after the delivery of such
invoice.
9.2. At its election, QVC may implement a cost tracking system to
determine its costs of providing the services set forth in this Agreement. In
the event that the cost tracking system determines that the fees to be paid by
Company to QVC are not sufficient to allow QVC to
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[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
7
<PAGE> 8
receive an amount equal to [****] of its costs for such services, at any
time after the third anniversary of the Commencement Date hereof, upon notice
from QVC to Company, the parties shall enter into good faith negotiations to
reestablish the fees to be paid by Company to QVC for the services to be
provided under the terms of this Agreement, so that QVC shall be paid an amount
equal to [****] of its costs to provide such services.
10. Insurance. Company shall maintain policies of property and casualty
insurance with policy limits in amounts greater than the aggregate replacement
value of the Goods, gift wrapping paper, shipping boxes, and packaging materials
to which title has passed to Company and located at a QVC warehouse facility.
Company and QVC shall each maintain policies of public or general liability
insurance and policies of product liability insurance with policy limits of not
less than [****] per occurrence. Each Party shall cause the other Party to
be listed as an additional insured on such policies and such policies shall
provide that they may not be canceled on less than 30 days written notice to the
other Party.
11. Representations and Warranties. Each Party represents and warrants to the
other as follows:
11.1. It has all requisite power and authority to enter into this
Agreement, and has duly authorized by all necessary corporate action the
execution and delivery hereof by the officer whose name is signed on its behalf
below.
11.2. Its execution and delivery of this Agreement and the performance
of its obligations hereunder, do not and will not conflict with or result in a
breach of or a default under its organizational instruments or any other
agreement, instrument, order, law or regulation applicable to it or by which it
may be bound.
11.3. This Agreement has been duly and validly executed and delivered
by it and constitutes its valid and legally binding obligation, enforceable in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency or other laws of general application relating to or affecting the
enforcement of creditors' rights and except as enforcement is subject to general
equitable principles.
11.4. It is not in default under any contract that is material to the
undertaking of its obligations under this Agreement.
12. Termination.
12.1. In the event (i) Company fails to pay any amount when due
hereunder and such failure is not cured within ten (10) days after written
notice thereof from QVC to Company (excluding any amounts which are the subject
of a good faith dispute), (ii) either Party fails to perform any material
provision of this Agreement and such failure is not cured within thirty (30)
days after written notice thereof is given, (iii) with respect to either Party,
a Bankruptcy Event (as defined below) occurs, (iv) either Party assigns or
attempts to assign this Agreement, or any of the obligations hereunder, in
violation of Section 17 hereof, or (v) a breach by Company of any material
covenant made to QVC pursuant to (a) Series B Stock Purchase Agreement, (b)
Common Stock Warrant Certificate, (c) Voting Agreement, (d) Second Amended and
Restated Investors' Rights Agreement or (e) Amended and Restated Right of First
Refusal and Co-Sale Agreement, all dated of even date herewith which is not
cured within 90 days after written notice
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[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
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<PAGE> 9
to Company, then, in each such case the other nondefaulting Party may terminate
this Agreement by written notice to the defaulting Party without prejudice to
any other rights and remedies it may have. A "Bankruptcy Event" shall mean with
respect to either Party, as applicable, (i) the making by such Party of any
assignment for the benefit of creditors of all or substantially all of its
assets or the admission by such Party in writing of inability to pay all or
substantially all of its debts as they become due; (ii) the adjudication of such
Party as bankrupt or insolvent or the filing by such Party of a petition or
application to any tribunal for the appointment of a trustee or receiver for
such Party or any substantial part of the assets of such Party; or (iii) the
commencement of any voluntary or involuntary bankruptcy proceedings,
reorganization proceedings or similar proceeding with respect to such Party or
the entry of an order appointing a trustee or receiver or approving a petition
in any such proceeding.
12.2. Upon the consummation of a sale of 50% or more of the voting
power of Company to a party other any QVC or its affiliates, either party shall
have the right to terminate this Agreement upon 120 days prior written notice.
12.3. Company shall have the right, in its full discretion to terminate
this Agreement at any time provided that Company provides QVC with 90 days prior
written notice.
13. Limitation of Liability.
13.1. QVC MAKES NO WARRANTY, WHETHER EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, RELATED TO ANY GOODS OR SERVICES, AND SUCH WARRANTIES ARE HEREBY
DISCLAIMED.
13.2. QVC shall not be responsible to Company for any damages arising
out of, resulting from, by reason of or in connection with the Goods pursuant to
this Agreement by QVC or its affiliates, agents or independent contractors,
except to the extent that such liability arises from the gross negligence or
willful or wanton misconduct of QVC or its affiliates, agents or independent
contractors.
13.3. Company's sole and exclusive remedy against QVC for any matter or
claim arising under or relating to this Agreement and any transaction involving
or relating to the Goods or the services to be provided by QVC pursuant to this
Agreement (the "Support Services"), whether in contract, tort (including
negligence) or otherwise, shall be (i) general money damages not in excess of
the lesser of the actual direct damage to Company or the purchase price for the
Goods or the Support Service Fee to which the claim relates, or (ii) an
equitable order for specific performance of the Support Services. EXCEPT FOR
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT BY QVC, IN NO EVENT WILL QVC BE LIABLE TO
COMPANY FOR INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, EVEN IF
QVC WAS ADVISED OR AWARE OF THE POSSIBILITY OF SUCH DAMAGES, EXCEPT TO THE
EXTENT MANDATED BY APPLICABLE LAW.
13.4. Company shall indemnify and hold QVC, its affiliates, agents and
independent contractors and each of their officers, directors and employees
harmless from and against any and all liabilities, losses, damages, expenses,
fines and penalties of any kind, including
9
<PAGE> 10
reasonable attorneys fees, incurred by any such party as a result of any claim
made against such party arising out of, resulting from, by reason of, or in
connection with the provision of the Goods or the Support Services, except where
such liability, loss, damage, expense, fine or penalty results solely from such
party's gross negligence or willful or wanton misconduct in providing the Goods
or the Support Services hereunder.
13.5. Subject to the provisions of Sections 13.1, 13.2 and 13.3, QVC
shall indemnify and hold Company, its affiliates, agents and independent
contractors and each of their officers, directors and employees harmless from
and against any and all liabilities, losses, damages, expenses, fines and
penalties of any kind, including reasonable attorneys fees, incurred by any such
party as a result of any claim made against such party arising out of, resulting
from, by reason of, or in connection with the breach of this Agreement by QVC
14. Taxes, Duties Royalties and Other Charges. All taxes (including sales, use
and value added taxes) duties (including customs and import duties) royalties or
other charges imposed in connection with the performance of this Agreement shall
be paid by Company; provided however, that Company shall have no obligation
under this Section 14 for federal, state or local income taxes or payments in
the nature of taxes payable to any taxing authority by QVC. If QVC pays any
taxes, duties or royalties on behalf of Company, Company shall reimburse QVC the
total amounts paid within thirty (30) days of receipt of an invoice from QVC for
the same.
15. Trademark and Trade Names. Neither Party shall use any trademarks, service
marks, trade names, corporate names or intellectual property rights of the other
Party without the prior written consent of such Party.
16. Relationship of the Parties. The relationship between QVC and Company under
this Agreement is that of seller and buyer of goods and services. In providing
the Goods and the Support Services hereunder, QVC and its affiliates, agents and
independent contractors shall act as independent contractors for Company and not
as agents of Company. Unless otherwise expressly authorized in writing by the
Parties, neither Party shall have the right or authority to make any
representation or warranty on behalf of the other Party, to assume or create any
responsibility, express or implied, on behalf of or in the name of the other
party, to act for or bind the other party in any manner whatsoever, or to accept
payment from any person on behalf of the other Party.
17. Assignment. Neither this Agreement nor any right or obligation hereunder is
assignable or transferable by either Party in whole or in part without the prior
written consent of the other Party, and any such purported assignment without
such consent shall be void. Notwithstanding the foregoing QVC shall have the
right to assign this Agreement and its rights and obligations hereunder, without
obtaining prior written consent of Company, to any entity with which QVC merges,
any entity to which QVC transfers a substantial part of the assets or businesses
to which this Agreement relates, or to any Affiliate of QVC or entity which
controls QVC, so long as such assignee accepts such assignment of QVC's rights
and obligations hereunder. Nothing in this Section 16 shall limit QVC's ability
to subcontract to a third party any of QVC's obligations under the terms of this
Agreement, provided that QVC obtains the consent of Company which shall not be
unreasonably withheld.
10
<PAGE> 11
18. Force Majeure.
18.1. Any delays in or failure by either Party hereto in the
performance of any obligations hereunder shall be excused if and to the extent
caused by occurrences beyond such party's reasonable control, including, but not
limited to, acts of God, strikes or other labor disturbances, war, whether
declared or not, sabotage, and any other cause or causes, whether similar or
dissimilar, to those herein specified which cannot reasonably be controlled by
such party, expect that this provision shall not apply to any breach of the
payment obligations of Company. Additionally, in the event that further lawful
performance hereof or any part hereof by either Party hereto shall be rendered
impossible by or as a consequence of any law, or any act of any government or
political subdivision thereof having jurisdiction over such Party or directly or
indirectly over a parent company of such Party, such Party shall not be
considered in default hereunder by reason of any failure to perform occasioned
thereby, except that this provision shall not apply to any breach of the payment
obligations of Company. In the event of non-performance, the applicable
obligation hereunder will be extended for a period equal to the period of delay
caused by the forces majeure described above. Each Party agrees to notify the
other Party in writing of the cause of any delay of performance under this
Section 18.1.
18.2 Notwithstanding the foregoing, any Party whose performance is
delayed or rendered impossible as described in Section 18.1 above shall use its
best efforts, without obligation to expend substantial amounts of money not
otherwise required under the Agreement, to circumvent or overcome the cause of
the delay. In the event that the delay should exceed 180 days, either party may,
at its option, terminate this Agreement effective immediately, by giving notice
to the other Party.
19. Notice. Any notice, demand, election or communication required, permitted or
desired to be given between the parties hereunder shall be in writing and shall
be sent by prepaid registered or certified mail, return receipt requested, or by
commercial courier service, or electronic facsimile (but in the latter instance,
also by mail or by commercial courier service). Notices, demands, elections or
communications shall be deemed received on the first to occur of the following:
(i) when personally delivered; (ii) when actually received; or (iii) when sent
by commercial courier service, five (5) days following the deposit thereof with
such service. Notices, demands, elections or communications shall be addressed
as follows (or to any other address which either party may designate to the
other by written notice):
If to QVC: QVC, Inc.
Studio Park
West Chester, Pennsylvania 19380
Attn: President
FAX: 610-701-1380
With a copy to: QVC, Inc.
Studio Park
West Chester, Pennsylvania 19380
Attn: General Counsel
FAX: 610-701-1021
11
<PAGE> 12
If to Company: The Knot, Inc.
462 Broadway, 6th Floor
New York, New York 10003
Attn: David Liu
FAX: 212-219-1929
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10019
Attn: Alan Siegel, Esq.
FAX: 212-872-1002
20. Entire Agreement. This Agreement constitutes the entire Agreement between
the Parties with respect to the subject matter hereof, and it supersedes all
prior agreements between them with respect to such matters. This Agreement
cannot be amended or modified in any manner except by a writing signed by the
parties hereto. Notwithstanding the provisions of the Pennsylvania Uniform
Commercial Code, if the Parties correspond with each other after the date hereof
with purchase orders, invoices or other similar documentation, the terms and
conditions of such documentation shall not modify this Agreement unless the
Parties expressly agree in writing that they intend to modify this Agreement
thereby.
21. Severability. Should any part or provisions of this Agreement be held
unenforceable or in conflict with the applicable laws or regulations of any
jurisdiction, the invalid or unenforceable part or provision shall be replaced
with a revision which accomplishes, to the extent possible, the original
business purpose of such part or provision in a valid and enforceable manner,
and the balance of this Agreement shall remain in full force and effect and be
binding upon the Parties hereto.
22. Waiver. No waiver of a breach or default hereunder shall be considered valid
unless in writing and signed by the Party giving such waiver, and no such waiver
shall be deemed a waiver of any subsequent breach or default of the same or
similar nature.
23. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania, without regard to principles of conflicts of laws
applicable therein. Each of the Parties hereto consents to the jurisdiction of
the Court of Common Pleas of Chester County, Pennsylvania or the United States
District Court for the Eastern District of Pennsylvania, which shall apply
Pennsylvania law.
24. Proprietary Information. The Parties hereto agree that certain information
of the other Party hereto used or made available in connection with this
Agreement is proprietary and confidential ("Proprietary Information").
Proprietary Information shall include information of, entrusted to, or in the
possession of the disclosing Party or any of its affiliates, employees, agents
or representatives and disclosed to the receiving Party by or on behalf of the
disclosing party or any of its affiliates, in writing, marked as confidential,
and which is not generally made available to the public at large, including but
not limited to financial data, costs, margins, software, computer
12
<PAGE> 13
programming, mailing or other marketing lists, customer lists, sources of
supply, salaries and other information concerning employees, any advertising,
promotion, product or program concepts, plans or proposals, or any other
information of a proprietary or non-public nature. Each Party will not permit
the duplication or disclosure of the other Party's Proprietary Information by or
to any person (other than employees, agents or representatives who must have
such information in connection with the provision of the services contemplated
hereby), unless the duplication or disclosure is specifically authorized in
writing by the other Party. The Parties shall use reasonable measures and take
reasonable action with respect to its employees, agents or representatives to
ensure that its obligation of non-use and nondisclosure hereunder is satisfied.
The obligations of a receiving Party shall not apply to Proprietary Information
of the disclosing Party to the extent it is:
a. information that is available or becomes available to the general
public without restriction through no wrongful act or omission of the
receiving Party;
b. information received from a third party having the right to transfer
said information;
c. information that is independently developed by the receiving Party
reference to Proprietary Information;
d. information which is ascertainable from a visual inspection of the
disclosing Party's products, services, news releases, advertising,
promotional literature/material disseminated by the disclosing Party
without restriction or public premises; or
e. required to be disclosed pursuant to a subpoena or order of a court,
agency or Government authority of competent jurisdiction that is
binding on the receiving Party, provided that the receiving Party shall
promptly notify disclosing Party thereof and permit disclosing Party to
contest the same.
Upon the termination of this Agreement, the receiving Party of the Proprietary
Information will promptly, and in any event upon request by the disclosing Party
of the Proprietary Information deliver to the disclosing Party all Proprietary
Information, including all written and electronically stored copies, then in the
receiving Party's possession. Neither disclosing Party nor its affiliates,
employees, agents or representatives will retain any copies, extracts or other
reproductions, in whole or in part, of such Proprietary Information. At the
disclosing Party's requests, all documents, memoranda, notes and other writings
prepared by the receiving Party or its nor its affiliates, employees, agents or
representatives based directly on the information in the Proprietary
Information, or which quote from or summarize and Proprietary Information, will
be destroyed as soon as reasonably practicable, and such destruction will be
certified in writing to the disclosing Party by an authorized officer of the
receiving Party supervising such destruction. The Parties hereto acknowledge
that a breach of the covenant of confidentiality contained in this Agreement
will result in irreparable and continuing damage to the disclosing Party for
which there will be no adequate remedy at law. In the event of any breach of
this Agreement, the receiving Party agrees that the disclosing Party will be
entitled to seek an obtain specific performance of this Agreement by the
receiving Party, including, upon making the requisite showing that it is
entitled thereto, provisional injunctive relief restraining the receiving Party
13
<PAGE> 14
from committing such breach, in addition to such other and further relief,
including monetary damages, as provided by law.
25. Covenant of QVC. During the term of this Agreement, QVC will not, directly
or indirectly, own or operate or make any type of investment (other than a less
than 5% ownership interest in a publicly traded entity) in any other
corporation, limited partnership, limited liability company, joint venture or
any similar organization or association that engages primarily in provision of
wedding-related services.
26. Limited Warranties and Remedies.
26.1. QVC warrants to Company that the Support Services provided shall
be performed in a workmanlike manner with the same standard of care used in
connection with QVC's iQVC and television shopping network transactions. QVC
further warrants that the Support shall be free from material defects in
workmanship. This warranty (the "Warranty") shall survive inspection, acceptance
and payment for a period of one (1) year.
26.2 If during the term of this Agreement Company believes that there
is a breach of the Warranty, the Company shall notify QVC, setting forth in
writing the nature of such claimed breach. QVC shall promptly investigate such
breach and advise Company of QVC's planned corrective action. If such breach of
the Warranty has not been corrected within a reasonable time, Company may, in
addition to all other rights and remedies provided by law or this Agreement, but
subject to the provisions of Section 13 of this Agreement, be refunded the US
$9.25 warehouse fee associated with respect to the Goods subject to the Order
affected by such breach.
[THIS SPACE IS LEFT BLANK INTENTIONALLY]
14
<PAGE> 15
IN WITNESS WHEREOF, the Parties have executed this Services Agreement on the day
first above written.
QVC, Inc. The Knot, Inc.
By: /s/ John F. Luke By: /s/ David Liu
Title: Executive VP Title: President and Chief Executive
Officer
15
<PAGE> 1
EXHIBIT 10.9
****CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE SECURITIES EXCHANGE ACT OF 1933,
AS AMENDED.
CONFIDENTIAL
AMENDED AND RESTATED ANCHOR TENANT AGREEMENT
This Amended and Restated Anchor Tenant Agreement (this "Agreement"),
dated July 23, 1999 (the Amendment Date) but effective as of October 1, 1998
(the "Effective Date"), is made and entered into by and between America Online,
Inc. ("AOL"), a Delaware corporation, with its principal offices at 22000 AOL
Way, Dulles, Virginia 20166, and The Knot, Inc. ("Interactive Content Provider"
or "ICP"), a Delaware corporation, with its principal offices at 462 Broadway
6th Floor, New York, New York 10013 (each a "Party" and collectively the
"Parties").
INTRODUCTION
The Parties entered into an Anchor Tenant Agreement effective as of
October 1, 1998 (the "Prior Agreement") and subsequently determined that it
would be mutually beneficial to broaden the relationship contemplated thereby.
Accordingly, the Parties have entered into this Agreement which supersedes the
Prior Agreement. AOL and ICP each desires that AOL provide access to the ICP
Internet Site, the Online Area and the other ICP Programming, subject to the
terms and conditions set forth in this Agreement. Defined terms used but not
otherwise defined in this Agreement shall be as defined on Exhibit B attached
hereto.
TERMS
1. DISTRIBUTION; PROGRAMMING
1.1 PROGRAMMING AND DISTRIBUTION. Beginning on a mutually agreed
upon date(s) after the Amendment Date, AOL shall provide ICP
with the promotions and reserved programming areas set forth
on Exhibit A-1. The promotions and reserved programming areas
described on Exhibit A-1 and any other promotions provided by
AOL to ICP shall be referred to as the "Promotions." Subject
to ICP's reasonable approval, AOL will have the right to
fulfill its promotional commitments with respect to any of the
foregoing by providing ICP comparable promotional or
programming placements in appropriate alternative areas of the
AOL Network. In addition, if AOL is unable to deliver any
particular Promotion, AOL will work with ICP to provide ICP,
as its sole remedy, a comparable promotional or programming
placement. Except to the extent expressly described herein,
the exact form, placement and nature of the Promotions shall
be determined by AOL in it's reasonable editorial discretion.
ICP shall comply with the programming requirements and provide
the Content set forth on Exhibit A and AOL's provision of
Promotions in connection with any particular AOL Property
shall be conditioned upon ICP's compliance with the
programming requirements and provision of the Content set
forth on Exhibit A-1 for such AOL Property.
1.2 ONLINE AREA AND OTHER CONTENT. ICP shall work diligently to
develop, implement and maintain the Online Area and the other
ICP Programming, which shall consist of the Content described
on Exhibit A-2 hereto (the "Programming Plan"). ICP shall
produce the Online Area using AOL's "Rainman" forms, in the
case of the AOL Service, or using other technology designated
by AOL and shall develop the design of the Online Area and
other ICP Programming in consultation with AOL and in
accordance with any standard design and content publishing
guidelines provided to ICP by AOL (including, without
limitation, any HTML publishing guidelines). The ICP Internet
Site shall consist of the Content described on the Programming
Plan. ICP shall not authorize or permit any third party to
distribute any Content of ICP through the AOL Network absent
AOL's prior written approval; provided, however, that ICP
shall not be deemed to have violated this provision as a
result of Content in third party areas which either (a)
promotes the Wedding subchannel or the Online Area or (b) is
wedding-related Content and contextually relevant to the
Content in such third party area. The inclusion of any
additional Content for distribution through the AOL Network
(including, without limitation, any features, functionality or
technology) not
<PAGE> 2
expressly described on Exhibit A-2 shall be subject to AOL's
prior written approval. Each screen of the Online Area which
is linked to from the main screen of the Weddings Area shall
contain a promotional link back to the main screen of the
Weddings Area; the form and content of such link shall be
mutually agreed upon by the Parties.
1.3 LICENSE. ICP hereby grants AOL a nonexclusive worldwide
license to use, market, license, store, distribute, reproduce,
display, adapt, communicate, perform, transmit, and promote
the ICP Internet Site, the ICP Programming and the Licensed
Content (or any portion thereof) through the AOL Network as
AOL may determine in its sole discretion, including without
limitation the right to integrate Content from the ICP
Internet Site and/or ICP Programming by linking to specific
areas thereon, provided that the link to any such Content on
the AOL Network shall conform to the specifications of an ICP
Presence; provided, however, that if ICP gives AOL written
notice [****] to a particular [****] or [****] of the Licensed
Content (including the ICP Programming) by AOL [****] of the
AOL Properties listed on Exhibit A-1 or any co-branded
versions thereof and stating a reasonable basis for such
[****], AOL shall take action reasonably promptly to [****]
such [****] or [****] such [****]; provided, further, that if
ICP exercises such right more than [****] (provided, that any
subsequent [****] by ICP to a particular use [****] previously
[****] to shall not count as a subsequent exercise of such
right), AOL shall have the right, at its option, to terminate
this Agreement by giving ICP written notice thereof. In the
event of such termination during a quarter in which ICP has
made a quarterly installment of the carriage fee set forth in
section 1.5 applicable to such quarter, AOL shall have the
option of (i) making the termination effective as of the end
of such quarter or, subject to AOL's right to offset any and
all amounts due from ICP to AOL hereunder, to refund a pro
rata portion of the carriage fee (i.e., quarterly installment
paid by ICP applicable to such quarter divided by the number
of days in such quarter multiplied by the number of days after
termination remaining in such quarter).
1.4 OTHER INTERACTIVE AREAS.
1.4.1 AOL Approval. ICP shall not be permitted to establish
any "pointers" or links between the ICP Programming
and any other area on or outside of the AOL Network,
including, without limitation, sites on the World
Wide Web portion of the Internet, other than
temporary editorial links to contextually relevant
Content and links described on Exhibit A-2, without
the prior written approval of AOL. In addition, AOL
may restrict its approval (at any time) to specific
portions of Content, Products, or functionality
within a Linked Interactive Site. In such case,
establishment of the link from the ICP Programming to
the Linked Interactive Site will be subject to mutual
agreement of the Parties regarding the means by which
access will be restricted to the approved portions of
the Linked Interactive Site. All Content linked to
from ICP Programming, whether or not such links
require (or receive) AOL approval, shall be subject
to the terms of this Agreement. Any Linked
Interactive Site which is (a) described on Exhibit
A-2, (b) permanently linked to any ICP Programming,
or (c) contains Content which is material to the ICP
Programming (e.g. contains a material amount of
Content addressing a material topic of such ICP
Programming, receives a material amount of AOL Member
traffic, or is promoted prominently within such ICP
Programming) shall conform to AOL's technical
specifications and guidelines, including the
Operating Standards set forth on Exhibit F.
1.4.2 Management. ICP shall design, create, edit, manage,
review, update, and maintain the ICP Internet Site,
ICP Programming and the Licensed Content in a timely
and professional manner and in accordance with the
terms of this Agreement and shall keep the Licensed
Content current, accurate and well-organized. ICP
shall ensure that the Licensed Content within the ICP
Internet Site and ICP Programming is equal to or
better
- ---------------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
2
CONFIDENTIAL
<PAGE> 3
than the Content distributed by ICP through any other
ICP Interactive Site in all material respects,
including without limitation, quality, breadth,
timeliness, functionality, features, prices of
products and services and terms and conditions,
except (a) to the extent inclusion of such Content
would otherwise violate this Agreement, (b) as
otherwise expressly stated on Exhibit A-2, and (c) to
the extent AOL does not approve or accept the
inclusion of, or requests specific changes to,
additional Content necessary to comply with this
sentence. Except as specifically provided for herein,
AOL shall have no obligations of any kind with
respect to the ICP Internet Site or ICP Programming.
ICP shall be responsible for any hosting or
communication costs associated with the ICP Internet
Site and ICP Programming (including any Linked
Interactive Sites), including, without limitation,
the costs associated with (i) any agreed-upon direct
connections between the AOL Network and the ICP
Internet Site or ICP Programming (including the
dedicated line for the remote managed gateway) or
(ii) a mirrored version of the ICP Internet Site. Any
Linked Interactive Sites shall be subject to the
license set forth in Section 1.2 above. ICP will
permit AOL Members to access and use any ICP
Interactive Site free of charge during the Term. AOL
Members shall not be required to go through a
registration process (or any similar process) in
order to access and use the ICP Internet Site, ICP
Programming (including any Linked ICP Interactive
Site) or the Licensed Content, other than in order to
register within ICP's gift registry and the tools and
services described on Exhibit A-2 as requiring a
registration process, and such registration processes
shall be no more burdensome than the registration
process utilized by ICP on any other ICP Interactive
Site or for non-AOL Members. During the Term and for
the [****] period after the expiration or
termination thereof, ICP shall allow AOL Members to
access and use any ICP Interactive Site on terms and
conditions no less favorable than the terms and
conditions available to other users of such ICP
Interactive Site. In the event ICP fails to comply
with any material term of this Agreement, including
without limitation ICP's obligations under this
Section 1.4 or its promotional obligations under
Section 2 and such failure continues beyond two (2)
business days after written notice thereof, AOL will
have the right (in addition to any other remedies
available to AOL hereunder) to decrease the promotion
it provides to ICP hereunder and/or to decrease or
cease any other contractual obligation of AOL
hereunder until such time as ICP corrects its
non-compliance, in which event AOL will be relieved
of the proportionate amount of any promotional
commitment made to ICP by AOL hereunder corresponding
to such decrease in promotion.
1.5 CARRIAGE FEE. On or before each of January 7, 1999, April 7,
1999, July 7, 1999 and October 7, 1999 ICP shall pay AOL Two
Hundred Fifty Thousand Dollars ($250,000). Thereafter, ICP
shall pay AOL Three Hundred Thousand Dollars ($300,000)on or
before each of January 7, April 7, July 7 and October 7
of each year during the Term; provided, however, if ICP
elects to continue the [****] set forth on Exhibit A-1.A
after the end of the second year of the Term, ICP shall pay
AOL an additional carriage fee of [****] per quarter
thereafter.
1.6 MEMBER BENEFITS. ICP will promote through the ICP Internet
Site and/or ICP Programming any special or promotional offers
made available by or on behalf of ICP through any ICP
Interactive Site or any other distribution channel. In
addition, ICP shall promote through the ICP Internet Site
and/or ICP Programming special offers exclusively available to
AOL Members ("AOL Exclusive Offers") (e.g., 10% off purchases
in ICP's Wedding gift registry store). ICP shall, at all
times, feature at least [****] AOL Exclusive Offer for AOL
Members (except as otherwise mutually agreed upon by the
Parties). The AOL Exclusive Offer made available by ICP shall
provide a substantial member benefit to AOL Members, either by
virtue of a meaningful price discount, product enhancement,
unique service benefit or other special feature. ICP will
provide AOL with reasonable prior notice of AOL Exclusive
Offers and other special offers so that AOL can, in its
editorial discretion, market the availability of such offers.
- ---------------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
3
CONFIDENTIAL
<PAGE> 4
1.7 PREMIER STATUS.
1.7.1 (a) AOL Service. So long as ICP is in compliance with
this Agreement, ICP shall be the only third party
receiving continuous promotion on the main screen of
the Weddings subchannel (or any specific successor
thereof) of the AOL Service (the "Weddings Area"),
for [****] covering the entire spectrum of topics
directly related to [****]. In addition, so long as
ICP is in compliance with this Agreement, AOL will
not enter into an arrangement with a third party to
provide a [****] area within the [****] exclusively
dedicated to covering the entire spectrum of topics
directly related to [****]. So long as ICP is in
compliance with this Agreement, the Weddings Area
shall be the primary comprehensive programming area
on the AOL Service that is dedicated to covering the
entire spectrum of topics directly related to [****];
provided, however, that this sentence shall not be
construed to limit or otherwise affect AOL's
editorial discretion within the Weddings Area (e.g.
to influence the overall programming plan of, limit
the Content that AOL may program into, or to require
AOL to include certain Content within, the Weddings
Area).
The entities set forth in Exhibit H are [****]
Providers covering the entire spectrum of topics
related to [****] that ICP represents are [****] of
ICP (the "ICP Competitors"). With respect to the ICP
Competitors, so long as ICP is in compliance with all
material terms of this Agreement, ICP will be the
[****] third-party Weddings-Only Content Provider
providing permanent Weddings-Only Content and
programming which covers the entire spectrum of
topics related to weddings on the AOL Service [****]
with the exception of wedding registries
("Exclusivity"). ICP may provide AOL with an updated
list of ICP Competitors ("Competitor List") from time
to time; provided, however, that Oxygen Media, Inc.,
Women.com Network, and iVillage, Inc. (and their
respective properties and affiliates) shall not be
deemed ICP Competitors in any event and this [****]
shall not prevent AOL from entering into contracts or
relationships with [****] Providers who are not on
the [****] (a) prior to AOL entering into such
contract or relationship or (b) in the case of ICP
Competitors added to the Competitor List subsequent
to the execution of this Agreement, prior to AOL
entering into negotiations regarding such contract or
relationship. ICP acknowledges that AOL does not
control the Content which appears within third party
content areas on the AOL Service or on interactive
sites linked to from the AOL Service; provided, that
AOL agrees that it will not [****] of the [****] by
[****] an ICP Competitor permanently within the AOL
Service on [****] which [****] an ICP Competitor
(such as, by way of example, permanently placing
within the AOL Service a button or banner which reads
[****]).
In addition, AOL shall not sell or license
advertisements to [****] to appear specifically
within the editorial and Rainman pages created by ICP
as described in Section B.1 of Exhibit A-2
(collectively, the "Editorial Packages"); provided
that this restriction shall not apply to "run of
service", "run of channel" or other non-targeted
advertising packages.
(b) AOL.com. After the Amendment Date, so long as ICP
is in compliance with this Agreement, (i) the Plan
Your Wedding Time Saver (or its successor) shall be
the primary comprehensive programming area on AOL.com
that is dedicated to covering the entire spectrum of
topics directly related to [****]; provided, however,
that this sentence
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shall not be construed to limit or otherwise affect
AOL's editorial discretion within the Plan Your
Wedding Time Saver (e.g. to influence the overall
programming plan of, limit the Content that AOL may
program into, or to require AOL to include certain
Content within, the Plan Your Wedding Time Saver) and
(ii) ICP shall have the premier programming rights in
the Plan Your Wedding Time Saver described in Exhibit
A-1.
(c) Netscape. After the Amendment Date, so long as
ICP is in compliance with this Agreement, the
Weddings Index Page shall be the primary
comprehensive programming area on Netscape Netcenter
that is dedicated to covering the entire spectrum of
topics directly related to [****]; provided,
however, that this sentence shall not be construed to
limit or otherwise affect AOL's editorial discretion
within the Weddings Index Page (e.g. to influence the
overall programming plan of, limit the Content that
AOL may program into, or to require AOL to include
certain Content within, the Weddings Index Page) and
(ii) ICP shall have the premier programming rights on
the Weddings Index Page described in Exhibit A-1.
(d) CompuServe. After the Amendment Date, so long as
ICP is in compliance with this Agreement, the
Weddings Department of the CompuServe Service (the
"Wedding Department") shall be the primary
comprehensive programming area on the CompuServe
Service that is dedicated to covering the entire
spectrum of topics directly related to [****];
provided, however, that this sentence shall not be
construed to limit or otherwise affect AOL's
editorial discretion within the Weddings Department
(e.g. to influence the overall programming plan of,
limit the Content that AOL may program into, or to
require AOL to include certain Content within, the
Weddings Department) and (ii) ICP shall have the
premier programming rights on the Weddings Department
main screen described in Exhibit A-1.
(e) AOL Hometown. After the Amendment Date ICP will
be a primary third party (non-AOL Affiliate) provider
of Content directly related to weddings within the
"Wedding" department of Hometown AOL (or any specific
successor thereof) expressly promoted by AOL on a
continuous basis in AOL Hometown as specified herein.
1.7.2 Notwithstanding the foregoing, (and without limiting
any actions which may be taken by AOL without
violation of ICP's rights hereunder), no provision of
this Agreement shall limit AOL's ability (on or off
the AOL Network) to (i) undertake activities or
perform duties pursuant to existing arrangements with
third parties (or pursuant to any agreements to which
AOL becomes a party subsequent to the Effective Date
as a result of Change of Control, assignment, merger,
acquisition or other similar transaction); provided,
however, that [****] that, to [****], as of the
Effective Date it is [****] with [****] that would
[****] to [****] of Section 1.7.1 in any [****];
provided, further that in the event of [****] of the
[****] and a [****] of Section 1.7.1, ICP shall have
the right, [****], written notice ([****] in
reasonable [****] and the [****] of Section 1.7.1) if
[****] does [****] the [****] of Section 1.7.1 that
is the [****] of such [****]; (ii) advertise, promote
or market, or sell advertising or promotions to, any
third party Weddings-Only Content Provider, including
without limitation the ICP Competitors, or for any
wedding-related products or services, including
wedding registries; provided that, AOL will not
directly guarantee promotions or advertisements for
[****] on the [****] main screen (other than
registries), but AOL shall not be deemed to have
breached this provision by providing such promotions
and advertisements on the [****] main screen on a ROS
(i.e., run of service) basis so long as AOL [****]
any ROS promotions or advertisements for
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[****] from the [****] main screen within [****]
after AOL receives written notice from ICP thereof,
(iii) create contextual links to wedding-related
Content or editorial commentary on wedding-related
topics; or (iv) enter into arrangements with third
parties, including [****], to provide programming
and/or marketing areas dedicated to particular
wedding-related topics (such as, without limitation,
local wedding services, honeymoons, engagement rings,
financial planning, etc.); provided that, in
connection with such arrangements, AOL shall not
guarantee promotions for any [****] on the [****]
main screen other than as provided in subparagraph
1.7.2(ii).
1.7.3 AOL shall have the right to terminate AOL's
commitments set forth in Section 1.7.1 and ICP's
programming rights described on Exhibit A, in whole
or in part, if ICP is not one of [****] dedicated to
wedding-related topics and/or the Content on the ICP
Programming is not commensurate with such market
position, as determined by evaluating ICP, the ICP
Internet Site and/or the ICP Programming, as a whole,
based on relevant criteria including the following:
(a) based on a mutually-approved (which approval
shall not be unreasonably withheld or delayed)
cross-section of third-party reviewers who are
recognized authorities in such market and (b) with
respect to all material quality averages or standards
in such industry, including each of the following:
(i) scope and quality of Content, (ii) scope,
selection and pricing of products and services, (iii)
quality and brands of products and services, (iv)
customer service and fulfillment associated with the
marketing and sale of products and services and (v)
user traffic, as measured by page views, and audience
reach, as measured by share or percentage of Internet
online users as reported by Media Metrix or similar
organization reasonably determined by AOL.
2. PROMOTION. Each Party shall cooperate with and reasonably assist the
other Party in supplying material for marketing and promotional
activities. ICP shall perform the promotional obligations set forth on
Exhibit E attached hereto.
3. REPORTING; PAYMENT.
3.1 USAGE AND OTHER DATA. AOL shall make available to ICP a
monthly report specifying for the prior month aggregate usage
and Impressions with respect to ICP's presence on the AOL
Network, which are similar in substance and form to the
reports provided by AOL to other content partners similar to
ICP. ICP will supply AOL with quarterly (or monthly upon
request by AOL) reports which reflect total impressions by AOL
Members to the ICP Internet Site and any Linked ICP
Interactive Site during the prior month, total impressions by
all users to the ICP Internet Site and any Linked ICP
Interactive Site during the prior month and the number of and
dollar value associated with the transactions involving AOL
Members and aggregated registration information (which shall
be considered Confidential Information) obtained from AOL
Members at the ICP Internet Site or Linked ICP Interactive
Site during the period in question. ICP represents that all
URLs related to the ICP Internet Site are listed on Exhibit
A-2 and ICP shall provide AOL with an update of such list
promptly upon any change thereto. ICP shall provide detailed
information to AOL regarding (i) AOL Advertisements sold by
ICP or its agents and (ii) any advertising or paid promotional
activity on the ICP Internet Site and any Linked ICP
Interactive Sites. AOL shall provide detailed information to
ICP regarding any AOL Advertisements sold by AOL or its agents
which give rise to Advertising Revenues. In reporting any
advertising arrangement, each Party shall indicate the name of
the advertiser, the terms of the advertising arrangement and
the amount paid (or to be paid) to the Party or its agents.
3.2 PROMOTIONAL COMMITMENTS. ICP shall provide to AOL a quarterly
report documenting its compliance with any promotional
commitments it has undertaken pursuant to this Agreement in
the form attached as Exhibit E hereto.
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SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
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3.3 PAYMENT SCHEDULE. Except as otherwise specified herein, each
Party agrees to pay the other Party all amounts received and
owed to such other Party as described herein on a quarterly
basis within sixty (60) days of the end of the quarter in
which such amounts were collected by such Party. The first
quarter for which payment is to be made shall (i) begin on the
first day of the month following the month of execution of
this Agreement and (ii) include the portion of the month of
execution following the Effective Date (unless this Agreement
was executed on the first day of a month, in which case the
quarter shall be deemed to begin on the first day of such
month).
3.4 WIRED PAYMENTS. All payments by ICP hereunder shall be paid in
immediately available, non-refundable U.S. funds wired to the
"America Online" account, Account Number [****], or such other
account of which AOL shall give ICP written notice.
4. ADVERTISING AND MERCHANDISING
4.1 ADVERTISING SALES. AOL owns all right, title and interest in
and to the advertising and promotional spaces within the AOL
Network (including, without limitation, advertising and
promotional spaces on any AOL forms or pages preceding or
framing the ICP Internet Site, ICP Programming, any AOL pages
on which ICP Programming resides and the Editorial Packages);
provided that ICP shall retain all right, title and interest
in and to the Licensed Content subject to the license set
forth in this Agreement. The specific advertising inventory
within any AOL forms or pages shall be as reasonably
determined by AOL. AOL shall have the exclusive right, but not
the obligation, to sell or license Products and Advertisements
through each Community Center (as defined in Exhibit A). AOL
hereby grants ICP the right to license or sell promotions,
advertisements, links, pointers or similar services or rights
("Advertisements") through the Online Area ("AOL
Advertisements"), subject to AOL's approval for each AOL
Advertisement.
4.2 ADVERTISING POLICIES. Any AOL Advertisements sold by ICP or
its agents shall be subject to AOL's then-standard advertising
policies, and ICP shall not sell an AOL Advertisement in a
category in which AOL or the applicable AOL Property has an
[****] (or other similarly [****]) relationship with a third
party. ICP shall not sell an AOL Advertisement to any other
Interactive Service; [****] that ICP may sell an AOL
Advertisement for a wedding-related product or service of an
[****], provided that such advertisement does not promote such
[****] as an [****] and such AOL Advertisement, or such
product or service, does not contain a direct link to any
promotion or advertisement for an [****] as an [****]. ICP
shall ensure that any AOL Advertisement sold by ICP complies
with all applicable federal, state and local laws and
regulations.
4.3 INTERACTIVE COMMERCE. Any merchandising permitted hereunder
through the ICP Internet Site and/or ICP Programming
(including any registries) shall be subject to (i) the
then-current requirements of AOL's merchant certification
program, (ii) AOL's standard terms and conditions applicable
to its interactive marketing partners, (iii) prior approval by
AOL of all products, goods and services to be offered through
the ICP Internet Site or the ICP Programming, and (iv) ICP
will take all reasonable steps necessary to conform its
promotion and sale of Products through the ICP Internet Site
and ICP Programming to the then-existing technologies
identified by AOL which are optimized for the AOL Service
including, without limitation, any "quick checkout" tool which
AOL may implement to facilitate purchase of Products by AOL
Members through the ICP Internet Site. ICP shall not conduct
any merchandising through the ICP Programming through
auctions, fee-based clubs or any method other than a direct
sales format or a wedding registry without AOL's prior written
consent, nor shall ICP promote any auctions or fee-based clubs
on the ICP Programming; provided, however, that ICP may
promote its existing [****] through the ICP Weddings Main
Screen Space. In addition, ICP shall not, through the ICP
Programming, (i) offer any Products on behalf of a third party
by linking to such third party's site,
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(ii) establish any merchandising area or registry in the format of
a "shopping mall" or an aggregation of third party stores or
Products, or (iii) otherwise promote or advertise any third
party engaged in the activities described in clauses (i) or
(ii) of this sentence, in each case without AOL's prior
written consent. AOL hereby approves the offer, sale or
license of all Products in the categories set forth in Exhibit
I subject to AOL's continuing right to withdraw or restrict
its approval if the offer, sale or license of any Product(s)
or category(ies) of Products would violate AOL's contractual
commitments to third parties. ICP shall provide AOL with
detailed quarterly reports in mutually agreed upon form
detailing all transactions on the Online Area. ICP shall give
AOL commerce and merchandising partners a preferential
opportunity in connection with any merchandising or commerce
arrangements that ICP desires to enter into on the ICP
Internet Site and/or ICP Programming.
5. CUSTOMIZED ICP PROGRAMMING AND ICP INTERNET SITE
5.1 PERFORMANCE. ICP shall optimize all ICP Programming and the
ICP Internet Site for distribution hereunder according to AOL
specifications and guidelines (including, without limitation,
any HTML publishing guidelines) and the Operating Standards
set forth on Exhibit F attached hereto.
5.2 CUSTOMIZATION. ICP shall customize all ICP Programming and the
ICP Internet Site for AOL Members as follows:
(a) ICP shall customize and co-brand the ICP Internet Site
for distribution over certain AOL Properties as more
particularly described on Exhibit A-1. The customization
and co-branding described in Exhibit A-1 represents the
manner in which AOL currently contemplates that such
customization and co-branding will appear. ICP shall make
any reasonable changes to the customization and/or
co-branding requirements of any AOL Property that may
occur during the Term.
(b) ICP shall ensure that AOL Members accessing the ICP
Programming or linking to the ICP Internet Site do not
receive advertisements, promotions or links (i) for any
Interactive Service or (ii) in violation of the applicable
AOL Property's then-standard advertising policies. ICP
shall ensure that AOL Members accessing the ICP
Programming or linking to the ICP Internet Site do not
receive advertisements, promotions or links in a category
in which AOL or the applicable AOL Property has an [****]
another [****] to a third party; provided, however, that
if ICP is in violation of the terms of this Section 5.2(b)
due to AOL's failure to inform ICP of such category and
such violation is not willful or repeated, then AOL's
[****] shall [****] require that ICP promptly (within two
(2) business days) [****] any such [****], or [****] (or
otherwise [****] of [****]).
(c) ICP shall provide continuous navigational ability for
AOL Members to return to an agreed-upon point on the
applicable AOL Property (for which AOL shall supply the
proper address) from ICP Internet Site or ICP Programming
(e.g., the point on the applicable AOL Property from which
such site is linked), which, at AOL's option, may be
satisfied through the use of a hybrid browser format. ICP
shall ensure that navigation back to the AOL Network from
the ICP Internet Site, whether through a particular
pointer or link, the "back" button on an Internet browser,
the closing of an active window, or any other return
mechanism, shall not be interrupted by ICP through the use
of any intermediate screen or other device not
specifically requested by the user, including without
limitation through the use of any html pop-up window or
any other similar device. Rather, such AOL traffic shall
be pointed directly back to the AOL Network as designated
by AOL.
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(d) Upon AOL's request, ICP shall use AOL's tools and
technology for all community-related utilities and
functionality (including, without limitation, chat,
message boards, and web page community services such as
AOL Hometown) within ICP Programming and the ICP Internet
Site and any registration or similar processes permitted
hereunder (once AOL's registration tools become available)
to the extent technically feasible and to the extent such
tools and technology can be integrated in a substantially
similar manner as ICP's current tools in terms of user
experience.
5.3 LINKS ON ICP INTERNET SITE. The Parties will work together on
mutually acceptable links (including links back to AOL) within
the ICP Internet Site in order to create a robust and engaging
AOL member experience. ICP shall take reasonable efforts to
ensure that AOL traffic is generally either kept within the
ICP Internet Site or ICP Programming or channeled back into
the AOL Network. To the extent that AOL notifies ICP in
writing that, in AOL's reasonable judgment, links from the ICP
Internet Site or ICP Programming cause an excessive amount of
AOL traffic to be diverted outside of such site and the AOL
Network in a manner that has a detrimental effect on the
traffic flow of the AOL audience, then ICP shall immediately
reduce the number of links out of such site(s). In the event
that ICP cannot or does not so limit diverted traffic from
such site, AOL reserves the right to terminate such links from
the AOL Network to such site.
5.4 REVIEW. ICP shall allow appropriate AOL personnel to have
access to all ICP Programming and the ICP Internet Site for
the purpose of reviewing such sites to determine compliance
with the provisions of this Section 5.
6. TERM, TERMINATION, SITE AND CONTENT PREPARATION, PRESS RELEASES.
6.1. TERM. Unless earlier terminated as set forth herein, the
initial term of this Agreement shall commence on the Effective
Date and expire on January 6, 2003. Provided that AOL provides
at least [****] to the [****] during the final year of the
initial term, AOL shall have the right, at its option, to
renew this Agreement for a two (2) renewal term on the same
terms and conditions set forth herein, by giving ICP written
notice of such election not later than ninety (90) days prior
to the expiration of the initial term. The Parties acknowledge
that AOL may give such notice whether or not it has provided
ICP with the required Impressions as of such date and AOL
shall have the remainder of the final year of the initial term
to provide such Impressions. If AOL [****] to provide the
[****] by the end of the final year of the initial term, AOL's
right to renew this Agreement shall be null and void
notwithstanding that AOL may have provided written notice of
its election to renew this Agreement. Upon the expiration of
the term of this Agreement without renewal by AOL, or upon the
earlier termination of this Agreement, AOL shall have the
right, at its option, [****] to [****], to use one or more ICP
trademarks or tradenames as keywords and/or text-based links
from the AOL Network to any ICP Interactive Site. Upon the
expiration or earlier termination (other than by reason of a
material breach of this Agreement by ICP) of the term of this
Agreement without renewal by AOL, AOL agrees to give notice to
each AOL Member then-registered in ICP's gift registry through
the AOL Service, which notice shall inform such AOL Members as
to how ICP's registry can be located after such expiration or
termination of this Agreement.
6.2. AOL TERMINATION RIGHTS.(a) AOL shall have the right to
terminate all of ICP's rights and AOL's obligations with
respect to AOL Hometown [****] by giving ICP thirty (30) days
prior written notice thereof; provided, however, that if AOL
exercises such termination right and subsequently desires to
include on AOL Hometown a community area devoted to
comprehensive weddings content and information, then AOL shall
discuss in good faith such opportunity with ICP prior to
entering into a definitive written agreement with another
provider thereof.
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[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
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(b) AOL shall have the right to terminate its obligations with
respect to Netscape Netcenter, including without limitation
AOL's obligations under Section 1.7.1(c) and with respect to
the ICP Weddings Index Page Space (as defined on Exhibit A) at
any time after the date that is [****] after the Amendment
Date by giving ICP written notice thereof (which notice may be
given prior to the date that is [****] after the Amendment
Date); provided, however, if AOL exercises such termination
right, AOL will provide ICP with a [****] on the Weddings
Index Page of Netscape Netcenter.
(c) AOL shall have the right to terminate its obligations with
respect to the CompuServe Service, including without
limitation AOL's obligations under Section 1.7.1(d) and with
respect to the ICP Weddings Department Screen Space (as
defined on Exhibit A) at any time after the date that is
twenty-six (26) months after the Amendment Date by giving ICP
written notice thereof (which notice may be given prior to the
date that is [****]); provided, however, if AOL exercises such
termination right, AOL will provide ICP with a [****] on the
main screen of the Weddings Department of the CompuServe
Service.
6.3 TERMINATION FOR BREACH. Either Party may terminate this
Agreement at any time in the event of a material breach by the
other Party which remains uncured after thirty (30) days
written notice thereof.
6.4 TERMINATION FOR BANKRUPTCY/INSOLVENCY OR CHANGES IN BUSINESS.
Either Party may terminate this Agreement immediately
following written notice to the other Party if the other Party
(i) ceases to do business in the normal course, (ii) becomes
or is declared insolvent or bankrupt, (iii) is the subject of
any proceeding related to its liquidation or insolvency
(whether voluntary or involuntary) which is not dismissed
within ninety (90) calendar days or (iv) makes an assignment
for the benefit of creditors.
6.5 TERMINATION OF PRIOR AGREEMENT. Effective as of the Effective
Date, the Prior Agreement shall terminate and be of no further
force and effect and the Parties shall have no liability for
matters accruing thereunder after the Effective Date except
for provisions of the Prior Agreement that expressly survive
the term of the Prior Agreement.
6.6 SITE AND CONTENT PREPARATION. ICP shall achieve Site and
Content Preparation within sixty (60) days after the Amendment
Date; provided that all Content required to be provided by ICP
under the Prior Agreement (e.g., the Online Area) shall
continue to be provided immediately upon the Amendment Date.
"Site and Content Preparation" shall mean that ICP shall have
completed all necessary production work for the ICP Internet
Site, all ICP Programming and any other related areas or
screens (including programming all Content thereon);
customized and configured the ICP Internet Site, and all ICP
Programming in accordance with this Agreement; and completed
all other necessary work (including, without limitation,
undergone all AOL site testing set forth on Exhibit F) to
prepare the ICP Internet Site, all ICP Programming and any
other related areas or screens to launch on the AOL Network as
contemplated hereunder.
6.7 PRESS RELEASES. Each Party will submit to the other Party, for
its prior written approval, which will not be unreasonably
withheld or delayed, any press release or any other public
statement ("Press Release") regarding the transactions
contemplated hereunder. Notwithstanding the
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foregoing, either Party may issue Press Releases and other
disclosures as required by law or as reasonably advised by
legal counsel without the consent of the other Party and in
such event, the disclosing Party will provide at least five
(5) business days prior written notice of such disclosure. The
failure to obtain the prior written approval of the other
Party shall be deemed a material breach of this Agreement,
whereby the non-breaching Party may terminate this Agreement
immediately following written notice to the other Party, and
the cure provision of Section 6.2 of this Agreement shall not
apply.
7. WARRANTS. ICP hereby grants to AOL a warrant (the "Warrant")
representing the right for a eight (8) year period to purchase shares
of ICP's Common Stock (the "Common Stock") equal to two and one-half
percent (2.5%) of all of ICP's capital stock, on a fully-diluted basis,
as of the Amendment Date, at a price per share equal to seven and
20/100 Dollars ($ 7.20). Upon execution of this Agreement, ICP shall
issue the Warrant and will enter into a Stock Subscription Warrant on
the form attached hereto as Exhibit K (the "Warrant Agreement"), which
will document the grant of the Warrant hereby made to AOL. The rights,
preferences and privileges of the Warrant and the Common Stock issuable
upon exercise of the Warrant shall be as set forth in the Warrant
Agreement. AOL shall have the right to terminate this Agreement in the
event of a material breach by ICP of the Warrant Agreement that remains
uncured beyond thirty (30) days following written notice thereof.
8. TERMS AND CONDITIONS. The terms and conditions set forth on the
Exhibits attached hereto are hereby made a part of this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the Effective Date.
AMERICA ONLINE, INC. THE KNOT, INC.
By: _________________________________ By: _________________________________
Print Name: ________________________ Print Name: _________________________
Title: ______________________________ Title: _____________________________
Date: _______________________________ Date: ______________________________
Tax ID/EIN#: ______________________
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EXHIBIT A
EXHIBIT A-1: CARRIAGE PLAN AND PROGRAMMING REQUIREMENTS
A. Anchor Tenancy. ICP shall receive distribution within the AOL Service
as follows: AOL shall (a) continuously and prominently place an
agreed-upon ICP link, branded logo or banner (an "Anchor Tenant
Button") on the Weddings Area main screen so long as AOL, in its sole
discretion, maintains buttons for wedding registries on the Weddings
Area main screen , which Anchor Tenant Button shall link to the Online
Area, (b) provide ICP with a standard Anchor position for the first two
years of the initial term, and thereafter at ICP's option for an
additional [****] as set forth in Section 1.5, in (1) the Shopping
Channel (or its successor on the AOL Service or AOL.com) Wedding
Registries department, (2) the wedding registries area (or its
successors) within the Shopping department of Netscape Netcenter, so
long as ICP is entitled to premier status on Netscape Netcenter
pursuant to Section 1.7.1(c), and (3) the wedding registries area (or
its successors) within the Shopping Channel of the CompuServe Service,
so long as ICP is entitled to premier status on the CompuServe Service
pursuant to Section 1.7.1(d) (which Shopping Channels and department
may, at AOL's option, be designed and developed by AOL as a single
cross-platform product), (c) provide ICP with carriage on the area
within the Digital City content area on the AOL Service that promotes
weddings content and which is currently known as the "Wedding Guide"
area; provided that, if AOL eliminates such area, AOL shall not be
required to provide ICP with such carriage and ICP shall not be
required to provide the DCI Promotions (as defined on Exhibit E), and
(d) provide ICP with the keyword "Knot" together with such other of the
keywords listed on Exhibit G as AOL may provide at its discretion,
which keywords shall link to the Online Area. The Weddings Area will be
accessible through the Romance and Womens subchannels (or any specific
successor(s) thereof). The Parties agree and acknowledge that (i) AOL
may, at any time, relaunch the Weddings Area, (ii) such relaunch may
occur with such other or additional Content, wedding registries or
areas as AOL may choose in its discretion (other than in the ICP
Weddings Main Screen Space), and (iii) upon relaunch of the Weddings
Area, AOL may issue press releases announcing the launch of the
Weddings Area. Subject to the provisions contained herein, the AOL
Keywords "Bridal", "Groom(s)", "Bride(s)", and "Wedding(s)" shall link
to the Weddings Area. -
B. Reserved Programming Space. Beginning on a mutually agreed upon date(s)
after the Amendment Date, AOL will provide approximately [****] of the
Programmable Space for ICP to provide Content on the Weddings Area main
screen (the "ICP Weddings Main Screen Space"). AOL will provide
approximately [****] of the Programmable Space for ICP to provide
Content on the Plan Your Wedding Time Saver main screen of AOL.com (the
"ICP Wedding Time Saver Space"). AOL will provide approximately [****]
of the Programmable Space for ICP to provide Content on the Weddings
Index Page of Netscape Netcenter (the "ICP Weddings Index Page Space").
AOL will provide approximately [****] of the Programmable Space for ICP
to provide Content on the Wedding Department main screen of the
CompuServe Service (the "ICP Wedding Department Screen Space"). The
main screen of the Weddings Area, the main screen of the Plan Your
Wedding Time Saver on AOL.com, the Weddings Index Page on Netscape
Netcenter and the main screen of the Weddings Department on the
CompuServe Service are collectively referred to herein as the "ICP
Programming Space Screens." The ICP Weddings Main Screen Space, the ICP
Wedding Time Saver Space, the ICP Weddings Index Page Space and the ICP
Wedding Department Screen Space are collectively referred to herein as
the "ICP Programming Space." Within each of the ICP Programming Space
Screens, AOL will provide ICP with approximately [****] of the
Programmable Space "above the fold" on such screen. AOL shall provide
ICP with prominent branding near the title on each of the main screen
of the Plan Your Wedding Time Saver on AOL.com , the Weddings Index
Page on Netscape Netcenter, the main screen of the Weddings Department
on the CompuServe Service and on each page of the Editorial Packages.
In the event AOL, in its sole discretion, allocates to ICP more than
the aforementioned percentage of any of the aforementioned areas or
screens, ICP shall program such additional space in accordance with
this Agreement, including without limitation this Exhibit A.
- ---------------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
12
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ICP shall have programming control of the Content within the ICP
Programming Space, provided that (i) such Content shall be subject to
the terms of this Agreement, shall link solely to ICP Programming for
the applicable AOL Property as described in the Programming Plan and
shall be directly related to the Content described on Exhibit A, (ii)
ICP shall not sell or place paid advertisements, promotions or
sponsorship links, or any other branded Content (except with ICP's
Marks or, subject to the terms of this Agreement, AOL's Marks), within
the ICP Programming Space and no more than [****] of the ICP Weddings
Main Screen Space shall contain promotions, or links for any
merchandising permitted to be conducted or promoted by ICP on the ICP
Weddings Main Screen Space pursuant to Section 4.3 and (iii) AOL shall
retain all right, title and interest in and to, and shall have sole
control over, the components of the AOL Look and Feel within the ICP
Programming Space. AOL shall have sole control over the remaining
Programmable Space and all Non-Programmable Space, including the
exclusive right to sell advertising, select branding, marks and logos
and program Content within such screens; provided that, ICP shall have
the right to reasonably disapprove any Content (exclusive of
advertisements, promotions and registries) from an ICP Competitor
contained on AOL's portion of the Programmable Space of the Weddings
Area main screen ("AOL Programmable Space") as long as such disapproval
is based upon editorial redundancy and is not based upon a business or
competitive reason of ICP, including but not limited to, the fact that
such Content is from a Weddings-Only Content Provider and/or an ICP
Competitor. AOL shall notify ICP of any Content (exclusive of
advertisements , promotions and registries) from an ICP Competitor
contained on the AOL Programmable Space; provided that; (i) AOL's
inadvertent failure to notify ICP of such Content shall not constitute
a breach of contract, and (ii) ICP shall have two (2) business days to
disapprove of such Content as provided herein by written notification
to AOL specifying all reasons for disapproval. If ICP reasonably
disapproves of such Content as provided herein, AOL shall promptly take
commercially reasonable steps to discontinue the display of such
Content on the AOL Programmable Space.
C. Customization and Co-Branding Programming Requirements:
AOL.com: ICP shall create a version of the ICP Internet Site customized
for distribution through AOL.com (the "ICP-AOL.com Site") by (x)
displaying on each page of the ICP-AOL.com Site headers and footers of
size and type determined by AOL and which contain both AOL.com and ICP
branding, links to AOL.com, and (y) programming each page of the
ICP-AOL.com Site with a co-branded domain name (i.e., theknot.aol.com
or some other AOL-approved treatment). The ICP-AOL.com Site shall
contain Content as described in the Programming Plan. All terms and
conditions of this Agreement applicable to the ICP Internet Site shall
apply to the ICP-AOL.com Site except as expressly otherwise stated.
COMPUSERVE: ICP shall create a version of the ICP Internet Site
customized for distribution through the CompuServe Service (the "ICP-CS
Site") by (x) displaying framing (including headers, footers and left
side navigation/menu bars) on each page of the ICP-CS Site of size and
type determined by AOL and which contain, as and to the extent
determined by AOL, CompuServe and ICP branding, links to the CompuServe
Service, a search box and promotional spaces to be programmed/served by
AOL (provided AOL agrees knot to promote ICP Competitors in such
spaces), (y) programming each page of the ICP-CS Site with a co-branded
domain name (i.e., theknot.compuserve.com) and (z) matching the look
and feel of the CompuServe Service on the ICP-CS Site. The ICP-CS Site
shall contain Content as described in the Programming Plan. All terms
and conditions of this Agreement applicable to the ICP Internet Site
shall apply to the ICP-CS Site except as expressly otherwise stated.
NETSCAPE: ICP shall create a version of the ICP Internet Site
customized for distribution through Netscape Netcenter (the "ICP-NS
Site") by (x) displaying a "C-frame" header, footer and left-side menu
bar on each page of the ICP-NS Site as well as the additional standard
programming elements as set forth in the Programming Plan, with such
C-frame of size and type determined by AOL with the headers and footers
containing both Netscape and ICP branding, links to Netscape Netcenter,
a search box and two (2) promotional spaces to be programmed/served by
AOL (provided that ICP shall not be required to implement the C-frame
to the extent not technically feasible, but ICP shall in any event
implement the headers and
- ---------------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
13
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<PAGE> 14
footers as described above), (y) programming each page of the ICP-NS
Site with a co-branded domain name (i.e., theknot.netscape.com or some
other AOL-approved treatment) and (z) matching the look and feel of
Netscape Netcenter on the ICP-NS Site.
D. AOL Hometown:
Within the "Wedding" department of the "Family Life" sub-category of
the "Family & Home" category of AOL Hometown, ICP will be entitled to
the following:
- [****] with corporate brand or logo through the front page of
the "Family & Home" category of AOL Hometown AOL, which
banners link to the ICP Internet Site.
- [****] of which may include an AOL-approved graphic (50 x 50
pixels in size) on the front page of the "Weddings" department
of AOL Hometown which text-fields directly link to a Community
Center.
- [****] in size) with corporate brand or logo on the top
navigation bar of the front page of the "Weddings" department,
each page of the corresponding Community Center linked to from
such department, and any Member Page developed within such
department, which banner will link to the ICP Internet Site.
All additional Promotions on Hometown AOL not specified herein will be
determined at AOL's sole discretion.
EXHIBIT A-2: DESCRIPTION OF CONTENT
A. ICP Programming.
I. Online Area
1. Overview/Purpose of Site: The one stop resource that provides brides
and grooms, their families and their guests the information, goods and
services that they need to have the engagement, wedding, honeymoon and
home that they want. From engagement, to the registry process, from the
honeymoon through to the set-up of the newlywed home, The Knot provides
the answers to today's couples every need.
2. Categories of Programming:
-- Original Content: Planning, beauty, fashion, grooms issues, wedding
gowns/dresses, bridesmaids, searchable databases of
gown/apparel/wedding photographers/local services/venues/planning
information, wedding ceremony and reception music, relationships,
honeymoon planning, romantic travel, books and book reviews, tuxedos
and formalwear, diamonds, engagement, Ethnic Weddings among them
Jewish/Asian/Afro-centric/ Latino and Greek, gay and lesbian weddings,
religion, new home, decorating, etiquette, advice experts, gifts,
registering, 2nd+ weddings, Families, Inter-weddings.
-- Member Generated Content (e.g., chat, live events, message boards,
personals and classifieds): Message boards and hosted live chat
pertaining to topics described in the original content.
-- Classifieds and listings: Not limited to but including local wedding
venues, vendors and services, honeymoon destinations.
-- Third Party Content: A broad range of wedding book authors,
honeymoon books and experts, Honeymoon Magazine, wedding related
content from online content providers, and other content relevant to
the categories described above in original content, subject to the
restrictions, terms and conditions contained in the Agreement.
-- Update Frequency: Daily, weekly and monthly and permanent features.
- ---------------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
14
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<PAGE> 15
-- Commerce: Knot registry, Knot shop, Aloha Honeymoon Travel Auctions,
subject to the restrictions, terms and conditions contained in the
Agreement.
-- Topics Covered: See the original content.
- Games: Trivia and surveys.
3. Categories of Links:
-- Permanent: sites editorially relevant to the topics described in the
original content Section above. Links to co-branded and non-co-branded
content areas that feature ICP content or brand. All links from Online
Area subject to AOL approval and other terms and conditions contained
in this Agreement.
-- Temporary: Links to content and sites, editorially relevant to the
topics described in the original content section above. All links from
Online Area subject to AOL approval and other terms and conditions
contained in this Agreement.
4. Technologies Employed: Windows NT, Perl, SQL, Java.
B. Other ICP Programming:
AOL SERVICE PROGRAMMING PLAN:
Partner provides: Comprehensive wedding-related content, the substantial
portion of which does not require registration; provided that access to
advice and functionality related to wedding planning may require
registration subject to the terms of this Agreement.
- --------------------------------------------------------------------------------
SECTION 1 - GENERAL CONTENT REQUIREMENTS
- --------------------------------------------------------------------------------
The content described below will be promoted from the Weddings @ AOL
screen. The topics and order of the topics below may change at AOL's
discretion and approval.
Gown of the Day
Tool Box
Wedding of the Week
Plan the honeymoon
--Advice from The Knot
Plan the Wedding
--Advice from The Knot
The Knot's Bridal Gown search and Wedding Checklist will be carried on the
page.
In addition, The knot will produce 5 editorial packages and 3 Rainman
screens per year as defined: Overall Requirements:
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- - The Knot will receive 60% of programming space at a minimum to be used in
accordance with Section B of Exhibit A-1.
- - Create these areas within 60 days after AOL's request.
- - The look and feel will be determined and approved by AOL.
- - Promotion within the AOL Service will be determined by AOL.
- - These areas promoted by AOL and will be supported through the Knot
5 Editorial Packages Requirements:
- - 1-3 Rainman screens
- - Topics determined by AOL (e.g., Spring Entertainment) with consultation by
ICP
- - An AOL ad banner position, size to be determined by AOL
- - Weekly updates unless another schedule is determined by AOL
- - Sponsorships, at AOL's discretion
- - Unlike real estate which does not have a specific period of time, the
editorial packages will run for a period of time as determined by AOL. AOL
will provide ICP with the timing guidelines prior to production.
3 Rainman Screens Requirements:
- - Topics determined by AOL (e.g., Honeymoons) with consultation by ICP
- - An AOL ad banner position, size to be determined by AOL
- - Weekly updates unless another schedule is determined by AOL
- - Sponsorships, at AOL's discretion
- - AOL will choose the content topics from topics covered by ICP
AOL.COM PROGRAMMING PLAN:
Partner provides: Comprehensive wedding-related content, the substantial
portion of which does not require registration; provided that access to
advice and functionality related to wedding planning may require
registration subject to the terms of this Agreement.
- --------------------------------------------------------------------------------
SECTION 1 - GENERAL CONTENT REQUIREMENTS
- --------------------------------------------------------------------------------
The Knot's content will be integrated prominently on the Plan Your Wedding
Time Saver, a one-page step-by-step guide to wedding planning that can be
done on the Web. The content described below will all be carried on this
one page. The topics and order of the topics below may change, but The
Knot's prominence on the page will not. All links from AOL.COM must go to
co-branded pages, which will include AOL.com headers, footers and domain
name.
Plan your wedding budget
--Advice from The Knot
--Budgeteer widget from The Knot
Choose the date for your wedding
--Advice from The Knot
The Guests
--Who-to-invite advice from The Knot
Choose a wedding site
-- Advice from The Knot
Choose a reception hall
-- Advice from The Knot
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Wedding Etiquette
--Advice from The Knot
--Weekly update of The Knot's Etiquette Q & A column
Find a photographer
--Advice from The Knot
Find a caterer
--Advice from The Knot
Plan the honeymoon
--Advice from The Knot
The Knot's Bridal Gown search and Wedding Checklist will be carried on the
page.
In addition, The Knot will produce 5 editorial packages and 3 HTML screens
per year as defined:
Overall Requirements:
- - The Knot will receive 60% of programming space at a minimum to be used in
accordance with Section B of Exhibit A-1
- - Create these areas within 60 days after AOL's request
- - The look and feel will be determined and approved by AOL.
- - Promotion within the AOL Service will be determined by AOL.
- - These areas promoted by AOL and will be supported through the Knot
5 Editorial Packages Requirements:
- - 1-3 HTML pages
- - Topics determined by AOL (e.g., Spring Entertainment) with consultation by
ICP
- - An AOL ad banner position, size to be determined by AOL
- - Weekly updates unless another schedule is determined by AOL
- - Sponsorships, at AOL's discretion
- - Unlike real estate which does not have a specific period of time, the
editorial packages will run for a period of time as determined by AOL. AOL
will provide ICP with timing guidelines prior to production.
3 HTML pages Requirements:
- - Topics determined by AOL (e.g., . Honeymoons) with consultation by ICP
- - An AOL ad banner position, size to be determined by AOL
- - Weekly updates unless another schedule is determined by AOL
- - Sponsorships, at AOL's discretion - AOL will choose the content topics from
topics covered by ICP
- --------------------------------------------------------------------------------
SECTION 2 - OTHER REQUIREMENTS
- --------------------------------------------------------------------------------
1. Branding requirements: ICP shall host the pages of the ICP Internet Site on
the following domain:
theknot.aol.com
In addition. ICP shall co-brand the
pages of the ICP Internet Site with headers and footers, for code which
can be found at:
http://proto.netscape.com:8080/mega/index.html
ID=partner, password=c0nt3nt
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2. Required reporting from Partner. The Knot must provide the server logs of
its Web sites that contain co-branded content. It should send the logs at
least weekly to an FTP site for AOL to retrieve. They should be in CERN
format and should contain HTTP referrers.
COMPUSERVE PROGRAMMING PLAN:
Partner provides: Comprehensive wedding-related content, the substantial
portion of which does not require registration; provided that access to
advice and functionality related to wedding planning may require
registration subject to the terms of this Agreement.
- -------------------------------------------------------------------------------
SECTION 1 - GENERAL CONTENT REQUIREMENTS
- -------------------------------------------------------------------------------
The Knot's content will serve as the Weddings offering on CompuServe. The
CompuServe Weddings Department main screen will be created and maintained
by the Knot and hosted on CompuServe. At CompuServe's discretion at least
six of the static links listed below will be featured at any one time. The
Knot enable sponsorships and other placement within the Weddings main
screen. The topics and order of the topics below may change, but The Knot's
prominence on the page will not. Except as specified, all links from
CompuServe will go to co-branded pages on the Knot's generally available
web site, which will include CompuServe left hand and top navigation and
domain name.
-- ICP shall create two mutually agreed upon features (e.g., Weddings 202:
The Knot's Guide to Second Weddings and All Inclusive Weddings: The Knot's
Guide for Complete Weddings Escapes) hosted on CompuServe. This content
will be original ICP content first appearing on CompuServe and shall not be
promoted through any other distribution channel for a period of six (6)
months after its first appearance on CompuServe.
Plan your wedding budget
--Advice from The Knot
--Budgeteer widget from The Knot
Choose the date for your wedding
--Advice from The Knot
The Guests
--Who-to-invite advice from The Knot
Choose a church
-- Advice from The Knot
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<PAGE> 19
Choose a wedding site
-- Advice from The Knot
Choose a reception hall
-- Advice from The Knot
Wedding Etiquette
--Advice from The Knot
--Weekly update of The Knot's Etiquette Q & A column
Find a photographer
--Advice from The Knot
Find a caterer
--Advice from The Knot
Plan the honeymoon
--Advice from The Knot
Checklist widget
--Advice from The Knot
--Checklist widget from The Knot
The Knot's Bridal Gown search and Wedding Checklist will be carried on the
page.
In addition to the links specified above, at CompuServe's option and
direction, the Knot will create and feature additional content within the
CompuServe Weddings Department as specified by CompuServe, including, but
not limited to, content featured on the Knot's main site, newly created
content specifically relating to women, or content created by the Knot for
other AOL brands or third parties. The Knot will also work with CompuServe
to create at least 2 major and 4 minor promotions for the CompuServe
Weddings Department, including contests, special features and exclusive
content as mutually agreed upon by the Parties. The CompuServe Weddings
Department main screen will be updated no less than once per week, and the
"Weddings 202: CompuServe Guide to Second Weddings" and "All inclusive
Weddings: a Guide for Complete Weddings Escapes" main screens will be
updated at least monthly.
- --------------------------------------------------------------------------------
SECTION 2 - OTHER REQUIREMENTS
- --------------------------------------------------------------------------------
1. Branding requirements: At CompuServe's discretion, The Knot will co-brand
each of its pages and host them on the following domain:
theknot.compuserve.com
2. Required reporting from Partner. The Knot will provide reporting to
CompuServe as reasonably determined by CompuServe
3. Keywords to be granted to Partner: The Knot
NETCENTER PROGRAMMING PLAN:
Partner provides: Comprehensive wedding-related content, the substantial
portion of which does not require registration; provided that access to
advice and functionality related to wedding planning may require
registration subject to the terms of this Agreement.
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<PAGE> 20
- --------------------------------------------------------------------------------
SECTION 1 - GENERAL CONTENT REQUIREMENTS
- --------------------------------------------------------------------------------
The Knot's content will be integrated prominently on the Plan Your Wedding
Time Saver, a one-page step-by-step guide to wedding planning that can be
done on the Web. The content described below will all be carried on this
one page. The topics and order of the topics below may change, but The
Knot's prominence on the page will not. All links from netscape.com must go
to co-branded pages. (See illustration of co-branded article page below.)
Plan your wedding budget
--Advice from The Knot
--Budgeteer widget from The Knot
Choose the date for your wedding
--Advice from The Knot
The Guests
--Who-to-invite advice from The Knot
Choose a wedding site
-- Advice from The Knot
Choose a reception hall
-- Advice from The Knot
Wedding Etiquette
--Advice from The Knot
--Weekly update of The Knot's Etiquette Q & A column
Find a photographer
--Advice from The Knot
Find a caterer
--Advice from The Knot
Plan the honeymoon
--Advice from The Knot
In addition, The Knot's Bridal Gown search and Wedding Checklist will be
carried on the page.
- --------------------------------------------------------------------------------
SECTION 2 - OTHER REQUIREMENTS
- --------------------------------------------------------------------------------
3. Branding requirements: The Knot must co-brand each of its pages and host
them on the following domain:
theknot.netscape.com
The code for the co-branding guidelines can be found at:
http://proto.netscape.com:8080/mega/index.html
ID=partner, password=c0nt3nt
Implementing the code will require minor changes to the parts of the code
that apply specifically to The Knot.
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4. Required reporting from Partner. The Knot must provide the server logs of
its Web sites that contain co-branded content. It should send the logs at
least weekly to an FTP site for AOL to retrieve. They should be in CERN
format and should contain HTTP referrers.
AOL HOMETOWN:
I. ICP will, in accordance with the programming plan set forth in Section
B below, do the following:
(i) subject to AOL's approval, program two (2) AOL-designated
promotional fields of the front page of the Wedding department of
AOL Hometown (referred to herein as a "Department Page")
consisting of the type of Content described in Section II.2 below
and update such promotional fields with new Content on no less
than a weekly basis; and
(ii) design, develop, manage and maintain a community area, located
within AOL Hometown (together with the Content contained therein)
linked to from each of the promotional fields on the Department
Page. Each such community area is referred to herein as a
"Community Center" and collectively are referred to as the
"Community Centers". ICP will develop and implement each
Community Center, consisting of the specific Content described in
Section II.2 below.
II.
II.1 Promotional Text Fields of Department Page(s)
- ICP will program the top two promotional text fields on the
Department page described above.
- These promotional text fields will be programmed with
contextually appropriate content which directly links to the
Partner's Community Center or other page registered within AOL
Hometown (displaying the AOL Hometown frameset). The promotional
text fields will NOT link to a domain other than
hometown.aol.com.
- Each promotional field will contain the following:
(1) Graphic: a 50 pixel x 50 pixel square click-able graphic,
provided in .GIF format
(a) NOTE: If no graphic is provided, a default, clickable
wing-ding will appear.
(2) Text: 60 CHARACTERS TOTAL: Three lines of twenty characters
each (spaces included)
(a) First line of twenty (20) characters is a hyperlinked
headline (dispatches to same URL that the graphic does)
(b) Second two (2) lines of twenty (20) characters each: normal
text, not hyperlinkable.
- These promotional text fields will be refreshed on a weekly
basis.
II.2 Community Center
- ICP WILL PRODUCE AT LEAST ONE "COMMUNITY CENTER" FOR THE
"WEDDINGS" DEPARTMENT OF AOL HOMETOWN CONSISTING OF, AT A
MINIMUM, THE FOLLOWING CONTENT (ADDITIONAL CONTENT MAY BE
PROVIDED SUBJECT TO AOL'S APPROVAL):
(1) strong "Join our community" messaging
(2) strong "build a home page now" messaging
(3) a selection and listing of one or more of the best Member
Page(s) (weekly basis)
(4) at least five (5) of the following programming items:
(a) Top Ten member page lists
(b) Homesteader contests
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(c) Homesteader (of the week)
(d) Community home page tours
(e) Newsletter
(f) Message board links (using AOL tools only, when
available)
(g) Chat links (using AOL tools only, when available)
(h) Homepage building recipes (how-to or quick steps)
(i) Clip art, animations, etc. to be used by Hometown AOL
user in building Member Page(s)
- The content within the Community Center will be updated on no
less than a weekly basis.
SCHEDULE OF EVENTS
- ICP will provide AOL with a schedule of events, which will
include a description of the content/theme for promotions and
events and the start dates of these promotions and events. The
schedule of events will cover no less than three months of
promotions and be provided prior to the execution of this
Agreement.
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EXHIBIT B -- DEFINITIONS
DEFINITIONS. The following definitions shall apply to this Agreement:
ADVERTISING REVENUES. Aggregate amounts collected plus the fair market value of
any other compensation received (such as barter advertising) by ICP or ICP's
agents, as the case may be, arising from the license or sale of AOL
Advertisements, less applicable Advertising Sales Commissions; provided that, in
order to ensure that AOL receives fair value in connection with AOL
Advertisements, ICP shall be deemed to have received no less than the
Advertising Minimum in instances when ICP makes an AOL Advertisement available
to a third party at a cost below the Advertising Minimum.
ADVERTISING MINIMUM. (i) [****] entries per month or (ii) such different rate or
rates as AOL may establish based upon market conditions and publish during the
Term.
ADVERTISING SALES COMMISSION. In the case of an AOL Advertisement, actual
amounts paid as commission to third party agencies in connection with sale of
the AOL Advertisement.
AFFILIATE. Any agent, distributor or franchisee of AOL, or an entity in which
AOL holds at least a nineteen percent (19%) equity interest.
AOL SERVICE. The narrow-band U.S. version of the America Online(R) brand
service, specifically excluding (a) AOL.com and any other AOL Interactive Site,
(b) the international versions of an America Online service (e.g., AOL Japan),
(c) the CompuServe(R) brand service and any other CompuServe products or
services, (d) Netscape Netcenter(TM) and any other Netscape(R) products or
services, (e) "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant Messenger(TM),"
"Digital City(TM)," "NetMail(TM)," "Real Fans", "Love@AOL", "Entertainment
Asylum," "AOL Hometown" or any similar independent product, service or property
which may be offered by, through or with the U.S. version of the America
Online(R) brand service, (f) any programming or content area offered by or
through the U.S. version of the America Online(R) brand service over which AOL
does not exercise complete operational control (including, without limitation,
Content areas controlled by other parties and member-created Content areas), (g)
any yellow pages, white pages, classifieds or other search, directory or review
services or Content offered by or through the U.S. version of the America
Online(R) brand service, (h) any property, feature, product or service which AOL
or its affiliates may acquire subsequent to the Effective Date and (i) any other
version of an America Online service which is materially different from the
narrow-band U.S. version of the America Online brand service, by virtue of its
branding, distribution, functionality, Content or services, including, without
limitation, any co-branded version of the service and any version distributed
through any broadband distribution platform or through any platform or device
other than a desktop personal computer.
AOL.com. AOL's primary Internet-based Interactive Site marketed under the
"AOL.COM(TM)" brand, specifically excluding (a) the AOL Service, (b) any
international versions of such site, (c) CompuServe.com, Netscape Netcenter, any
other CompuServe or Netscape products or services or interactive sites, (d)
"ICQ(TM)," "AOL NetFind(TM)," "AOL Instant Messenger(TM)," "NetMail(TM)" or any
similar independent product or service offered by or through such site or any
other AOL Interactive Site, (e) any programming or Content area offered by or
through such site over which AOL does not exercise complete operational control
(including, without limitation, Content areas controlled by other parties and
member-created Content areas), (f) any programming or Content area offered by or
through the U.S. version of the America Online(R) brand service which was
operated, maintained or controlled by the former AOL Studios division, (g) any
yellow pages, white pages, classifieds or other search, directory or review
services or Content offered by or through such site or any other AOL Interactive
Site, (h) any property, feature, product or service which AOL or its affiliates
may acquire subsequent to the Effective Date and (i) any other version of an
America Online Interactive Site which is materially different from AOL's primary
Internet-based Interactive Site marketed under the "AOL.COM(TM)" brand, by
virtue of its branding, distribution, functionality, Content or services,
including, without limitation, any co-branded versions and any version
distributed through any broadband distribution platform or through any platform
or device other than a desktop personal computer.
AOL HOMETOWN. AOL's interactive service, marketed under the "AOL Hometown" brand
available to users of the AOL Network and the World Wide Web portion of the
Internet through which such users may publish and maintain World Wide Web pages,
use community tools and engage in other interactive activities, specifically
excluding (a) the AOL Service and AOL.com, (b) any international versions of
such service and such site, (c) the CompuServe(R) brand service, Netscape
Netcenter, "ICQ," "AOL NetFind(TM)," "AOL Instant Messenger(TM)," "NetMail(TM)"
or any similar independent product or service offered by or through any other
AOL Interactive Site, (d) any programming or Content area offered by or through
such site over which AOL does not exercise complete operational control
(including, without limitation, Content areas controlled by other parties and
member-created Content areas, such as, without limitation, partner community
center pages and Member Pages), (e) any yellow pages, white pages, classifieds
or other search, directory or review services or Content offered by or through
such site or any other AOL Interactive Site, (f) any property, feature, product
or service which AOL or its affiliates may acquire subsequent to the Effective
Date and (h) any other version of an America Online Interactive Site which is
materially different from AOL's primary interactive service marketed under the
"AOL Hometown" brand, by virtue of its branding, distribution, functionality,
Content or services, including, without limitation, any co-branded versions and
any version distributed through any broadband distribution platform or through
any platform or device other than a desktop personal computer.
AOL PROPERTY. Any product, service or property owned, operated, marketed,
distributed, or authorized to be distributed by or through AOL or its
Affiliates, including, without limitation, the AOL Service, AOL.com, the
CompuServe Service, Netscape Netcenter and AOL Hometown.
AOL LOOK AND FEEL. The distinctive and particular elements of graphics, design,
organization, presentation, layout, user interface, navigation, trade dress and
stylistic convention (including the digital implementations thereof) within the
AOL Network and the total appearance and impression substantially formed by the
combination, coordination and interaction of these elements.
AOL MEMBER(S). Authorized users (including any sub-accounts under an authorized
master account) of the AOL Network.
AOL NETWORK. (i) The AOL Service, (ii) AOL.com, (iii) the CompuServe Service,
(iv) CompuServe.com, (v) Netscape Netcenter and (vi) any other product or
service owned, operated, distributed or authorized to be distributed by or
through AOL or its Affiliates worldwide through which such party elects to offer
the ICP Internet Site, ICP Programming and/or Licensed Content (which may
include, without limitation, AOL-related Internet sites, "offline" information
browsing products, international versions of the AOL brand service, or
Compuserve) and (vii) any of the foregoing products and services authorized by
AOL or its Affiliates to be distributed through a third party, including on a
private label basis (including without limitation AOL's Custom Netcenter
product).
CHANGE OF CONTROL. (a) The consummation of a reorganization, merger or
consolidation or sale or other disposition of substantially all of the assets of
a party or (b) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under such Act) of more than 50% of either (i) the then outstanding
shares of common stock of such party; or (ii) the combined voting power of the
then outstanding voting securities of such party entitled to vote generally in
the election of directors.
COMPUSERVE SERVICE. The standard HTML version of the narrow-band U.S. version of
the CompuServe brand service, specifically excluding (a) any international
versions of such service (e.g., NiftyServe), (b) any web-based service including
"compuserve.com", "cserve.com" and "cs.com", or any similar product or service
offered by or through the U.S. version of the CompuServe brand service, (c)
Content areas owned, maintained or controlled by CompuServe affiliates or any
similar "sub-service," (d) any programming or Content area offered by or through
the U.S. version of the CompuServe brand service over which CompuServe does not
exercise complete or substantially complete operational control (e.g.,
third-party Content areas), (e) any yellow pages, white pages, classifieds or
other search, directory or review services or Content (f) any co-branded or
private label branded version of the U.S. version of the CompuServe brand
service, (g) any version of the U.S. version of the CompuServe brand service
which offers Content, distribution, services or functionality materially
different from the Content, distribution, services or functionality associated
with the standard, narrow-band U.S. version of the CompuServe brand service,
including, without limitation, any version of such service distributed through
any platform or device other than a desktop personal computer, (h) any property,
feature, product or service which CompuServe or its
- ---------------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
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affiliates may acquire subsequent to the Effective Date, (i) the America Online
brand service and any independent product or service which may be offered by,
through or with the U.S. version of the America Online brand service and (j) the
HMI versions of the CompuServe brand service.
COMPUSERVE.com. CompuServe's primary Internet-based Interactive Site marketed
under the "CompuServe.com(TM)" brand, specifically excluding (a) the CompuServe
Service and AOL Service, (b) any international versions of such site, (c)
AOL.com, Netscape Netcenter, any other AOL or Netscape products or services or
interactive sites, (d) "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant
Messenger(TM)," "NetMail(TM)" or any similar independent product or service
offered by or through such site or any other AOL or CompuServe Interactive Site,
(e) any programming or Content area offered by or through such site over which
AOL does not exercise complete operational control (including, without
limitation, Content areas controlled by other parties and member-created Content
areas), (f) any programming or Content area offered by or through the U.S.
versions of the America Online(R) brand service or CompuServe brand service
which was operated, maintained or controlled by the former AOL Studios division,
(g) any yellow pages, white pages, classifieds or other search, directory or
review services or Content offered by or through such site or any other AOL or
CompuServe Interactive Site, (h) any property, feature, product or service which
AOL or its affiliates may acquire subsequent to the Effective Date and (i) any
other version of an AOL or CompuServe Interactive Site which is materially
different from CompuServe's primary Internet-based Interactive Site marketed
under the "CompuServe.com(TM)" brand, by virtue of its branding, distribution,
functionality, Content or services, including, without limitation, any
co-branded versions and any version distributed through any broadband
distribution platform or through any platform or device other than a desktop
personal computer.
CONFIDENTIAL INFORMATION. Any information relating to or disclosed in the course
of this Agreement, which is, or should be reasonably understood to be,
confidential or proprietary to the disclosing Party, including, but not limited
to, the material terms of this Agreement, information about AOL Members,
technical processes and formulas, source codes, product designs, sales, cost and
other unpublished financial information, product and business plans, projections
and marketing data. "Confidential Information" shall not include information (a)
already lawfully known to or independently developed by the receiving Party, (b)
disclosed in published materials, (c) generally known to the public, or (d)
lawfully obtained from any third party.
CONTENT. Text, images, video, audio (including, without limitation, music used
in time relation with text, images, or video), and other data, products,
services, advertisements, promotions, links, URLs, pointers, technology and
software.
ICP INTERACTIVE SITE. Any interactive site or area (other than ICP Programming),
including any mirrored site or area, which is managed, maintained or owned by
ICP or its agents or to which ICP provides and/or licenses information, content
or other materials, including, by way of example and without limitation, (i) an
ICP site on the World Wide Web portion of the Internet or (ii) a channel or area
delivered through a "push" product such as the Pointcast Network or interactive
environment such as Microsoft's proposed Active Desktop or interactive
television service such as WebTV.
ICP INTERNET SITE. Each of the versions of the Internet site and Content,
currently located at URL:http://www.theknot.com and all related URLs, which are
customized for distribution through the AOL Network in accordance with this
Agreement.
ICP PRESENCE. Any (a) ICP trademark or logo, (b) headline or picture from ICP
Content, (c) teaser, icon, or link to the ICP Internet Site or ICP Programming
and/or (d) other Content which originates from, describes or promotes ICP or
ICP's Content.
ICP PROGRAMMING. Any (a) area within the AOL Network or outside the AOL Network
but exclusively available to AOL Members, which area is developed, programmed,
and/or managed by ICP, in whole or in part, pursuant to this Agreement and all
Content thereon (including, without limitation, message boards, chat and other
AOL Member-supplied content areas contained therein) including, without
limitation, the Online Area, the ICP Programming Space, any co-branded site or
page, the Community Centers, and (b) Content provided to AOL by ICP pursuant to
this Agreement for distribution on or through the AOL Network other than on the
ICP Internet Site (such as, without limitation, the Content programmed by ICP
into the promotional fields of the AOL Hometown Department Pages).
IMPRESSION. User exposure to an ICP Presence, as such exposure may be reasonably
determined and measured by AOL in accordance with its standard methodologies and
protocols.
INTERACTIVE SERVICE. An entity offering one or more of the following: (i) online
or Internet connectivity services (e.g., an Internet service provider); (ii) an
interactive site or service featuring a broad selection of aggregated third
party interactive content (or navigation thereto) (e.g., an online service or
search and directory service) and/or marketing a broad selection of products
and/or services across numerous interactive commerce categories (e.g., an online
mall or other leading online commerce site); (iii) a persistent desktop client;
or (iv) communications software capable of serving as the principal means
through which a user creates, sends or receives electronic mail or real time or
"instant" online messages (whether by telephone, computer or other means),
including without limitation, greeting cards.
KEYWORD(TM) SEARCH TERMS. The Keyword(TM) online search terms made available on
the AOL Service for use by AOL Members, combining AOL's Keyword(TM) online
search modifier with a term or phrase specifically related to ICP (and
determined in accordance with the terms of this Agreement).
LICENSED CONTENT. All Content provided by ICP or its agents through the ICP
Internet Site and/or the AOL Network in connection with the subject matter of
this Agreement, including without limitation all ICP Programming.
LINKED INTERACTIVE SITE. Any site or area outside of the AOL Network which is
linked to ICP Programming (through a "pointer" or similar link) subject to
approval by AOL in accordance with the terms and conditions of this Agreement.
LINKED ICP INTERACTIVE SITE. Any ICP Interactive Site which is also a Linked
Interactive Site.
MEMBER PAGE. Any web page created by an AOL Member through AOL Hometown and
using the community tools available therein.
NETSCAPE NETCENTER. Netscape Communications Corporation's primary Internet-based
Interactive Site marketed under the "Netscape Netcenter(TM)" brand, specifically
excluding (a) the AOL Service and the CompuServe Service, (b) AOL.com and
CompuServe.com, (c) any international versions of such site, (d) "ICQ," "AOL
Netfind(TM)," "AOL Instant Messenger(TM)," "NetMail(TM)," "AOL Hometown," "My
News," "Digital City(TM)," or any similar independent product or service offered
by or through such site or any other AOL Interactive Site, (e) any programming
or Content area offered by or through such site over which AOL does not exercise
complete operational control (including, without limitation, Content areas
controlled by other parties and member-created Content areas), (f) any
programming or Content area offered by or through the U.S. version of the
America Online(R) brand service which was operated, maintained or controlled by
the former AOL Studios division (e.g., Electra), (g) any yellow pages, white
pages, classifieds or other search, directory or review services or Content
offered by or through such site or any other AOL Interactive Site, (h) any
property, feature, product or service which AOL or its affiliates may acquire
subsequent to the Effective Date and (i) any other version of an AOL or Netscape
Communications Corporation Interactive Site which is materially different from
Netscape Communications Corporation's primary Internet-based Interactive Site
marketed under the "Netscape Netcenter(TM)" brand, by virtue of its branding,
distribution, functionality, Content or services, including, without limitation,
any co-branded versions and any version distributed through any broadband
distribution platform or through any platform or device other than a desktop
personal computer (e.g. Custom NetCenters built specifically for third parties).
NON-PROGRAMMABLE SPACE. The portions of the ICP Programming Space screens that
are intended for the placement of AOL navigational elements (e.g., browser
frames, navigation bars and buttons), any AOL Look and Feel components and
brand-related Content, and any other Content not expressly included within the
definition of Programmable Space. AOL retains sole and exclusive control over
any Non-Programmable Space.
ONLINE AREA. The specific area within the AOL Network, as described in Exhibit
A, which shall be developed, managed or marketed by ICP pursuant to this
Agreement, including but not limited to the Licensed Content, message boards,
chat and other AOL Member-supplied content areas contained therein (but
excluding any Linked Interactive Sites other than sites which are exclusively
available to AOL Members).
PRODUCTS. Any product, good or service which ICP (or others acting on its behalf
or as distributors) offers, sells, provides, distributes or licenses to AOL
Members directly or indirectly through (i) the ICP Internet Site (including
through any Interactive Site linked thereto) or ICP Programming (including any
Linked Interactive Site), (ii) any other electronic means directed at AOL
Members (e.g., e-mail offers), or (iii) an "offline" means (e.g., toll-free
number)
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for receiving orders related to specific offers within the ICP Internet Site or
ICP Programming requiring purchasers to reference a specific promotional
identifier or tracking code, including, without limitation, products sold
through surcharged downloads (to the extent expressly permitted hereunder).
PROGRAMMABLE SPACE. The portions of the ICP Programming Space screens that are
intended solely for the placement of dynamic Content directly related to the
subject matter of the screen, promotion of registries, or any other
advertisements, promotions, sponsorships, links, pointers or similar services or
rights, specifically excluding any Non-Programmable Space.
TERM. The period beginning on the Effective Date and ending upon the expiration
or earlier termination of this Agreement.
WEDDINGS-ONLY CONTENT PROVIDER. An entity solely in the business of providing
weddings-related Content or services.
WEDDINGS-ONLY CONTENT. Wedding-related Content provided by a Weddings-Only
Content Provider.
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EXHIBIT C -- STANDARD LEGAL TERMS AND CONDITIONS
I. AOL NETWORK
CONTENT. ICP represents and warrants that all Content contained within the ICP
Internet Site and ICP Programming and all Licensed Content (i) does and will
conform to AOL's applicable Terms of Service, the terms of this Agreement and
any other standard, written policy of AOL and any applicable AOL Property, (ii)
does not and will not infringe on or violate any copyright, trademark, U.S.
patent, rights of publicity, moral rights or any other third party right,
including without limitation, any music performance or other music related
rights, and (iii) does not and will not contain any Content which violates any
applicable law or regulation ((i), (ii) and (iii) collectively, the "Rules"). In
the event that AOL notifies ICP in writing that any such Content, as reasonably
determined by AOL, does not comply or adhere to the Rules, then ICP shall use
its best efforts to block access by AOL Members to such Content. In the event
that ICP cannot, through its best efforts, block access by AOL Members to such
Content in question, then ICP shall provide AOL prompt written notice of such
fact. AOL may then, at its option, either (i) restrict access from the AOL
Network to the Content in question using technology available to AOL or (ii) in
the event access cannot be restricted, direct ICP to remove any such Content.
ICP will cooperate with AOL's reasonable requests to the extent AOL elects to
implement any such access restrictions.
AOL NETWORK DISTRIBUTION. The distribution, placements and/or promotions
described in this Agreement or otherwise provided to ICP by AOL shall be used by
ICP solely for its own benefit, will link to and promote solely the Licensed
Content within the ICP Internet Site or ICP Programming expressly described on
Exhibit A and will not be resold, traded, exchanged, bartered, brokered or
otherwise offered or transferred to any third party or contain any branding
other than ICP's branding. Further, the Content of all such distribution,
placements and promotions shall be subject to AOL's policies relating to
advertising and promotion, including those relating to AOL's exclusivity
commitments and other contractual preferences to third parties.
CHANGES TO AOL PROPERTIES. AOL reserves the right to redesign or modify the
organization, structure, "look and feel," navigation and other elements of the
AOL Service, AOL Hometown, AOL.com or any other AOL Property, including without
limitation, by adding or deleting channels, subchannels and/or screens. If AOL
eliminates or modifies an area on an AOL Property in a manner that substantially
modifies the nature of the distribution required under this Agreement in a
material adverse fashion, AOL will work with ICP in good faith to provide ICP,
as its sole remedy, with comparable distribution reasonably satisfactory to ICP.
MEMBER PAGE. AOL will have no obligation with respect to the Content and
services available on or through any Member Page including, but not limited to,
any duty to review or monitor any such Content and services. AOL expressly
disclaims any liability to ICP for the Content and services contained in any
Member Page or any expense, claim, demand, costs, loss or damage arising out of
any use of the ICP-provided Content available from, without limitation, a
Community Center or the ICP Internet Site. ICP agrees to release AOL and its
affiliates, including partners, directors, officers, employees and agents from
any and all claims, rights and recourses for such loss or damage.
CONTESTS. ICP shall ensure that any contest, sweepstakes or similar promotion
conducted or promoted through the ICP Internet Site and/or ICP Programming (a
"Contest") complies with all applicable laws and regulations. Upon AOL's
request, ICP shall provide AOL with an opinion from ICP's counsel confirming
that the Contest complies with all applicable federal, state and local laws and
regulations. All contests shall comply with AOL's standard policies regarding
contests and ICP shall request updates of such policies prior to conducting or
promoting a Contest.
DISCLAIMERS. Upon AOL's request, AOL agrees to include within the ICP Internet
and/or ICP Programming a disclaimer (the specific form and substance to be
mutually agreed upon by the Parties) indicating that all Content (including any
products and services) is provided solely by ICP and not AOL, and any
transactions are solely between ICP and AOL Members using or purchasing such
Content and AOL is not responsible for any loss, expense or damage arising out
of the Licensed Content or services provided through the ICP Internet Site or
ICP Programming (e.g., "In no event shall AOL nor any of its agents, employees,
representatives or affiliates be in any respect legally liable to you or any
third party in connection with any information or services contained herein and
AOL makes no warranty or guaranty as to the accuracy, completeness, correctness,
timeliness, or usefulness of any of the information contained herein"). ICP
shall not in any manner state or imply that AOL recommends or endorses ICP or
its Content.
REWARDS PROGRAMS. [****], ICP shall not offer, provide, implement or otherwise
make available in ICP Programming, or on any page of the ICP Internet Site
directly linked to from the AOL Network, any promotional programs or plans that
are intended to provide customers with rewards or benefits in exchange for, or
on account of, their past or continued loyalty to, or patronage or purchase of,
the products or services of ICP or any third party (e.g., a promotional program
similar to a "frequent flier" program), unless such promotional program or plan
is provided exclusively through AOL's "AOL Rewards" program, accessible on the
AOL Service at Keyword: "AOL Rewards." In addition, ICP shall promote the AOL
Rewards program with equal prominence [****] in any Promotions within ICP
Programming or the AOL Network.
NAVIGATION. In cases where an AOL Member performs a search for ICP through any
search or navigational tool or mechanism that is accessible or available through
the AOL Network (e.g., promotions, Keyword Search Terms, or any other
navigational tools), AOL shall have the right to direct such AOL Member to the
ICP Internet Site, or any other ICP Interactive Site determined by AOL in its
reasonable discretion.
AOL LOOK AND FEEL. ICP acknowledges and agrees that AOL shall own all right,
title and interest in and to the AOL Look and Feel. In addition, AOL shall
retain editorial control over the portions of the AOL pages and forms which
frame the ICP Internet Site or ICP Programming (the "AOL Frames"). AOL may, at
its discretion, incorporate navigational icons, links and pointers or other
Content into such AOL Frames.
OPERATIONS. AOL shall be entitled to require reasonable changes to the ICP
Internet Site and ICP Programming to the extent such site will, in AOL's good
faith judgment, adversely affect operations of the AOL Network.
CLASSIFIEDS. ICP shall not implement or promote any classifieds listing features
through ICP Programming without AOL's prior written approval. Such approval may
be conditioned upon, among other things, ICP's conformance with any
then-applicable service-wide technical or other standards related to online
classifieds.
MESSAGE BOARDS; CHAT ROOMS AND COMPARABLE VEHICLES. Any Content submitted by ICP
or its agents within message boards, chat rooms or any comparable vehicles will
be subject to the license grant relating to submissions to "public areas" set
forth in the AOL Terms of Service. ICP acknowledges that it has no rights or
interest in AOL Member submissions to message boards, chat rooms or any other
vehicles through which AOL Members may make submissions within the AOL Network.
ICP will refrain from editing, deleting or altering, without AOL's prior
approval, any opinion expressed or submission made by an AOL Member within ICP
Programming except in cases where ICP has a good faith belief that the Content
in question violates an applicable law, regulation, third party right or the
applicable AOL Property's Terms of Service.
DUTY TO INFORM. ICP shall promptly inform AOL of any information related to the
ICP Internet Site, ICP Programming or the Licensed Content which could
reasonably lead to a claim, demand or liability of or against AOL and/or its
Affiliates by any third party.
RESPONSE TO QUESTIONS/COMMENTS; CUSTOMER SERVICE. ICP shall respond promptly and
professionally to questions, comments, complaints and other reasonable requests
regarding the ICP Internet Site, ICP Programming or the Licensed Content by AOL
Members or on request by AOL, and shall cooperate and assist AOL in promptly
answering the same. ICP shall have sole responsibility for customer service
(including, without limitation, order processing, billing, shipping, etc.) and
AOL shall have no responsibility with respect thereto. ICP shall comply with all
applicable requirements of any federal, state or local consumer protection or
disclosure law.
STATEMENTS THROUGH AOL NETWORK. ICP shall not make, publish, or otherwise
communicate through the AOL Network any deleterious remarks concerning AOL or
its Affiliates, directors, officers, employees, or agents (including, without
limitation, AOL's business projects, business capabilities, performance of
duties and services, or financial position) which remarks are based on the
relationship established by this Agreement or information exchanged hereunder.
This section is not intended to limit good faith editorial statements made by
ICP based upon publicly available information, or information developed by ICP
independent of its relationship with AOL and its employees and agents.
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[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
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PRODUCTION WORK. In the event that ICP requests any AOL production assistance,
ICP shall work with AOL to develop detailed production plans for the requested
production assistance (the "Production Plan"). Following receipt of the final
Production Plan, AOL shall notify ICP of (i) AOL's availability to perform the
requested production work, (ii) the proposed fee or fee structure for the
requested production work and (iii) the estimated development schedule for such
work. To the extent the Parties reach agreement regarding implementation of
agreed-upon Production Plan, such agreement shall be reflected in a separate
work order signed by the Parties. All fees to be paid to AOL for any such
production work shall be paid in advance. To the extent ICP elects to retain a
third party provider to perform any such production work, work produced by such
third party provider must generally conform to AOL's production standards
available at Keyword "Styleguide." The specific production resources which AOL
allocates to any production work to be performed on behalf of ICP shall be as
determined by AOL in its sole discretion.
PUBLISHING TOOLS. AOL shall make available to ICP any proprietary publishing
tools of AOL that are generally available to third parties and necessary for ICP
to produce and refresh the Online Area during the Term (each a "Tool"). ICP
shall be granted a nonexclusive license to use any such Tool, which license
shall be subject to: (i) ICP's compliance with all rules and regulations
relating to use of the Tools, as published from time to time by AOL, (ii) AOL's
right to withdraw or modify such license at any time, and (iii) ICP's express
recognition that AOL provides all Tools on an "as is" basis, without warranties
of any kind.
TRAINING AND SUPPORT. AOL shall make available to ICP standard AOL training and
support programs necessary to produce any AOL areas hereunder. ICP can select
its training and support program from the options then offered by AOL. ICP shall
be responsible to pay the fees associated with its chosen training and support
package. In addition, ICP will pay travel and lodging costs associated with its
participation in any AOL training programs (including AOL's travel and lodging
costs when training is conducted at ICP's offices).
ACCOUNTS. ICP shall receive up to [****] accounts on the AOL Service for the
exclusive purpose of enabling it and its agents to perform ICP's duties under
this Agreement. In the event there is any abuse of any account granted
hereunder, AOL reserves the right to terminate such account upon written
notification to ICP. ICP will be responsible for the actions taken under or
through its accounts, which actions are subject to AOL's applicable Terms of
Service. The accounts shall be of the type determined by AOL to be necessary for
ICP to perform its duties hereunder and ICP shall be responsible for all charges
associated with such accounts, including any surcharges, including, without
limitation, all premium charges, transaction charges, and any applicable
communication surcharges incurred by any account issued to ICP; provided,
however, that ICP shall not be charged for AOL's standard monthly usage fees and
standard hourly charges. Upon the termination of this Agreement, all accounts,
related screen names and any associated usage credits or similar rights, will
automatically terminate unless ICP notifies AOL in writing, upon termination of
this Agreement, that it elects to have some or all of the accounts granted
hereunder converted to paying general accounts. AOL will have no liability for
loss of any data or content related to the proper termination of any account.
LAUNCH DATE. In the event that any terms contained herein relate to or depend on
the launch date of the ICP Internet Site or other property contemplated by this
Agreement, which launch date is later than the Effective Date, then it is the
intention of the Parties to record such launch date in a written instrument
signed by both Parties promptly following such launch date; provided that, in
the absence of such a written instrument, the launch date shall be as reasonably
determined by AOL based on the information available to AOL.
KEYWORDS. Any Keyword Search Terms to be directed to the ICP Internet Site shall
be (i) subject to availability for use by ICP and (ii) limited to the
combination of the Keyword(TM) search modifier combined with a registered
trademark of ICP. AOL reserves the right to revoke at any time ICP's use of any
Keyword Search Terms which do not incorporate registered trademarks of ICP. ICP
acknowledges that its utilization of a Keyword Search Term will not create in
it, nor will it represent it has, any right, title or interest in or to such
Keyword Search Term, other than the right, title and interest ICP holds in ICP's
registered trademark independent of the Keyword Search Term. Without limiting
the generality of the foregoing, ICP will not: (a) attempt to register or
otherwise obtain trademark or copyright protection in the Keyword Search Term;
or (b) use the Keyword Search Term, except for the purposes expressly required
or permitted under this Agreement. This Section shall survive the completion,
expiration, termination or cancellation of this Agreement.
II. TRADEMARKS
TRADEMARK LICENSE. In designing and implementing any marketing, advertising, or
other promotional materials (expressly excluding Press Releases) related to this
Agreement and/or referencing the other Party and/or its trade names, trademarks
and service marks (the "Promotional Materials") and subject to the other
provisions contained herein, ICP shall be entitled to use the following trade
names, trademarks and service marks of AOL: the "America Online(R)" brand
service, "AOL(TM)" service/software and AOL's triangle logo and, in connection
therewith, ICP shall comply with the AOL styleguide available at keyword: "style
guide"; and AOL and its Affiliates shall be entitled to use the trade names,
trademarks and service marks of ICP (collectively, together with the AOL marks
listed above, the "Marks"); provided that each Party: (i) does not create a
unitary composite mark involving a Mark of the other Party without the prior
written approval of such other Party and (ii) displays symbols and notices
clearly and sufficiently indicating the trademark status and ownership of the
other Party's Marks in accordance with applicable trademark law and practice.
This Section shall survive the completion, expiration, termination or
cancellation of this Agreement.
RIGHTS. Each Party acknowledges that its utilization of the other Party's Marks
will not create in it, nor will it represent it has, any right, title or
interest in or to such Marks other than the licenses expressly granted herein.
Each Party agrees not to do anything contesting or impairing the trademark
rights of the other Party.
QUALITY STANDARDS. Each Party agrees that the nature and quality of its products
and services supplied in connection with the other Party's Marks shall conform
to quality standards communicated in writing by the other Party for use of its
trademarks. Each Party agrees to supply the other Party, upon request, with a
reasonable number of samples of any Materials publicly disseminated by such
Party which utilize the other Party's Marks. Each Party shall comply with all
applicable laws, regulations and customs and obtain any required government
approvals pertaining to use of the other Party's Marks.
PROMOTIONAL MATERIALS. Each Party will submit to the other Party, for its prior
written approval, which shall not be unreasonably withheld or delayed, any
Promotional Materials; provided, however, that after initial public announcement
of the business relationship between the Parties in accordance with the approval
and other requirements contained herein, either Party's subsequent factual
reference in Promotional Materials to the existence of a business relationship
between AOL and ICP, including, without limitation, the availability of the
Licensed Content through the AOL Network, or use of screen shots relating to the
distribution under this Agreement (so long as the AOL Network is clearly
identified as the source of such screen shots) for promotional purposes shall
not require the approval of the other Party. Once approved, the Promotional
Materials may be used by a Party and its affiliates for the purpose of promoting
the distribution of the Licensed Content through the AOL Network and reused for
such purpose until such approval is withdrawn with reasonable prior notice. In
the event such approval is withdrawn, existing inventories of Promotional
Materials may be depleted.
INFRINGEMENT PROCEEDINGS. Each Party agrees to promptly notify the other Party
of any unauthorized use of the other Party's Marks of which it has actual
knowledge. Each Party shall have the sole right and discretion to bring
proceedings alleging infringement of its Marks or unfair competition related
thereto; provided, however, that each Party agrees to provide the other Party,
at such other Party's expense, with its reasonable cooperation and assistance
with respect to any such infringement proceedings.
III. REPRESENTATIONS AND WARRANTIES
Each Party represents and warrants to the other Party that: (i) such Party has
the full corporate right, power and authority to enter into this Agreement, to
grant the licenses granted hereunder and to perform the acts required of it
hereunder; (ii) the execution of this Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder, do not and
will not violate any agreement to which such Party is a party or by which it is
otherwise bound; (iii) when executed and delivered by such Party, this Agreement
will constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms; (iv) such Party's
Promotional Materials will neither infringe on any copyright, U.S. patent or any
other third party right nor violate any applicable law or regulation and (v)
such Party acknowledges that the other Party makes no representations,
warranties or agreements related to the subject matter hereof which are not
expressly provided for in this Agreement.
IV. CONFIDENTIALITY
Each Party acknowledges that Confidential Information may be disclosed to the
other Party during the course of this Agreement. Each Party agrees that it will
take reasonable steps, at least substantially equivalent to the steps it takes
to protect its own proprietary information, during the term of this Agreement,
and for a period of three years following expiration or termination of this
Agreement, to prevent the disclosure of Confidential Information of the other
Party, other than to its employees, or to its other agents who must have access
to such Confidential Information for such Party to perform its obligations
hereunder, who will each
- ---------------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
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agree to comply with this section. Notwithstanding the foregoing, either Party
may issue a press release or other disclosure containing Confidential
Information without the consent of the other Party, to the extent such
disclosure is required by law, rule, regulation or government or court order. In
such event, the disclosing Party will provide at least five (5) business days
prior written notice of such proposed disclosure to the other Party. Further, in
the event such disclosure is required of either Party under the laws, rules or
regulations of the Securities and Exchange Commission or any other applicable
governing body, such Party will (i) redact mutually agreed-upon portions of this
Agreement to the fullest extent permitted under applicable laws, rules and
regulations and (ii) submit a request to such governing body that such portions
and other provisions of this Agreement receive confidential treatment under the
laws, rules and regulations of the Securities and Exchange Commission or
otherwise be held in the strictest confidence to the fullest extent permitted
under the laws, rules or regulations of any other applicable governing body.
V. RELATIONSHIP WITH AOL MEMBERS
SOLICITATION OF SUBSCRIBERS. (a) During the term of this Agreement and for a two
year period thereafter, ICP will not use the AOL Network (including, without
limitation, the e-mail network contained therein) to solicit AOL Members on
behalf of another Interactive Service. More generally, ICP will not send
unsolicited, commercial e-mail (i.e., "spam") or other online communications
through or into AOL's products or services, absent a Prior Business
Relationship. For purposes of this Agreement, a "Prior Business Relationship"
will mean that the AOL Member to whom commercial e-mail or other online
communication is being sent has voluntarily either (i) engaged in a transaction
with ICP or (ii) provided information to ICP through a contest, registration, or
other communication, which included clear notice to the AOL Member that the
information provided could result in commercial e-mail or other online
communications being sent to that AOL Member by ICP or its agents. Any
commercial e-mail or other online communications to AOL Members which are
otherwise permitted hereunder will (a) include a prominent and easy means to
"opt-out" of receiving any future commercial e-mail communications from ICP and
(b) shall also be subject to AOL's then-standard restrictions on distribution of
bulk e-mail (e.g., related to the time and manner in which such e-mail can be
distributed through or into the AOL product or service in question).
(b) ICP shall ensure that its collection, use and disclosure of information
obtained from AOL Members under this Agreement ("Member Information") complies
with (i) all applicable laws and regulations and (ii) AOL's standard privacy
policies, available on the AOL Service at the keyword term "Privacy" (or, in the
case of the ICP Internet Site, ICP's standard privacy policies so long as such
policies are prominently published on the site and provide adequate notice,
disclosure and choice to users regarding ICP's collection, use and disclosure of
user information). ICP will not disclose Member Information collected hereunder
to any third party in a manner that identifies AOL Members as end users of an
AOL product or service or use Member Information collected under this Agreement
to market another Interactive Service.
EMAIL NEWSLETTERS. Any email newsletters sent to AOL Members by ICP or its
agents shall (i) be subject to AOL's policies on use of the email functionality,
including but not limited to AOL's policy on unsolicited bulk email, (ii) be
sent only to AOL Members requesting to receive such newsletters, (iii) not
contain Content which violates AOL's Terms of Service, and (iv) not contain any
advertisements, marketing or promotion for any other Interactive Service.
AOL MEMBER COMMUNICATIONS. To the extent ICP is otherwise permitted to send
communications to AOL Members (in accordance with the other requirements
contained herein): in any such communications to AOL Members on or off the ICP
Internet Site (including, without limitation, e-mail solicitations), ICP will
limit the subject matter of such communications to those categories of products,
services and/or content that are specifically contemplated by this Agreement and
will not encourage AOL Members to take any action inconsistent with the scope
and purpose of this Agreement, including without limitation, the following
actions: (i) using an Interactive Site other than the ICP Internet Site for the
purchase of Products, (ii) using Content other than the Licensed Content; (iii)
bookmarking of Interactive Sites; or (iv) changing the default home page on the
AOL browser. Additionally, with respect to such AOL Member communications, in
the event that ICP encourages an AOL Member to purchase products through such
communications, ICP shall ensure that (a) the AOL Network is expressly promoted
as the primary means through which the AOL Member can access the ICP Internet
Site (including without limitation by stating the applicable Keyword Search Term
and including direct links to specific offers within the ICP Internet Site) and
(b) any link to the ICP Internet Site will link to a page which indicates to the
AOL Member that such user is in a site which is affiliated with the AOL Network.
VI. TREATMENT OF CLAIMS
LIABILITY. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER
PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES
(EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES),
ARISING FROM BREACH OF THIS AGREEMENT, THE USE OF OR INABILITY TO USE THE AOL
NETWORK OR ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO,
LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS (COLLECTIVELY,
"DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY SHALL REMAIN LIABLE TO THE OTHER
PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE
SUBJECT TO INDEMNIFICATION BELOW. EXCEPT AS PROVIDED BELOW IN THE "INDEMNITY"
SECTION, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR MORE THAN THE
AGGREGATE AMOUNTS PAYABLE HEREUNDER IN THE YEAR IN WHICH THE EVENT GIVING RISE
TO SUCH LIABILITY OCCURRED; PROVIDED THAT EACH PARTY SHALL REMAIN LIABLE FOR THE
AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER PARTY UNDER THE
PROVISIONS OF THIS AGREEMENT.
NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS, ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE AOL NETWORK, OR
ANY AOL PUBLISHING TOOLS, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF
DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, AOL SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING THE PROFITABILITY
OF AOL NETWORK OR THE ICP INTERNET SITE.
INDEMNITY. Each Party will defend, indemnify, save and hold harmless the other
Party and the officers, directors, agents, affiliates, distributors, franchisees
and employees of the other Party from any and all third party claims, demands,
liabilities, costs or expenses, including reasonable attorneys' fees
("Liabilities"), resulting from the indemnifying Party's material breach of any
duty, representation, or warranty of this Agreement. In addition, ICP will
defend, indemnify, save and hold harmless AOL and AOL's officers, directors,
agents, affiliates, distributors, franchisees and employees from any and all
Liabilities arising out of or in any way related to the Licensed Content.
If a Party entitled to indemnification hereunder (the "Indemnified Party")
becomes aware of any matter it believes is indemnifiable hereunder involving any
claim, action, suit, investigation, arbitration or other proceeding against the
Indemnified Party by any third party (each an "Action"), the Indemnified Party
shall give the other Party (the "Indemnifying Party") prompt written notice of
such Action. Such notice shall (i) provide the basis on which indemnification is
being asserted and (ii) be accompanied by copies of all relevant pleadings,
demands, and other papers related to the Action and in the possession of the
Indemnified Party. The Indemnifying Party shall have a period of ten (10) days
after delivery of such notice to respond. If the Indemnifying Party elects to
defend the Action or does not respond within the requisite ten (10) day period,
the Indemnifying Party shall be obligated to defend the Action, at its own
expense, and by counsel reasonably satisfactory to the Indemnified Party. The
Indemnified Party shall cooperate, at the expense of the Indemnifying Party,
with the Indemnifying Party and its counsel in the defense and the Indemnified
Party shall have the right to participate fully, at its own expense, in the
defense of such Action. If the Indemnifying Party responds within the required
ten (10) day period and elects not to defend such Action, the Indemnified Party
shall be free, without prejudice to any of the Indemnified Party's rights
hereunder, to compromise or defend (and control the defense of) such Action. In
such case, the Indemnifying Party shall cooperate, at its own expense, with the
Indemnified Party and its counsel in the defense against such Action and the
Indemnifying Party shall have the right to participate fully, at its own
expense, in the defense of such Action. Any compromise or settlement of an
Action shall require the prior written consent of both Parties hereunder, such
consent not to be unreasonably withheld or delayed.
ACKNOWLEDGMENT. AOL AND ICP EACH ACKNOWLEDGES THAT THE PROVISIONS OF THIS
AGREEMENT WERE NEGOTIATED TO REFLECT AN INFORMED, VOLUNTARY ALLOCATION BETWEEN
THEM OF ALL RISKS (BOTH KNOWN AND UNKNOWN) ASSOCIATED WITH THE TRANSACTIONS
CONTEMPLATED HEREUNDER. THE LIMITATIONS AND DISCLAIMERS RELATED TO WARRANTIES
AND LIABILITY CONTAINED IN THIS AGREEMENT ARE INTENDED TO LIMIT THE
CIRCUMSTANCES AND EXTENT OF LIABILITY. THE PROVISIONS OF THIS SECTION VI SHALL
BE ENFORCEABLE INDEPENDENT OF AND SEVERABLE FROM ANY OTHER
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ENFORCEABLE OR UNENFORCEABLE PROVISION OF THIS AGREEMENT.
VII. ARBITRATION
(a) The Parties shall act in good faith and use commercially reasonable efforts
to promptly resolve any claim, dispute, claim, controversy or disagreement (each
a "Dispute") between the Parties or any of their respective subsidiaries,
affiliates, successors and assigns under or related to this Agreement or any
document executed pursuant to this Agreement or any of the transactions
contemplated hereby. If the Parties cannot resolve the Dispute within such
timeframe, the Dispute shall be submitted to the Management Committee for
resolution. For ten (10) days after the Dispute was submitted to the Management
Committee, the Management Committee shall have the exclusive right to resolve
such Dispute; provided further that the Management Committee shall have the
final and exclusive right to resolve Disputes arising from any provision of this
Agreement which expressly or implicitly provides for the Parties to reach mutual
agreement as to certain terms. If the Management Committee is unable to amicably
resolve the Dispute during the ten (10) day period, then the Management
Committee will consider in good faith the possibility of retaining a third party
mediator to facilitate resolution of the Dispute. In the event the Management
Committee elects not to retain a mediator, the Dispute will be subject to the
resolution mechanisms described below. "Management Committee" shall mean a
committee made up of a senior executive from each of the Parties for the purpose
of resolving Disputes under this Section and generally overseeing the
relationship between the Parties contemplated by this Agreement. Neither Party
shall seek, nor shall be entitled to seek, binding outside resolution of the
Dispute unless and until the Parties have been unable to amicably resolve the
dispute as set forth in this paragraph (a) and then, only in compliance with the
procedures set forth in this Section.
(b) Except for Disputes relating to issues of (i) proprietary rights, including
but not limited to intellectual property and confidentiality, and (ii) any
provision of this Agreement which expressly or implicitly provides for the
Parties to reach mutual agreement as to certain terms (which shall be resolved
by the Parties solely and exclusively through amicable resolution as set forth
in paragraph (a), any Dispute not resolved by amicable resolution as set forth
in paragraph (a) shall be governed exclusively and finally by arbitration. Such
arbitration shall be conducted by the American Arbitration Association ("AAA")
in Washington, D.C. and shall be initiated and conducted in accordance with the
Commercial Arbitration Rules ("Commercial Rules") of the AAA, including the AAA
Supplementary Procedures for Large Complex Commercial Disputes ("Complex
Procedures"), as such rules shall be in effect on the date of delivery of a
demand for arbitration ("Demand"), except to the extent that such rules are
inconsistent with the provisions set forth herein. Notwithstanding the
foregoing, the Parties may agree in good faith that the Complex Procedures shall
not apply in order to promote the efficient arbitration of Disputes where the
nature of the Dispute, including without limitation the amount in controversy,
does not justify the application of such procedures.
(c) The arbitration panel shall consist of three arbitrators. Each Party shall
name an arbitrator within ten (10) days after the delivery of the Demand. The
two arbitrators named by the Parties may have prior relationships with the
naming Party, which in a judicial setting would be considered a conflict of
interest. The third arbitrator, selected by the first two, shall be a neutral
participant, with no prior working relationship with either Party. If the two
arbitrators are unable to select a third arbitrator within ten (10) days, a
third neutral arbitrator will be appointed by the AAA from the panel of
commercial arbitrators of any of the AAA Large and Complex Resolution Programs.
If a vacancy in the arbitration panel occurs after the hearings have commenced,
the remaining arbitrator or arbitrators may not continue with the hearing and
determination of the controversy, unless the Parties agree otherwise.
(d) The Federal Arbitration Act, 9 U.S.C. Secs. 1-16, and not state law, shall
govern the arbitrability of all Disputes. The arbitrators shall allow such
discovery as is appropriate to the purposes of arbitration in accomplishing a
fair, speedy and cost-effective resolution of the Disputes. The arbitrators
shall reference the Federal Rules of Civil Procedure then in effect in setting
the scope and timing of discovery. The Federal Rules of Evidence shall apply in
toto. The arbitrators may enter a default decision against any Party who fails
to participate in the arbitration proceedings.
(e) The arbitrators shall have the authority to award compensatory damages only.
Any award by the arbitrators shall be accompanied by a written opinion setting
forth the findings of fact and conclusions of law relied upon in reaching the
decision. The award rendered by the arbitrators shall be final, binding and
non-appealable, and judgment upon such award may be entered by any court of
competent jurisdiction. The Parties agree that the existence, conduct and
content of any arbitration shall be kept confidential and no Party shall
disclose to any person any information about such arbitration, except as may be
required by law or by any governmental authority or for financial reporting
purposes in each Party's financial statements.
(f) Each Party shall pay the fees of its own attorneys, expenses of witnesses
and all other expenses and costs in connection with the presentation of such
Party's case (collectively, "Attorneys' Fees"). The remaining costs of the
arbitration, including without limitation, fees of the arbitrators, costs of
records or transcripts and administrative fees (collectively, "Arbitration
Costs") shall be born equally by the parties. Notwithstanding the foregoing, the
arbitrators may modify the allocation of Arbitration Costs and award Attorneys'
Fees in those cases where fairness dictates a different allocation of
Arbitration Costs between the Parties and an award of Attorneys' Fees to the
prevailing Party as determined by the arbitrators.
(g) Any Dispute that is not subject to final resolution by the Management
Committee or to arbitration under this Section or law (collectively,
"Non-Arbitration Claims") shall be brought in a court of competent jurisdiction
in the Commonwealth of Virginia. Each Party irrevocably consents to the
exclusive jurisdiction of the courts of the Commonwealth of Virginia and the
federal courts situated in the Commonwealth of Virginia, over any and all
Non-Arbitration Claims and any and all actions to enforce such claims or to
recover damages or other relief in connection with such claims or to enforce a
judgment rendered in an arbitration proceeding.
VIII. MISCELLANEOUS
AUDITING RIGHTS. Each Party shall maintain complete, clear and accurate records
of all expenses, revenues, fees, transactions and related documentation
(including agreements) in connection with the performance of this Agreement
("Records"). All such Records shall be maintained for a minimum of five (5)
years following termination of this Agreement. For the sole purpose of ensuring
compliance with this Agreement, AOL shall have the right, at its expense, to
conduct a reasonable and necessary copying and inspection of portions of the
Records of ICP that are directly related to amounts payable to AOL pursuant to
this Agreement, which right may, at AOL's option, be exercised by directing an
independent certified public accounting firm to conduct such inspection. For the
sole purpose of ensuring compliance with this Agreement, ICP shall have the
right, at its expense, to direct an independent certified public accounting firm
subject to strict confidentiality restrictions to conduct a reasonable and
necessary copying and inspection of portions of the Records of AOL that are
directly related to amounts payable to ICP pursuant to this Agreement. Any such
audit may be conducted after twenty (20) business days prior written notice,
subject to the following. Such audits shall not be made more frequently than
once every twelve months. No such audit of AOL shall occur during the period
beginning on June 1 and ending October 1. In lieu of providing access to its
Records as described above, AOL shall be entitled to provide ICP with a report
from an independent certified public accounting firm confirming the information
to be derived from such Records.
EXCUSE. Neither Party shall be liable for, or be considered in breach of or
default under this Agreement on account of, any delay or failure to perform as
required by this Agreement as a result of any causes or conditions which are
beyond such Party's reasonable control and which such Party is unable to
overcome by the exercise of reasonable diligence.
INDEPENDENT CONTRACTORS. The Parties to this Agreement are independent
contractors. Neither Party is an agent, representative or partner of the other
Party. Neither Party shall have any right, power or authority to enter into any
agreement for or on behalf of, or incur any obligation or liability of, or to
otherwise bind, the other Party. This Agreement shall not be interpreted or
construed to create an association, agency, joint venture or partnership between
the Parties or to impose any liability attributable to such a relationship upon
either Party.
NOTICE. Any notice, approval, request, authorization, direction or other
communication under this Agreement will be given in writing and will be deemed
to have been delivered and given for all purposes (i) on the delivery date if
delivered by electronic mail on the AOL Network (to screenname "AOLNotice" in
the case of AOL) or by confirmed facsimile; (ii) on the delivery date if
delivered personally to the Party to whom the same is directed; (iii) one
business day after deposit with a commercial overnight carrier, with written
verification of receipt; or (iv) five business days after the mailing date,
whether or not actually received, if sent by U.S. mail, return receipt
requested, postage and charges prepaid, or any other means of rapid mail
delivery for which a receipt is available. In the case of AOL, such notice will
be provided to both the Senior Vice President for Business Affairs (fax no.
703-265-1206) and the Deputy General Counsel (fax no. 703-265-1105), each at the
address of AOL set forth in the first paragraph of this Agreement. In the case
of ICP, except as otherwise specified herein, the notice address shall be the
address for ICP set forth in the first paragraph of this Agreement, with the
other relevant notice information, including the recipient for
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notice and, as applicable, such recipient's fax number or AOL e-mail address, to
be as reasonably identified by AOL.
NO WAIVER. The failure of either Party to insist upon or enforce strict
performance by the other Party of any provision of this Agreement or to exercise
any right under this Agreement shall not be construed as a waiver or
relinquishment to any extent of such Party's right to assert or rely upon any
such provision or right in that or any other instance; rather, the same shall be
and remain in full force and effect.
RETURN OF INFORMATION. Upon the expiration or termination of this Agreement,
each Party shall, upon the written request of the other Party, return or destroy
(at the option of the Party receiving the request) all confidential information,
documents, manuals and other materials specified by the other Party.
SURVIVAL. Sections IV, V, VI, VII and VIII of this Exhibit C, shall survive the
completion, expiration, termination or cancellation of this Agreement. In
addition, all payment terms of this Agreement and any provision which, by its
nature, must survive the completion, expiration, termination or cancellation of
this Agreement, shall survive the completion, expiration, termination or
cancellation of this Agreement.
ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and supersedes
any and all prior agreements of the Parties with respect to the transactions set
forth herein. Neither Party shall be bound by, and each Party specifically
objects to, any term, condition or other provision which is different from or in
addition to the provisions of this Agreement (whether or not it would materially
alter this Agreement) and which is proffered by the other Party in any
correspondence or other document, unless the Party to be bound thereby
specifically agrees to such provision in writing.
AMENDMENT. No change, amendment or modification of any provision of this
Agreement shall be valid unless set forth in a written instrument signed by the
Party subject to enforcement of such amendment.
FURTHER ASSURANCES. Each Party shall take such action (including, but not
limited to, the execution, acknowledgment and delivery of documents) as may
reasonably be requested by the other Party for the implementation or continuing
performance of this Agreement.
ASSIGNMENT. ICP shall not assign this Agreement or any right, interest or
benefit under this Agreement without the prior written consent of AOL.
Assumption of this Agreement by any successor to ICP (including, without
limitation, by way of merger or consolidation) shall be subject to AOL's prior
written approval. In the event of (i) any Change of Control of ICP resulting in
control of ICP by an Interactive Service or (ii) any Change of Control of AOL,
AOL shall have the right to terminate this Agreement upon written notice to ICP.
Subject to the foregoing, this Agreement shall be fully binding upon, inure to
the benefit of and be enforceable by the Parties hereto and their respective
successors and assigns.
SUBCONTRACTORS. To the extent ICP utilizes consultants or subcontractors to
perform a material portion of its obligations under this Agreement, such
consultants and/or subcontractors shall be subject to AOL's prior written
approval and ICP shall provide AOL with direct contact information for the
employees of such consultants and/or subcontractors who are responsible for
performing such obligations, which employees shall be available during business
hours for consultation with AOL.
CONSTRUCTION; SEVERABILITY. In the event that any provision of this Agreement
conflicts with the law under which this Agreement is to be construed or if any
such provision is held invalid by a court with jurisdiction over the Parties to
this Agreement, (i) such provision shall be deemed to be restated to reflect as
nearly as possible the original intentions of the Parties in accordance with
applicable law, and (ii) the remaining terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect.
REMEDIES. Except where otherwise specified, the rights and remedies granted to a
Party under this Agreement are cumulative and in addition to, and not in lieu
of, any other rights or remedies which the Party may possess at law or in
equity.
APPLICABLE LAW; JURISDICTION. This Agreement shall be interpreted, construed and
enforced in all respects in accordance with the laws of the Commonwealth of
Virginia except for its conflicts of laws principles.
EXPORT CONTROLS. Both parties shall adhere to all applicable laws, regulations
and rules relating to the export of technical data and shall not export or
re-export any technical data, any products received from the other Party or the
direct product of such technical data to any proscribed country listed in such
applicable laws, regulations and rules unless properly authorized.
HEADINGS. The captions and headings used in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same document.
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EXHIBIT D
CERTIFICATION OF COMPLIANCE WITH COMMITMENTS
REGARDING PROMOTIONS
Pursuant to Section 3.2 of the Anchor Tenant Agreement between ______________
("ICP") and America Online, Inc. ("AOL"), dated as of _________________, 1999
(the "Agreement"), the following report is delivered to AOL for the period
beginning _____________ and ending __________ (the "Period"):
I. PROMOTIONAL COMMITMENTS
ICP hereby certifies to AOL that ICP completed the following promotional
commitments during the Period:
<TABLE>
<CAPTION>
TYPE OF PROMOTION DATE(S) OF DURATION/CIRCULATION OF PROMOTION RELEVANT CONTRACT
PROMOTION SECTION
_______ _______________________ ___________________ __________________________________ ______________________
<S> <C> <C> <C> <C>
1.
_______ _______________________ ___________________ __________________________________ ______________________
2.
_______ _______________________ ___________________ __________________________________ ______________________
3.
_______ _______________________ ___________________ __________________________________ ______________________
</TABLE>
IN WITNESS WHEREOF, this Certificate has been executed this ___ day of
___________, 199_.
______________________________________
By: __________________________________
Print Name: _________________________
Title: _______________________________
Date: ________________________________
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EXHIBIT E
PROMOTIONS
INTERACTIVE SITE. Within each ICP Interactive Site, ICP shall include the
following (collectively, the "AOL Promos"): a prominent "Try AOL" feature (at
least 90 x 30 pixels or 70 x 70 pixels in size) appearing prominently on the
first screen of the ICP Interactive Site through which users can obtain
promotional information about AOL products or services designated by AOL and, at
AOL's option, download or order the then-current version of client software for
such AOL products or services. AOL will provide the creative content to be used
in the AOL Promos. ICP shall post (or update, as the case may be) the creative
content supplied by AOL within the spaces for the AOL Promos within five days of
its receipt of such content from AOL. Without limiting any other reporting
obligations of the Parties contained herein, ICP shall provide AOL with monthly
written reports specifying the number of impressions to the pages containing the
AOL Promos during the prior month. In the event that AOL elects to serve the AOL
Promos to the ICP Interactive Site from an ad server controlled by AOL or its
agent, ICP shall take all reasonable operational steps necessary to facilitate
such ad serving arrangement, including, without limitation, inserting HTML code
designated by AOL on the pages of the ICP Interactive Site on which the AOL
Promos will appear. In addition, within each ICP Interactive Site, ICP shall
provide prominent promotion for the keywords associated with the Online Area and
the ICP Internet Site and links from the ICP Interactive Site to the relevant
topic areas on AOL's AOL.com site, and to the extent ICP offers or promotes any
products or services similar to AOL's Instant Messenger or Internet search
products, ICP shall provide equal or greater promotions for such AOL products.
OTHER MEDIA. In ICP's television, radio, print and "out of home" (e.g., buses
and billboards, point of purchase and other "place-based" promotions)
advertisements and in any publications, programs, features or other forms of
media over which ICP exercises at least partial editorial control, ICP will
include specific references or mentions (orally where possible) of the
availability of the ICP Internet Site through the America Online(R) brand
service. In any event, such references or mentions shall be at least as
prominent as any references that ICP makes to any ICP Interactive Site (by way
of site name, related company name, URL or otherwise). Without limiting the
generality of the foregoing, ICP's listing of the "URL" for any ICP Interactive
Site will be accompanied by an equally prominent listing of the "keyword" term
on AOL for the Online Area and ICP Internet Site and the AOL keyword "Weddings",
which listings shall conform to the keyword guidelines attached hereto as
Exhibit J. All such references or mentions of AOL, and the use of AOL's
trademarks, trade names and service marks in connection therewith, shall be in
accordance with Section II of Exhibit C.
PREFERRED ACCESS PROVIDER. In ICP's promotion of AOL, AOL shall be generally
positioned as the preferred access provider through which a user can access the
ICP Internet Site (and ICP shall not implement or authorize any other promotions
on behalf of any third parties which are inconsistent with the foregoing). AOL
shall be the only Interactive Service promoted or advertised by ICP in any
offline medium. In addition, ICP shall promote AOL Hometown as prominently as it
promotes its own homesteading product, including, without limitation, by
including a link from the Online Area to the main page of the Weddings
department in AOL Hometown and links from the ICP Internet Site to mutually
agreed upon areas within AOL Hometown.
DCI PROMOTIONS. Provided AOL is providing the carriage on the "Wedding Guide"
area of the Digital City Content area of the AOL Service as described on subpart
(c) of section A of Exhibit A-1, ICP shall provide AOL with permanent placement
in the pull-down menu of the Online Area to promote AOL's Digital City service
and rotational placements within the ICP Internet Site (collectively, the "DCI
Promotions").
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EXHIBIT F
OPERATING STANDARDS
1. ICP Internet Site Infrastructure. ICP will be responsible for all
communications, hosting and connectivity costs and expenses associated with
the ICP Internet Site. ICP will provide all hardware, software,
telecommunications lines and other infrastructure necessary to meet traffic
demands on the ICP Internet Site from the AOL Network. ICP will design and
implement the network between the AOL Service and ICP Internet Site such
that (i) no single component failure will have a materially adverse impact
on AOL Members seeking to reach the ICP Internet Site from the AOL Network
and (ii) no single line under ICP's reasonable control will run at more
than 70% average utilization for a 5-minute peak in a daily period. In this
regard, ICP will provide AOL, upon request, with a detailed network diagram
regarding the architecture and network infrastructure supporting the ICP
Internet Site. In the event that ICP elects to create a custom version of
the ICP Internet Site in order to comply with the terms of this Agreement,
ICP will bear responsibility for all aspects of the implementation,
management and cost of such customized site.
2. Optimization; Speed. ICP will use commercially reasonable efforts to ensure
that: (a) the functionality and features within the ICP Internet Site are
optimized for the client software then in use by AOL Members; and (b) the
ICP Internet Site is designed and populated in a manner that minimizes
delays when AOL Members attempt to access such site. At a minimum, ICP will
ensure that the ICP Internet Site's data transfers initiate within fewer
than fifteen (15) seconds on average. Prior to commercial launch of any
material promotions described herein, ICP will permit AOL to conduct
performance and load testing of the ICP Internet Site (in person or through
remote communications), with such commercial launch not to commence until
such time as AOL is reasonably satisfied with the results of any such
testing.
3. Technical Problems. ICP agrees to use commercially reasonable efforts to
address material technical problems (over which ICP exercises control)
affecting use by AOL Members of the ICP Internet Site (an "ICP Technical
Problem") promptly following notice thereof. In the event that ICP is unable
to promptly resolve an ICP Technical Problem following notice thereof from
AOL (including, without limitation, infrastructure deficiencies producing
user delays), AOL will have the right to regulate the promotions it provides
to ICP hereunder until such time as ICP corrects the ICP Technical Problem
at issue.
4. Monitoring. ICP will ensure that the performance and availability of the ICP
Internet Site is monitored on a continuous (24 X 7) basis. ICP will provide
AOL with contact information (including e-mail, phone, pager and fax
information, as applicable, for both during and after business hours) for
ICP's principal business and technical representatives, for use in cases
when issues or problems arise with respect to the ICP Internet Site.
5. Security. ICP will utilize Internet standard encryption technologies (e.g.,
Secure Socket Layer - SSL) to provide a secure environment for conducting
transactions and/or transferring private member information (e.g. credit
card numbers, banking/financial information, and member address information)
to and from the ICP Internet Site. ICP will facilitate periodic reviews of
the ICP Internet Site by AOL in order to evaluate the security risks of such
site. ICP will promptly remedy any security risks or breaches of security as
may be identified by AOL's Operations Security team.
6. Technical Performance.
i. ICP will design the ICP Internet Site to support the AOL-Client embedded
versions of the Microsoft Internet Explorer 3.XX and 4.XX browsers
(Windows and Macintosh), the Netscape Browser 4.XX and make commercially
reasonable efforts to support all other AOL browsers listed at:
"http://webmaster.info.aol.com."
ii. To the extent ICP creates customized pages on the ICP Internet Site for
AOL Members, ICP develop and employ a methodology to detect AOL Members
(e.g., examine the HTTP User-Agent field in order to identify the "AOL
Member-Agents" listed at: http://webmaster. info.aol.com" and referenced
under the heading "Browser Detection."
iii.ICP will periodically review the technical information made available
by AOL at http://webmaster.info.aol.com.
iv. ICP will design its site to support HTTP 1.0 or later protocol as
defined in RFC 1945 and to adhere to AOL's parameters for refreshing or
preventing the caching of information in AOL's proxy system as outlined
in the document provided at the following URL:
http://webmaster.info.aol.com. ICP is responsible for the manipulation
of these parameters in web based objects so as allow them to be cached
or not cached as outlined in RFC 1945.
v. Prior to releasing material, new functionality or features through the
ICP Internet Site ("New Functionality"), ICP will use commercially
reasonable efforts to either (i) test the New Functionality to confirm
its compatibility with AOL Service client software and (ii) provide AOL
with written notice of the New Functionality so that AOL can perform
tests of the New Functionality to confirm its compatibility with the AOL
Service client software. Should any new material, new functionality or
features through the ICP Internet Site be released without notification
to AOL, AOL will not be responsible for any adverse member
experience until such time that compatibility tests can be performed and
the new material, functionality
or features qualified for the AOL Service.
7. AOL Internet Services Partner Support. AOL will provide ICP with access to
the standard online resources, standards and guidelines documentation,
technical phone support, monitoring and after-hours assistance that AOL
makes generally available to similarly situated web-based partners. AOL
support will not, in any case, be involved with content creation on behalf
of ICP or support for any technologies, databases, software or other
applications which are not supported by AOL or are related to any ICP area
other than the ICP Internet Site. Support to be provided by AOL is
contingent on ICP providing to AOL demo account information (where
applicable), a detailed description of the ICP Internet Site's software,
hardware and network architecture and access to the ICP Internet Site for
purposes of such performance and the coordination load testing as AOL elects
to conduct.
8. ICP Programming. The terms and conditions of this Exhibit applicable to the
ICP Internet Site shall apply equally to any ICP Programming that is (a)
programmed in HTML or (b) web-based.
33
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<PAGE> 34
EXHIBIT G
ADDITIONAL KEYWORDS
888WEDKNOT
BIGDAY-BEAUTY
BRIDEZILLA
DIAMONDGUY
GREATESCAPE
HONEYMOONMAGAZINE
KNOT
KNOTMARCY
KNOTREG
KNOTREGISTRY
MYKNOT
OURKNOT
THEKNOT
THEKNOTGOWNGUIDE
THEKNOTGOWNSEARCH
THEKNOTREGISTRY
THEKNOTTRAVELAUCTION
TIE THE KNOT
WEDDINGPHOTOGRAPHERS
34
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<PAGE> 35
EXHIBIT H
ICP COMPETITORS
[****]
- ---------------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
35
CONFIDENTIAL
<PAGE> 36
EXHIBIT I
PRODUCTS
[****]
- ---------------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
CONFIDENTIAL 36
<PAGE> 37
[****]
- ---------------
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
CONFIDENTIAL 37
<PAGE> 38
EXHIBIT J
KEYWORD GUIDELINES
PRINT/GRAPHIC
- - Preferred listing: (AOL Logo appears) America Online Keyword: Knot
America Online Keyword: Knot
- - If necessary, due to space constraints, listing may (pending approval)
appear as follows:
AOL KEYWORD: KNOT
- - Every effort should be made to have 'America Online' spelled out
- - Capitalization - listing should appear in initial caps only
Note: When America Online is abbreviated to AOL - AOL must appear in
all caps.
K of Keyword must always be capitalized
- - Font, Font style and Size must all be consistent
- - Listing size must be of equal prominence to that of any/all other URLs
featured
BROADCAST/RADIO
- - America Online Keyword must announced entirely (even if an accompanying
graphic is set with AOL versus America Online)
Example voiceover would read:
"For more information, please visit America Online Keyword: Knot"
AOL must approve all other uses prior to usage.
39
CONFIDENTIAL
<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. 4 to
the Registration Statement (Form S-1 No. 333-87345) and related Prospectus of
The Knot, Inc. dated November 26, 1999.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
New York, New York
November 26, 1999
