<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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>
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462 BROADWAY
6TH FLOOR
NEW YORK, NY 10013
TELEPHONE: (212) 219-8555
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID LIU
CHIEF EXECUTIVE OFFICER
THE KNOT, INC.
462 BROADWAY
6TH FLOOR
NEW YORK, NY 10013
(212) 219-8555
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
ALEXANDER D. LYNCH, ESQ. JOHN M. HESSION, ESQ.
BRIAN B. MARGOLIS, ESQ. JOCELYN M. AREL, ESQ.
BROBECK, PHLEGER & HARRISON LLP TESTA, HURWITZ & THIBEAULT, LLP
1633 BROADWAY, 47TH FLOOR 125 HIGH STREET
NEW YORK, NY 10019 BOSTON, MA 02110
(212) 581-1600 (617) 248-7000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common stock, par value $0.01 per share............ $46,000,000 $12,788
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act.
------------------------
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1999
SHARES
[LOGO]
THE KNOT, INC.
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 $
and $ 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
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 4.
<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]
[COLOR ARTWORK TO FOLLOW]
i
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................. 1
RISK FACTORS........................ 4
FORWARD-LOOKING STATEMENTS.......... 19
USE OF PROCEEDS..................... 20
DIVIDEND POLICY..................... 20
CAPITALIZATION...................... 21
DILUTION............................ 22
SELECTED FINANCIAL DATA............. 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 24
BUSINESS............................ 36
MANAGEMENT.......................... 53
</TABLE>
<TABLE>
<CAPTION>
PAGE
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CERTAIN TRANSACTIONS................ 59
PRINCIPAL STOCKHOLDERS.............. 61
DESCRIPTION OF CAPITAL STOCK........ 63
SHARES ELIGIBLE FOR FUTURE SALE..... 66
UNDERWRITING........................ 68
NOTICE TO CANADIAN RESIDENTS........ 70
LEGAL MATTERS....................... 71
EXPERTS............................. 71
WHERE YOU CAN FIND ADDITIONAL
INFORMATION....................... 71
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.
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
and The Knot Registry. Other trademarks and service marks appearing in this
prospectus are the property of their respective holders.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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<PAGE> 5
PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all of the information
that may be important to you. You should read the entire prospectus, including
"Risk Factors" and the financial statements and the notes thereto, 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. Unless otherwise
indicated, all information in this prospectus reflects the automatic conversion
of all outstanding shares of convertible preferred stock into shares of
our common stock upon the closing of this offering and assumes no exercise of
the underwriters' over-allotment option.
THE KNOT, INC.
The Knot is the leading online wedding destination and the premier wedding
content provider on America Online and several other of AOL's leading brands. We
combine comprehensive content and an active online community with
wedding-related commerce. Our easy-to-use online sites provide the full-service
offerings that today's brides and grooms require when planning their weddings.
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.
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 which compares, for example, with the domestic
toy industry which had retail sales of $27 billion in 1998, according to Toy
Manufacturers of America, Inc.
Through our online sites, we provide future brides and grooms with
creative, compelling and up-to-date information and resources. We offer
thousands of articles on wedding planning, a national database of local wedding
vendors, numerous interactive services and personalized planning tools such as
personal wedding Web pages, a budget planning tool, the largest searchable
bridal gown database, an active community of hosted chats and message boards, a
comprehensive online gift registry, an online shop for wedding supplies and
gifts, and honeymoon travel packages. We also provide offline services to 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.
We receive revenue primarily from online sponsorship and advertising, as
well as electronic commerce. We also receive publishing and travel revenues. For
the six months ended June 30, 1999, sponsorship and advertising revenues
represented 74% of our net revenues. We provide our sponsors with
custom-developed marketing programs that offer special features integrating our
highly targeted editorial content with a sponsor's message. Our sponsorship
agreements have longer terms and higher dollar values than typical banner deals
and are sometimes structured to provide us with future revenue participation.
We have developed The Knot Registry, which we believe is the Internet's
most comprehensive wedding gift registry. Unlike other online bridal registries,
which merely link users to large retailers in exchange for a bounty, we buy
products directly from leading manufacturers. This enables us to provide our
users with a large selection of products from the widest range of categories,
while maintaining the highest level of customer service. Additionally, through
our online wedding supply
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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. Through our
strategic alliance with Weddingpages Inc., we recently introduced an extensive
database of local wedding vendors. This enables us to capitalize on the
localized wedding market. We are the only national online site with a local
sales force in over 50 markets. Categories in the local vendor database include
wedding venues, caterers, florists, bridal shops, photographers, musicians and
limousine services.
In July 1999, we generated over 15.0 million page views on our Web site
compared to 2.5 million in December 1998. We are currently enrolling as members
an average of over 1,000 new couples per day. Our objective is to expand our
leading position as an online resource providing comprehensive wedding planning,
information, products and services. Key elements of our strategy include the
following:
- continue to build strong brand recognition of The Knot and maintain our
dominant online position;
- aggressively grow our membership base and increase member usage through
our full-service offerings, interactive services, active community
participation and strategic relationships;
- continue to combine our extensive wedding content and our active
community with a full-service shopping solution to make the wedding
planning process more convenient, efficient and enjoyable;
- generate multiple revenue streams by leveraging the size and favorable
demographics of our online community and extending the trusting
relationship we build with our users; and
- continue to pursue strategic alliances and acquisitions to leverage our
brand and expand our revenue opportunities.
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
"wedding").
THE OFFERING
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<S> <C>
Common stock offered................................. shares
Common stock to be outstanding after this offering... shares
Use of proceeds...................................... For general corporate purposes, including
working capital, and potential strategic
alliances and acquisitions.
Proposed Nasdaq National Market symbol............... KNOT
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on our shares outstanding as of September 15, 1999. This information
excludes shares of common stock reserved for issuance under our 1999
Stock Incentive Plan, of which 1,756,815 shares are issuable upon the exercise
of stock options outstanding as of September 15, 1999; 2,066,667 shares of
common stock issuable upon the exercise of warrants outstanding as of September
15, 1999; and shares of common stock reserved for issuance under our 1999
Employee Stock Purchase Plan.
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<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE 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.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1996 YEAR ENDED SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, JUNE 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 $ 665 $ 738
Cost of revenues................... 9 67 131 61 241
--------- --------- --------- --------- ---------
Gross profit....................... 62 529 909 604 497
Total operating expenses........... 768 1,425 2,823 990 4,031
Loss from operations............... (706) (896) (1,914) (386) (3,534)
Net loss........................... $ (752) $ (1,095) $ (1,509) $ (41) $ (3,529)
========= ========= ========= ========= =========
Basic and diluted net loss per
share............................ $ (0.46) $ (0.67) $ (0.60) $ (0.02) $ (1.15)
========= ========= ========= ========= =========
Weighted average number of shares
used in calculating basic and
diluted net loss per share....... 1,625,410 1,625,410 2,497,065 2,083,909 3,056,233
========= ========= ========= ========= =========
Pro forma basic and diluted net
loss per share................... $ (0.46) $ (0.67) $ (0.32) $ (0.01) $ (0.43)
========= ========= ========= ========= =========
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 3,271,976 8,162,089
========= ========= ========= ========= =========
</TABLE>
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>
JUNE 30, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $12,668 $12,668 $
Working capital...................................... 11,904 11,904
Total assets......................................... 15,251 15,251
Convertible preferred stock.......................... 17,901 --
Total stockholders' equity........................... 13,445 13,445
</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 shares of common stock
offered by us at an assumed initial public offering price of $ 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.
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<PAGE> 8
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 MAY NOT GENERATE SUFFICIENT REVENUES FOR
OUR BUSINESS 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;
- online sales of wedding gifts and supplies; and
- leveraging our relationships with and information about our users.
It is uncertain whether wedding-related online sites that rely on
attracting people to purchase wedding gifts and supplies and seek information
and resources on wedding planning can generate sufficient revenues to survive.
We cannot assure you that this business model will succeed or will be
sustainable as our business grows.
For our business to be successful, we must develop interactive services
designed for engaged couples, provide content that attracts users to our online
sites frequently and expand our shopping services. We cannot assure you that we
will be able to provide consumers with an acceptable blend of products,
information, services and community offerings that will attract consumers to our
online sites frequently. We provide many of our services 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 NEW AND RAPIDLY EVOLVING 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:
- attract a larger audience to our World Wide Web and AOL sites;
- increase awareness of our brand;
- strengthen user-loyalty;
- offer compelling content;
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- 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;
- respond effectively to competitive pressures;
- generate revenues from merchandising 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.
If we are unsuccessful in addressing these risks, our business, results of
operations and financial condition would be materially and adversely affected.
For more information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
WE LACK SIGNIFICANT REVENUES, 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 $3.5 million for the six
months ended June 30, 1999. As of June 30, 1999, our accumulated deficit was
$6.9 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.
Our revenues for the foreseeable future will remain dependent on user
traffic levels and advertising activity on our sites and the expansion of our
e-commerce activity. In addition, we plan to expand and develop content and to
upgrade and enhance our technology and infrastructure to support our growth. We
incur a significant percentage of our expenses, such as employee compensation
and rent, prior to generating revenues associated with those expenses. Moreover,
our expense levels are based, in part, on our expectation of future revenues. We
may be unable to adjust spending quickly enough to offset any unexpected revenue
shortfall. If we have a shortfall in revenues in relation to our growth in
expenses, then our business, results of operations and financial condition would
be materially and adversely affected. For more information, see "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT
FLUCTUATION AND THESE FLUCTUATIONS MAY ADVERSELY AFFECT THE TRADING PRICE OF OUR
COMMON STOCK.
Our quarterly revenues and operating results have fluctuated significantly
in the past and are expected to continue to fluctuate significantly in the
future as a result of a variety of factors, many of which are outside our
control. These factors include:
- the level of online usage;
- the level of traffic on our online sites;
- demand for online advertising;
- seasonal trends in both online usage and advertising placements;
- the addition or loss of advertisers;
- the advertising budgeting cycles of specific advertisers;
- the number of users that purchase merchandise from us;
- the amount and timing of capital expenditures and other costs relating to
the expansion of our operations, including those related to acquisitions;
- the introduction of new sites and services by us or our competitors;
- changes in our pricing policies or the pricing policies of our
competitors;
- general economic conditions; and
- economic conditions specific to the Internet, electronic commerce and
online media.
We do not believe that period-to-period comparisons of our operating
results are necessarily meaningful and you should not rely upon these
comparisons as indicators of our future performance.
Due to the foregoing factors, it is possible that our results of operations
in one or more future quarters may fall below the expectations of securities
analysts and investors. In such event, the trading price of our common stock is
likely to decline.
WE MAY NOT ATTRACT A SUFFICIENT AMOUNT OF TRAFFIC AND ADVERTISING WITHOUT OUR
CHANNELS CONTINUING TO BE CARRIED ON AOL AND AOL'S INVESTMENT IN US MAY RESULT
IN CONFLICTS OF INTEREST.
AOL has accounted for a significant portion of our online traffic to date.
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 renew it. Under the terms of the agreement, AOL may terminate the
agreement with respect to our carriage on certain of its properties upon 30
days' prior written notice. If the carrying of our channels on AOL is
discontinued, our business, results of operations and financial condition would
be materially and adversely affected.
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After this offering, AOL will beneficially own approximately % of our
capital stock. AOL's investment in The Knot may result in conflicts of interest
for us with respect to potential transactions or strategic alliances with other
companies.
OUR OPERATING RESULTS MAY FLUCTUATE DUE TO SEASONAL FACTORS.
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. As our markets develop, seasonal and cyclical patterns may develop. As a
result, if the Internet advertising market follows the same seasonal patterns as
those found in traditional media, we may experience lower advertising revenues
in the first and third calendar quarters of each year. Seasonal and cyclical
patterns in e-commerce purchases may also affect our revenues.
Typically, we experience our highest traffic during the first and second
quarters of the year. Seasonal fluctuations could have a material adverse effect
on our business, results of operations and financial condition. For more
information, 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.
WE MAY BE UNABLE TO CONTINUE TO BUILD AWARENESS OF THE KNOT BRAND NAME.
Building recognition of our brand is critical to attracting and expanding
our online user base and establishing first-mover advantages. We plan to
continue building brand recognition by leveraging our membership base and
creating innovative and integrated marketing solutions. 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
among potential users. If we fail to successfully promote and maintain our brand
or incur significant expenses in promoting our brand without an associated
increase in our net revenues, our business, results of operations and financial
condition would be materially and adversely affected.
PROTECTION OF OUR DOMAIN NAMES IS UNCERTAIN, AND 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 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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WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE OUR RECENT ACQUISITIONS AND ANY
POTENTIAL 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.
To pay for an acquisition, we might use equity securities, debt, cash, including
the proceeds from this offering, or a combination of the foregoing. If we use
equity securities, our stockholders may experience dilution. In addition, an
acquisition may involve non-recurring charges or involve amortization of
significant amounts of goodwill that could adversely affect our results of
operations. Any such acquisitions or investments may require us to obtain
additional equity or debt financing, which may not be available on commercially
acceptable terms, if at all.
THE EFFECTIVENESS OF INTERNET ADVERTISING IS NOT YET FULLY ESTABLISHED AND IT IS
DIFFICULT TO DETERMINE THE EXTENT TO WHICH THE INTERNET WILL BE ACCEPTED AS AN
ADVERTISING MEDIUM.
Our future success depends in part on a significant increase in the use of
the Internet as an advertising and marketing medium. Sponsorship and advertising
revenues constituted 74% of our net revenues for the six months ended June 30,
1999 and 82% of our net revenues for the year ended December 31, 1998. The
Internet advertising market is new and rapidly evolving, and it cannot yet be
compared with traditional advertising media to gauge its effectiveness. As a
result, demand for and market acceptance of Internet advertising solutions are
uncertain. Many of our current and potential customers have little or no
experience with Internet advertising and have allocated only a limited portion
of their advertising and marketing budgets to Internet activities. The adoption
of Internet advertising, particularly by entities that have historically relied
upon traditional methods of advertising and marketing, requires the acceptance
of a new way of advertising and marketing. These customers may find Internet
advertising to be less effective for meeting their business needs than
traditional methods of advertising and marketing. Furthermore, there are
software programs that limit or prevent advertising from being delivered to a
user's computer. Widespread adoption of this software by users would
significantly undermine the commercial viability of Internet advertising. If
these markets fail to develop
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or develop more slowly than we expect, our business, results of operations and
financial condition would be materially and adversely affected.
WE HAVE A SMALL NUMBER OF ADVERTISERS AND THE LOSS OF A NUMBER OF THESE
ADVERTISERS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
We depend on a limited number of advertisers for a significant part of our
net revenues. Consequently, the loss of any of these advertisers may materially
and adversely affect our business, results of operations and financial
condition. For the six months ended June 30, 1999, one advertiser accounted for
24% of our net revenues. For the year ended December 31, 1998, a different
advertiser accounted for 19% of our net revenues.
We anticipate that our future results of operations will continue to depend
to a significant extent upon revenues from a small number of advertisers. In
addition, we anticipate that such advertisers will continue to vary over time.
To achieve our long-term goals, we will need to attract additional significant
advertisers on an ongoing basis. Our failure to enter into a sufficient number
of large contracts during a particular period may have a material adverse effect
on our business, results of operations and financial condition. For more
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS.
We rely solely upon copyright, trade secret and trademark law and
assignment of invention and confidentiality agreements to protect our
proprietary technology, processes, content and other intellectual property to
the extent that protection is sought or secured at all. We cannot assure you
that any steps we might take will be adequate to protect against infringement
and misappropriation of our intellectual property by third parties. Similarly,
we cannot assure you that third parties will not be able to independently
develop similar or superior technology, processes, content or other intellectual
property. The unauthorized reproduction or other misappropriation of our
intellectual property rights could enable third parties to benefit from our
technology without paying us for it. If this occurs, our business, results of
operations and financial condition would be materially and adversely affected.
In addition, disputes concerning the ownership or rights to use intellectual
property could be costly and time consuming to litigate, may distract management
from other tasks of operating the business, and may result in our loss of
significant rights and the loss of our ability to operate our business.
OUR PRODUCTS AND SERVICES MAY INFRINGE ON INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES.
Although we avoid infringing known proprietary rights of third parties,
including licensed content, we may be subject to claims alleging infringement of
third-party proprietary rights. If we are subject to claims of infringement or
are infringing the rights of third parties, we may not be able to obtain
licenses to use those rights on commercially reasonable terms, if at all. In
that event, we would need to undertake substantial reengineering to continue our
online offerings. Any effort to undertake such reengineering might not be
successful. In addition, 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. 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
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products. If any of these events occurred, our business, results of operations
and financial condition would be materially and adversely affected.
WE DEPEND UPON QVC TO PROVIDE US WAREHOUSING, FULFILLMENT AND DISTRIBUTION
SERVICES.
We have a services agreement with QVC to warehouse, fulfill and arrange for
distribution of certain products which 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. Any of the foregoing
could materially and adversely affect our business, results of operations and
financial condition.
WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS TO EXECUTE OUR BUSINESS STRATEGY AND
WE MAY NOT BE ABLE TO SECURE ADDITIONAL FINANCING.
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. If additional funds are raised through the issuance of debt
securities, these securities could have rights, preferences and privileges
senior to holders of common stock. The terms of any debt securities could impose
restrictions on our operations. If additional funds are raised through the
issuance of additional equity or convertible securities, our stockholders could
suffer dilution. 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.
OUR BUSINESS COULD BE MATERIALLY AND ADVERSELY AFFECTED BY INCREASED
COMPETITION.
The Internet advertising and online wedding markets are new, rapidly
evolving and intensely competitive, and we expect such competition to intensify
in the future.
We face competition for members, users and advertisers from the following
areas:
- online services or Web sites targeted at brides and grooms as well as the
online sites of retail stores, manufacturers and regional wedding
directories;
- bridal magazines, such as Bride's and Modern Bride; and
- online and retail stores offering gift registries, especially from
retailers offering specific bridal gift registries.
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We expect competition to increase because of the business opportunities
presented by the growth of the Internet and e-commerce. Our competition may also
intensify as a result of industry consolidation and a lack of substantial
barriers to entry. Many of our current and potential competitors have longer
operating histories, significantly greater financial, technical and marketing
resources, greater name recognition and substantially larger user or membership
bases than we have and, therefore, have a significantly greater ability to
attract advertisers and users. In addition, many of our competitors may be able
to respond more quickly than we can to new or emerging technologies and changes
in Internet user requirements, as well as devote greater resources than we can
to the development, promotion and sale of services.
There can be no assurance that our current or potential competitors will
not develop products and services comparable or superior to those that we
develop or adapt more quickly than we do to new technologies, evolving industry
trends or changing Internet user preferences. Increased competition could result
in price reductions, lower margins or loss of market share, any of which would
materially and adversely affect our business, results of operations and
financial condition. In addition, if we expand internationally, we may face
additional competition. There can be no assurance that we will be able to
compete successfully against current and future competitors, or that competitive
pressures faced by us would not have a material adverse effect on our business,
results of operations and financial condition.
OUR UNCERTAIN SALES CYCLES COULD ADVERSELY AFFECT OUR BUSINESS.
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, our results of operations for a particular period may be materially
and adversely affected if sales to advertisers or sponsors forecasted in a
particular period are delayed or do not otherwise occur.
COMPETITION FOR PERSONNEL IN OUR INDUSTRY IS INTENSE.
We may be unable to retain our key employees or attract, integrate or
retain 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. There is significant competition for qualified
employees in our industry. If we do not succeed in attracting new personnel or
retaining and motivating our current personnel, our business, results of
operations and financial condition will be materially and adversely affected.
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A NUMBER OF MEMBERS OF OUR MANAGEMENT TEAM HAVE LITTLE EXPERIENCE WORKING
TOGETHER, AND OUR BUSINESS IS DEPENDENT ON A FEW KEY EMPLOYEES.
Several members of our senior management team joined us in 1998 and 1999.
Many of these individuals have not previously worked together. Given their
limited experience with our business and other members of management, it is
possible that these individuals may not integrate well into our business. Their
failure to integrate well would have a material adverse effect on our business,
results of operations and financial condition.
Our future success depends to a significant extent on the continued
services of our senior management and other key personnel. We currently do not
maintain key man life insurance policies on any of our employees. The loss of
the services of our senior management or our inability to hire and retain
additional key employees would have a material adverse effect on our business,
results of operations and financial condition.
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR EXPANDING OPERATIONS.
Since our inception, we have grown rapidly. This growth has placed a
significant strain on our managerial, operational and financial resources. To
accommodate our growth, we may need to implement new or upgraded operating and
financial systems, procedures and controls throughout many different locations.
We may not succeed with these efforts. Our failure to expand and integrate these
areas in an efficient manner could cause our expenses to grow, our revenues to
decline or grow more slowly than expected and could otherwise have a material
adverse effect on our business, results of operations and financial condition.
SYSTEMS DISRUPTIONS AND FAILURES COULD CAUSE CUSTOMER DISSATISFACTION OR
FINANCIAL LOSS.
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 failure that interrupts our ability to
provide our services and content to them. Substantial or repeated system
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 failures
unrelated to our systems. Although we carry general liability insurance, our
insurance may not cover any claims by dissatisfied providers or subscribers or
may not be adequate to indemnify us for any liability that may be imposed in the
event that a claim were brought against us. Our business, results of operations
and financial condition could be materially and
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adversely affected by any system failure, security breach or other damage that
interrupts or delays our operations.
WE MAY NOT BE ABLE TO DELIVER VARIOUS SERVICES IF THIRD PARTIES FAIL TO PROVIDE
RELIABLE SOFTWARE, SYSTEMS AND RELATED SERVICES TO US.
We are dependent on various third parties for software, systems and related
services. 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. As a result,
our ability to deliver various services to our users may be adversely affected
by the failure of these third parties 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 litigation which
could have a material adverse effect on our business, results of operations and
financial condition.
PROBLEMS RESULTING FROM THE YEAR 2000 PROBLEM COULD REQUIRE US TO INCUR
UNANTICIPATED EXPENSES, DIVERT MANAGEMENT'S TIME AND ATTENTION, AND DISRUPT OUR
BUSINESS.
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. We have established procedures for evaluating and
managing the risks associated with the Year 2000 problem. We are in the process
of assessing our Year 2000 readiness. We are also in the process of
communicating with third-party vendors that provide us with both network
services and equipment to assess their plans and progress in addressing the Year
2000 problem. We may discover Year 2000 compliance problems in our systems that
require substantial upgrades or replacements. In addition, there can be no
assurance that third-party software, hardware or services incorporated into our
material systems will not need to be upgraded, modified or replaced, 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, any of which
could have a material adverse effect on our business, results of operations and
financial condition.
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
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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.
PROJECTIONS INCLUDED IN THIS PROSPECTUS RELATING TO THE GROWTH OF E-COMMERCE AND
THE INTERNET ARE BASED ON ASSUMPTIONS THAT COULD TURN OUT TO BE INCORRECT, AND
ACTUAL RESULTS COULD BE MATERIALLY DIFFERENT FROM THESE PROJECTIONS.
This prospectus contains various third-party data and projections,
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. Actual results or circumstances may be materially
different from the projections. Any difference could reduce our revenue and harm
our results of operations. These data and projections are inherently imprecise
and investors are cautioned not to place undue reliance on them.
RISKS RELATED TO OUR INDUSTRY
WE ARE DEPENDENT ON CONTINUED GROWTH IN THE USE OF THE INTERNET AND COMMERCIAL
ONLINE SERVICES AS MEDIA FOR COMMERCE.
We cannot assure you that a sufficiently broad base of consumers will
adopt, and continue to use, the Internet and commercial online services as media
for commerce, particularly for purchases of wedding gifts and supplies. Even if
consumers adopt the Internet or commercial online services as a media for
commerce, we cannot be sure that the necessary infrastructure will be in place
to process such transactions. Our long-term viability depends substantially upon
the widespread acceptance and the development of the Internet or commercial
online services as effective media for consumer commerce and for advertising.
Use of the Internet or commercial online services to effect retail transactions
and to advertise is at an early stage of development. Convincing consumers to
purchase wedding gifts and supplies online may be difficult.
Demand for recently introduced services and products over the Internet and
commercial online services is subject to a high level of uncertainty. Few proven
services and products exist. The development of the Internet and commercial
online services into a viable commercial marketplace is subject to a number of
factors, including:
- continued growth in the number of users of such services;
- concerns about transaction security;
- continued development of the necessary technological infrastructure;
- development of enabling technologies;
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- uncertain and increasing government regulation; and
- the development of complementary services and products.
WE DEPEND ON THE CONTINUED VIABILITY OF THE INFRASTRUCTURE OF THE INTERNET AND
OTHER COMMERCIAL ONLINE SERVICES.
To the extent that the Internet and other online services continue to
experience growth in the number of users and frequency of use by consumers
resulting in increased bandwidth demands, there can be no assurance that the
infrastructure for the Internet and other online services will be able to
support the demands placed upon them. The Internet and other online services
have experienced outages and delays as a result of damage to portions of their
infrastructure. Outages or delays, including those resulting from Year 2000
problems, could adversely affect online sites, e-mail and the level of traffic
on all sites. We also depend on online access providers that provide our users
with access to our services. In the past, users have experienced difficulties
due to systems failures unrelated to our systems. In addition, the Internet or
other online services could lose their viability due to delays in the
development or adoption of new standards and protocols required to handle
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,
and our business, results of operations and financial condition will
consequently suffer.
WE MAY BE UNABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY
AND THIS MAY HARM OUR BUSINESS.
If we are unable, for technological, legal, financial or other reasons, to
adapt in a timely manner to changing market conditions or customer requirements,
our business, results of operations and financial condition would be materially
and adversely affected. The Internet and e-commerce are characterized by rapid
technological change. Sudden changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices could
render our existing online sites and proprietary technology and systems
obsolete. The emerging nature of these products and services 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
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may be unable to use new technologies effectively or adapt our online sites,
proprietary technology and transaction-processing systems to customer
requirements or emerging industry standards. Updating our technology internally
and licensing new technology from third parties may require significant
additional capital expenditures and could materially and adversely affect our
business, results of operations and financial condition.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION AND LEGAL
UNCERTAINTIES.
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. Laws and regulations may
be adopted covering issues such as user privacy, pricing, content, taxation and
quality of products and services. Any new legislation could hinder the growth in
use of the Internet and other online services generally and decrease the
acceptance of the Internet and other online services as media of communications,
commerce and advertising. The governments of states and foreign countries might
attempt to regulate our transmissions or levy sales or other taxes relating to
our activities. The laws governing the Internet remain largely unsettled, even
in areas where legislation has been enacted. It may take years to determine
whether and how existing laws such as those governing intellectual property,
privacy, libel and taxation apply to the Internet and Internet advertising
services. In addition, the growth and development of the market for e-commerce
may prompt calls for more stringent consumer protection laws, both in the United
States and abroad, which may impose additional burdens on companies conducting
business online. Our business, results of operations and financial condition
could be materially and adversely affected by the adoption or modification of
laws or regulations relating to the Internet and other online services.
WE MAY BE SUED FOR INFORMATION RETRIEVED FROM OUR SITES.
We may be subject to claims for defamation, negligence, copyright or
trademark infringement, personal injury or other legal theories relating to the
information we publish on our online sites. These types of claims have been
brought, sometimes successfully, against online services as well as other print
publications in the past. We could also be subject to claims based upon the
content that is accessible from our online sites through links to other online
sites or through content and materials that may be posted by members in chat
rooms or bulletin boards. Our insurance, which covers commercial general
liability, may not adequately protect us against these types of claims.
WE MAY INCUR POTENTIAL PRODUCT LIABILITY FOR PRODUCTS SOLD ONLINE.
Consumers may sue us if any of the products that we sell online are
defective, fail to perform properly or injure the user, or if consumers
experience problems with honeymoon packages purchased through our sites. To
date, we have had limited experience selling products online and developing
relationships with manufacturers or suppliers of such products. We plan to sell
a range of products targeted specifically at brides and grooms through The Knot
Registry, The Knot Shop, Bridalink.com, Click Trips and other e-commerce sites
that we may acquire in the future. Such a strategy involves numerous risks and
uncertainties. Although our agreements with manufacturers and providers of
travel services typically contain provisions intended to limit our exposure to
liability claims, these limitations may not prevent all potential claims.
Liability claims could require us to spend significant time and money in
litigation or to pay significant damages. As a result, any such claims, whether
or not successful, could seriously damage our reputation and
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could materially and adversely affect our business, results of operations and
financial condition.
WE COULD FACE ADDITIONAL REGULATORY REQUIREMENTS, TAX LIABILITIES AND OTHER
RISKS IF WE DECIDE TO EXPAND INTERNATIONALLY.
We may decide to expand internationally. There are additional risks related
to doing business in international markets, such as changes in regulatory
requirements, tariffs and other trade barriers, fluctuations in currency
exchange rates, and adverse tax consequences. In addition, there are likely to
be different consumer preferences and requirements in such markets. Furthermore,
we may face difficulties in staffing and managing any foreign operations. We
cannot assure you that one or more of these factors would not harm any future
international operations.
SECURITY CONCERNS COULD HINDER E-COMMERCE.
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. 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 % 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 AND OUR STOCK PRICE MAY
EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS.
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
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the representatives of the underwriters. The market price of our common stock
may decline below the initial public offering price after this offering.
Fluctuations in market price and volume are particularly common among
securities of Internet and other technology companies. The market price of our
common stock may fluctuate significantly in response to the following factors,
some of which are beyond our control:
- variations in quarterly operating results;
- changes in market valuations of Internet and other technology companies;
- our announcements of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
- failure to complete significant sponsorship, advertising and merchandise
sales;
- additions or departures of key personnel;
- future sales of common stock; and
- changes in financial estimates by securities analysts.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
common stock. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources.
WE MAY SPEND THE NET PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU MAY NOT
AGREE.
The net proceeds of this offering are not allocated for specific uses. Our
management will have broad discretion to spend the net proceeds from this
offering in ways with which investors may not agree. The failure of our
management to apply these funds effectively could result in unfavorable returns.
This could have a material and adverse effect on our business, results of
operations and financial condition, and could cause the price of our common
stock to decline.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY MAKE IT
DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.
Provisions of our certificate of incorporation, our bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
might be beneficial to our stockholders.
INVESTORS PURCHASING SHARES IN THIS OFFERING WILL SUFFER IMMEDIATE AND
SUBSTANTIAL DILUTION.
Investors purchasing shares in this offering will incur immediate and
substantial dilution in pro forma net tangible book value per share. To the
extent outstanding options to purchase common stock are exercised, there will be
further dilution.
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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, without limitation,
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. You should not place undue reliance on these forward-looking
statements which apply only as of the date of this prospectus. Our actual
results could differ materially from those expressed or implied by these
forward-looking statements as a result of various factors, including the risk
factors described above and elsewhere in this prospectus. We undertake no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
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USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of the shares
of common stock in this offering of $ million, assuming an initial
public offering price of $ 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 $ million.
We presently intend to use the net proceeds of this offering for general
corporate purposes, including working capital. We also believe opportunities may
exist to expand our current business through strategic alliances and
acquisitions, and we may utilize a portion of the proceeds for such purposes. We
are not currently a party to any contracts or letters of intent with respect to
any acquisitions.
Pending such uses, we intend to invest the net proceeds of this offering in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock since
our inception. We intend to retain future earnings, if any, to finance the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future. Consequently, stockholders will need to
sell shares of common stock to realize a return on their investment, if any.
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<PAGE> 25
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the automatic conversion of
shares of outstanding preferred stock into shares
of common stock upon the closing of this offering;
- on a pro forma as adjusted basis to give effect to the sale of
shares of common stock by us in this offering at an assumed initial
public offering price of $ 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>
JUNE 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 and pro
forma -- no shares authorized, issued or outstanding;
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 3,078,608 shares issued and outstanding;
pro forma -- 14,640,000 shares authorized and
shares issued and outstanding; pro forma as
adjusted -- 100,000,000 shares authorized and shares
issued and outstanding................................. 31 104
Additional paid-in-capital.................................. 4,241 22,069
Deferred compensation....................................... (1,841) (1,841)
Accumulated deficit......................................... (6,887) (6,887)
------- ------- ------
Total stockholders' equity............................. $13,445 $13,445 $
======= ======= ======
Total capitalization................................. $13,445 $13,445 $
======= ======= ======
</TABLE>
The table above is based on shares outstanding as of June 30, 1999. This
table excludes (1) 1,401,515 shares of common stock issuable upon the exercise
of stock options outstanding as of June 30, 1999, with a weighted average
exercise price of $0.75 per share; (2) 10,000 shares of common stock issuable
upon the exercise of stock options granted in connection with the Bridalink.com
acquisition; (3) 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 certain
performance-based goals; (4) 10,000 shares of common stock issued in connection
with the Wedding Photographers Network acquisition; (5) 133,511 shares of common
stock issuable to certain management of Bridal Search in connection with their
employment by us, on the second, third and fourth anniversaries of the April
1998 acquisition of Bridal Search; (6) 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 (7) 1,700,000 shares of common stock issuable upon the exercise of a
warrant with an exercise price of $5.00 per share held by QVC Interactive
Holdings, LLC.
21
<PAGE> 26
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$13.2 million, or approximately $1.26 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
shares offered hereby at an assumed initial public offering price of $ 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 June 30, 1999
would have been $ , or $ per share. This represents an immediate
increase in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$ per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
June 30, 1999........................................... $
Increase per share attributable to new investors..........
-----
Pro forma net tangible book value per share after this
offering..................................................
-----
Dilution in pro forma net tangible book value per share to
new investors............................................. $
=====
</TABLE>
The following table summarizes, on a pro forma basis as of June 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 $ per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... % $ % $
New investors.......................
------- ----- ------- ------
Total........................... 100.0% $ $100.0%
======= ===== ======= ======
</TABLE>
The foregoing tables and calculations exclude (1) 1,401,515 shares of
common stock issuable upon the exercise of stock options outstanding as of June
30, 1999, with a weighted average exercise price of $0.75 per share; (2) 10,000
shares of common stock issuable upon the exercise of stock options granted in
connection with the Bridalink.com acquisition; (3) 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 certain performance-based goals; (4) 10,000 shares
of common stock issued in connection with the Wedding Photographers Network
acquisition; (5) 133,511 shares of common stock issuable to certain management
of Bridal Search in connection with their employment by us, on the second, third
and fourth anniversaries of the April 1998 acquisition of Bridal Search; (6)
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 (7) 1,700,000 shares of
common stock issuable upon the exercise of a warrant with an exercise price of
$5.00 per share held by QVC Interactive Holdings, LLC. To the extent that any of
these options or warrants are exercised, there will be further dilution to new
investors.
22
<PAGE> 27
SELECTED FINANCIAL DATA
The selected balance sheet data as of December 31, 1997 and 1998 and as of
June 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 for the six months ended June 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 six
months ended June 30, 1998 are derived from unaudited financial statements
included in this prospectus. In the opinion of management, the statement of
operations data for the six months ended June 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 SIX MONTHS
(INCEPTION) TO DECEMBER 31, ENDED JUNE 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 $ 665 $ 738
Cost of revenues............................. 9 67 131 61 241
--------- --------- --------- --------- ---------
Gross profit................................. 62 529 909 604 497
Operating expenses:
Product and content development............ 262 635 1,031 456 865
Sales and marketing........................ 255 503 768 238 1,494
General and administrative................. 242 265 809 236 1,041
Non-cash compensation...................... -- -- 93 22 456
Depreciation and amortization.............. 9 22 122 38 175
--------- --------- --------- --------- ---------
Total operating expenses..................... 768 1,425 2,823 990 4,031
Loss from operations......................... (706) (896) (1,914) (386) (3,534)
Interest income (expense), net............... (46) (199) 15 (45) 5
--------- --------- --------- --------- ---------
Loss before extraordinary items.............. (752) (1,095) (1,899) (431) (3,529)
Extraordinary items.......................... -- -- 390 390 --
--------- --------- --------- --------- ---------
Net loss..................................... $ (752) $ (1,095) $ (1,509) $ (41) $ (3,529)
========= ========= ========= ========= =========
Loss per share -- basic and diluted:
Loss before extraordinary items............ $ (0.46) $ (0.67) $ (0.76) $ (0.21) $ (1.15)
Extraordinary items........................ -- -- 0.16 0.19 --
--------- --------- --------- --------- ---------
Net loss per share........................... $ (0.46) $ (0.67) $ (0.60) $ (0.02) $ (1.15)
========= ========= ========= ========= =========
Weighted average number of shares used in
calculating basic and diluted net loss per
share...................................... 1,625,410 1,625,410 2,497,065 2,083,909 3,056,233
========= ========= ========= ========= =========
Pro forma basic and diluted net loss per
share...................................... $ (0.46) $ (0.67) $ (0.32) $ (0.01) $ (0.43)
========= ========= ========= ========= =========
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 3,271,976 8,162,089
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1996 1997 1998 1999
----- ------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 16 $ 305 $1,038 $12,668
Working capital............................................. (84) 194 1,003 11,904
Total assets................................................ 194 1,153 1,950 15,251
Convertible preferred stock................................. -- -- 3,938 17,901
Total stockholders' equity.................................. (751) (1,017) 1,646 13,445
</TABLE>
23
<PAGE> 28
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. For
more information, see "Risk Factors."
OVERVIEW
The Knot is the leading online wedding destination and the premier wedding
content provider on America Online (or AOL) and several other of AOL's leading
brands. We combine comprehensive content and an active online community with
wedding-related commerce. Our easy-to-use online sites provide the full-service
offerings that today's brides and grooms require when planning their weddings.
We enable our users to overcome the many challenges of the wedding planning
process by providing a one-stop solution. 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 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, giving us prominent distribution on both
AOL and the Web. In November 1998, we launched The Knot Registry, our online
gift registry, and in July 1999 we significantly expanded our registry product
offerings.
We derive revenues primarily from the sale of sponsorship and advertising
contracts. Sponsorship and advertising revenues constituted 74% of our net
revenues for the six months ended June 30, 1999 and 82% of our net revenues for
the year ended December 31, 1998. Substantially all of our sponsorship and
advertising revenues in these periods were derived from sponsorship contracts.
We also generate revenues from sales of merchandise, from publishing and from
the sale of travel packages.
Sponsorship revenues are derived principally from contracts currently
ranging up to two years in which we commit to provide sponsors promotional
opportunities in addition to traditional advertising. Certain sponsorship
agreements provide for the delivery of impressions on our sites, exclusive
relationships, revenue participation and our design and development of
customized online content areas, or site-lets, to enhance the promotional
objective of the sponsor. Advertising revenues are derived principally from
short-term advertising contracts.
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 defer recognition of the corresponding revenues
until the guaranteed impressions are achieved.
We produce site-lets and online tools for third parties. Revenues
associated with this production are recognized when the production is completed
and the site-lets and tools are delivered. To date, production revenues have not
been material.
For the six months ended June 30, 1999, one advertiser accounted for 24% 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.
24
<PAGE> 29
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. Our large advertisers generally differed from period to period. We
expect that our large advertisers will continue to differ over time.
We do not recognize barter revenues. To promote our brand on third-party
sites, we produce customized co-branded site-lets for third parties, the cost of
which is included in our operating expenses. We receive distribution and
exposure to their viewers, outbound links to our sites and, in certain
circumstances, offline brand marketing.
Merchandise revenues are derived from the sales of merchandise through The
Knot Registry, The Knot Shop and, beginning in July 1999, Bridalink.com.
Merchandise revenues include outbound shipping and handling charges. Through the
six months ended June 30, 1999, merchandise revenues were derived principally
from The Knot Registry. Merchandise revenues are recognized when products are
shipped to customers, reduced by an allowance for estimated sales returns.
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.
Travel revenues are derived principally from commissions on the sale of
travel packages. Through June 30, 1999, no travel revenues were generated. On
July 31, 1999, we acquired Click Trips, Inc. We expect to derive commission
revenues from the sale of travel packages in future periods. These revenues will
be recognized when the customer commences travel.
We generated revenues during 1997 and the six months ended June 30, 1998,
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 signed a new agreement with AOL eliminating usage revenues
receivable from, and commissions payable to, AOL after June 30, 1998.
We recorded deferred compensation of approximately $2.4 million through
June 30, 1999, primarily as a result of the issuance of stock options to
employees with exercise prices per share subsequently determined for financial
reporting purposes to be below the fair market value per share of our common
stock at the dates of grant. The difference is recorded as a reduction of
stockholders' equity and amortized as non-cash compensation expense on an
accelerated method over the four-year vesting period of the related options.
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 accrued interest thereon, 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 $6.9 million from our inception on May 2,
1996 through June 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.
25
<PAGE> 30
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 SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, JUNE 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 9.2 32.7
-------- ------ ------ ----- ------
Gross profit....................... 87.2 88.8 87.4 90.8 67.3
Operating expenses:
Product and content
development................... 371.2 106.6 99.1 68.6 117.2
Sales and marketing.............. 361.2 84.4 73.9 35.8 202.4
General and administrative....... 343.1 44.4 77.9 35.6 141.1
Non-cash compensation............ 0.0 0.0 9.0 3.3 61.8
Depreciation and amortization.... 12.9 3.7 11.7 5.7 23.7
-------- ------ ------ ----- ------
Total operating expenses........... 1,088.4 239.1 271.6 149.0 546.2
Loss from operations............... (1,001.2) (150.3) (184.2) (58.2) (478.9)
Interest income (expense), net..... (64.9) (33.4) 1.4 (6.8) 0.6
-------- ------ ------ ----- ------
Loss before extraordinary items.... (1,066.1) (183.7) (182.8) (65.0) (478.3)
Extraordinary items................ 0.0 0.0 37.5 58.7 0.0
-------- ------ ------ ----- ------
Net loss........................... (1,066.1)% (183.7)% (145.3)% (6.3)% (478.3)%
======== ====== ====== ===== ======
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
Net Revenues
Net revenues increased 11% to $738,000 for the six months ended June 30,
1999, from $665,000 for the six months ended June 30, 1998. Sponsorship and
advertising revenues increased by $50,000 to $550,000 primarily as a result of
an increase in the average dollar value of sponsorship programs and in the
number of sponsors and advertisers. The creation of new and more integrated
marketing programs enabled us to sign longer term, higher dollar value
sponsorship contracts.
Merchandise revenues accounted for $83,000, or 11% of our net revenues, for
the six months ended June 30, 1999, resulting from the launch of The Knot
Registry in November 1998. There were no merchandise revenues in the
corresponding period in 1998.
The increase in revenues for the six months ended June 30, 1999 was offset
in part by a $43,000 decrease in our publishing revenues as compared to the
prior period. Under our three-book publishing contract, a larger percentage of
our guaranteed author royalties was apportioned to the first book when compared
to the other two books. Our first book was delivered to and accepted by the
publisher in the six months ended June 30, 1998.
26
<PAGE> 31
Cost of Revenues
Cost of revenues consists of payroll and related expenses for our personnel
who are responsible for the design and development of customized site-lets and
costs of Internet and hosting services. Cost of revenues also includes the cost
of merchandise and books sold, including inbound and outbound shipping expenses.
Cost of revenues increased to $241,000, or 33% of our net revenues, for the
six months ended June 30, 1999, from $61,000, or 9% of our net revenues, for the
six months ended June 30, 1998. Cost of revenues increased as a result of the
increased number of sponsors and advertisers and increased Internet access and
hosting services expenses. The increase in cost of revenue was also due to the
cost of merchandise sold as a result of the launch of The Knot Registry in
November 1998.
We anticipate that cost of revenues will continue to grow in absolute
dollars as we expand our sponsorship programs, increase our merchandising
efforts and require more bandwidth from our Internet service providers.
Advertising gross margins are currently greater than merchandise gross margins.
Accordingly, cost of revenues will continue to fluctuate as a percentage of
revenues as our business continues to grow and the components of our revenues
continue to change.
Product and Content Development
Product and content development expenses consist of payroll and related
expenses for our information technology personnel and expenses for third-party
software developers and contract programmers. These expenses also include
payroll and related expenses for our editorial content, community management and
production personnel.
Product and content development expenses increased to $865,000, or 117% of
our net revenues, for the six months ended June 30, 1999, from $456,000, or 69%
of our net revenues, for the six months ended June 30, 1998. These dollar and
percentage increases were primarily attributable to increased costs of personnel
and consultants related to enhancing the content and functionality of our sites.
We believe that significant investments in technology 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 on-line distribution agreements,
advertising and promotional activities and fulfillment and distribution of
merchandise.
Sales and marketing expenses increased to $1.5 million, or 202% of our net
revenues, for the six months ended June 30, 1999, from $238,000, or 36% of our
net revenues, for the six months ended June 30, 1998. These dollar and
percentage increases were primarily due to carriage fees under our new
distribution agreement with AOL which went into effect on January 1, 1999, the
retention of an outside public relations firm, the formation of an in-house
public relations department, higher sales commissions as a result of our
27
<PAGE> 32
increased sponsorship and advertising revenues, and the hiring of additional
employees in the advertising sales department, including the Vice President of
Sales.
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. We therefore expect 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 salaries, payroll
taxes and benefits and related costs for general corporate functions, including
executive management, finance, facilities, legal and accounting, and fees for
other professional services.
General and administrative expenses increased to $1.0 million, or 141% of
our net revenues, for the six months ended June 30, 1999, from $236,000, or 36%
of our net revenues, for the six months ended June 30, 1998. The dollar and
percentage increases were primarily due to an increase in personnel, recruiting
and facilities costs to support the growth of our business.
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 $1.9 million in deferred compensation during the six months
ended June 30, 1999 and $260,000 in deferred compensation for the six months
ended June 30, 1998. Amortization of deferred compensation was $456,000, or 62%
of our net revenues, for the six months ended June 30, 1999 and $22,000, or 3%
of our net revenues, for the six months ended June 30, 1998.
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 $175,000, or 24% of our
net revenues, for the six months ended June 30, 1999, from $38,000, or 6% of our
net revenues, for the six months ended June 30, 1998. The dollar increase was
primarily due to increased depreciation and amortization due to the increase in
property and equipment purchases to support the growth of our business and
additional amortization of goodwill related to the acquisition of Bridal Search
in April 1998.
INCEPTION (MAY 2, 1996) THROUGH 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
28
<PAGE> 33
an increase in the average dollar value of sponsorship programs and in the
number of sponsors and advertisers. Sponsorship and advertising revenues
accounted for approximately 82% of our net revenues for the year ended December
31, 1998, 100% of our net revenues for the year ended December 31, 1997 and 100%
of our net revenues for the period from inception through December 31, 1996.
Merchandise revenues were $17,000, or 2% of our net revenues, for the year
ended December 31, 1998 as a result of the launch of The Knot Registry in
November 1998. There were no merchandise revenues for the year ended December
31, 1997 or for the period from inception through December 31, 1996.
Net revenues from the delivery and acceptance of the first book under our
book publishing contract were $143,000, or 14% of our net revenues, 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, or 13% of our net revenues, for the
year ended December 31, 1998, from $67,000, or 11% of our net revenues, for the
year ended December 31, 1997 and from $9,000, or 13% of our net revenues, in the
period from inception through December 31, 1996. The increase in cost of
revenues for each period was primarily due to the increased number of sponsors
and advertisers. Cost of revenues for the year ended December 31, 1998 included
the cost of merchandise sold as a result of the launch of The Knot Registry in
November 1998. Internet access and hosting services expenses also increased in
each period.
Product and Content Development
Product and content development expenses increased to $1.0 million, or 99%
of our net revenues, for the year ended December 31, 1998, from $635,000, or
107% of our net revenues, for the year ended December 31, 1997 and from
$262,000, or 371% of our net revenues, for the period from inception through
December 31, 1996. The increase in absolute dollars for each period was
primarily attributable to increased personnel costs related to enhancing the
content and functionality of our sites. The percentage decreases for each period
were primarily attributable to the higher growth rate in our net revenues as
compared to the growth rate associated with these expenses.
Sales and Marketing
Sales and marketing expenses increased to $768,000, or 74% of our net
revenues, for the year ended December 31, 1998, from $503,000, or 84% of our net
revenues, for the year ended December 31, 1997 and from $255,000, or 361% of our
net revenues, for the period from inception through December 31, 1996. The
dollar increases for each period were primarily a result of the retention of an
outside public relations firm and higher sales commissions paid as a result of
increased sponsorship and advertising sales. 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.
29
<PAGE> 34
General and Administrative
General and administrative expenses increased to $809,000, or 78% of our
net revenues, for the year ended December 31, 1998, from $265,000, or 44% of our
net revenues, for the year ended December 31, 1997 and from $242,000, or 343% of
our net revenues, for the period from inception through December 31, 1996. The
increase in absolute dollars for each period was primarily due to an increase in
salaries and benefits, and facilities expenses resulting from an increase in the
number of personnel hired to support the growth of our business.
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, or 12% of our
net revenues, for the year ended December 31, 1998, from $22,000, or 4% of our
net revenues, for the year ended December 31, 1997 and from $9,000, or 13% of
our net revenues, in the period from inception through December 31, 1996. The
dollar 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.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly statement of
operations data for each of the six quarters ended June 30, 1999. We have
prepared these data on the same basis as our audited financial statements in
this prospectus and have included all necessary adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of our results
of operations for these interim periods. You should read these interim financial
data together with our audited financial statements and the notes to those
statements in this prospectus. Our historical results of operations do not
necessarily indicate the results of operations we will achieve in the future,
and our results of
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operations for interim periods do not necessarily indicate the results of
operations for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues................... $ 226 $ 439 $ 161 $ 214 $ 194 $ 544
Cost of revenues............... 33 28 21 49 53 188
------- ------- ------- ------- ------- -------
Gross profit................... 193 411 140 165 141 356
Operating expenses:
Product and content
development............... 166 290 333 242 401 464
Sales and marketing.......... 94 144 238 292 706 788
General and administrative... 83 153 302 271 420 621
Non-cash compensation........ -- 22 35 36 129 327
Depreciation and
amortization.............. 7 31 38 46 69 106
------- ------- ------- ------- ------- -------
Total operating expenses....... 350 640 946 887 1,725 2,306
Loss from operations........... (157) (229) (806) (722) (1,584) (1,950)
Interest income (expense),
net.......................... (49) 4 16 44 (10) 15
------- ------- ------- ------- ------- -------
Loss before extraordinary
items........................ (206) (225) (790) (678) (1,594) (1,935)
Extraordinary items............ -- 390 -- -- -- --
------- ------- ------- ------- ------- -------
Net loss....................... $ (206) $ 165 $ (790) $ (678) $(1,594) $(1,935)
======= ======= ======= ======= ======= =======
</TABLE>
Net revenues for the quarter ended June 30, 1998 increased primarily as a
result of publishing revenues recognized from the delivery and acceptance of the
first book under our book publishing contract. Net revenues in the quarter ended
September 30, 1998 decreased from the prior quarter as a result of lower
sponsorship revenues as well as decreased publishing revenues. Net revenues in
the quarter ended June 30, 1999 increased as a result of an increase in the
average dollar value of sponsorship agreements and in the number of sponsors and
advertisers.
Product and content development expenses decreased in the quarter ended
December 31, 1998 as a result of a decline in third-party software and contract
programming expenses after the launch of The Knot Registry in November 1998.
Sales and marketing expenses increased in the quarter ended March 31, 1999
as a result of carriage fees under our new distribution agreement with AOL which
went into effect on January 1, 1999 and the hiring of additional employees in
the sales department.
General and administrative expenses decreased in the quarter ended December
31, 1998 as a result of a decrease in outside consulting fees and lower
facilities costs related to the relocation of our California office. General and
administrative expenses increased in the quarter ended June 30, 1999 due to
increased personnel costs to support the growth of our business.
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 June 30, 1999, we had
$12.7 million in cash and cash equivalents.
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Net cash used in operating activities was $2.5 million for the six months
ended June 30, 1999. This resulted primarily from the net loss for the period as
adjusted for depreciation and amortization and an increase in accounts
receivable and inventory partially offset by increases in accounts payable and
deferred income. Net cash used in operating activities was $1.7 million for the
year ended December 31, 1998, $837,000 for the year ended December 31, 1997 and
$625,000 for the period from May 2, 1996 (inception) through December 31, 1996,
primarily as a result of the net loss for the periods, adjusted for depreciation
and amortization.
Net cash used in investing activities was $1.0 million for the six months
ended June 30, 1999, primarily due to the purchase of property and equipment.
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.
Financing activities provided $15.1 million for the six months ended June
30, 1999 primarily through the issuance of Series B Preferred Stock. 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, we have
experienced a substantial increase in capital expenditures since our inception,
consistent with the growth in our operations and staffing. We anticipate that
this will continue for the foreseeable future. We intend to continue to pursue
acquisitions of, or investments in, complementary businesses, services and
technologies, expand our sales and marketing programs and conduct more
aggressive brand promotions.
As of June 30, 1999, we have commitments under non-cancelable operating
leases amounting to $900,000, of which $247,000 will be due on or before June
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. 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. If additional funds are raised through the issuance of debt
securities, these securities could have rights, preferences and privileges
senior to holders of common stock. The terms of any debt securities could impose
restrictions on our operations. If additional funds are raised through the
issuance of additional equity or convertible securities, our stockholders could
suffer dilution. 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.
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RECENT ACQUISITIONS
On July 6, 1999, we purchased all of the assets of Bridalink.com for
approximately $124,000 in cash and the issuance of immediately vested stock
options to purchase up to 10,000 shares of our common stock at an exercise price
$1.50 per share. Bridalink.com operates www.bridalink.com, an Internet wedding
supply store located in Northern California.
On July 31, 1999, we acquired all of the capital stock of Click Trips, Inc.
for 5,000 shares of common stock. Under the terms of the acquisition agreement,
the 5,000 shares of common stock will be held in escrow for six months for the
purpose of indemnifying us against any potential liabilities of Click Trips.
Click Trips has the right to receive options to purchase up to an additional
10,000 shares of our common stock upon the attainment of certain revenue goals
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
(WPN), a division of The Denis Reggie Company, for 10,000 shares of our common
stock. WPN is a searchable database of local wedding photographers and is
located in Atlanta, Georgia.
We will account for these acquisitions using the purchase method of
accounting. Goodwill resulting from these acquisitions will be amortized using
the straight-line method over three years. The results of operations for each
acquisition will be included in the period subsequent to the date of each
acquisition.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept or recognize only two-digit entries in the date code field. These
systems and software products will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software may need to be upgraded, redesigned or replaced to
comply with such Year 2000 requirements to avoid system failure or
miscalculations causing disruptions of normal business activities.
Our business, results of operations and financial condition would suffer if
the systems on which we depend to conduct our business are not Year 2000
compliant. Our potential areas of exposure include products purchased from third
parties, information technology that we use for internal operations including
computers and software, and non-information technology systems and services
including telephone systems, electricity and other items that we use for
internal operations.
STATE OF READINESS
We are not currently aware of any Year 2000 compliance problems relating to
our systems that would have a material adverse effect on our business, results
of operations and financial condition. We have made a preliminary assessment of
the Year 2000 readiness of 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
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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 are in the process of testing our
software and hardware to insure that the versions and configurations of our
information systems are Year 2000 compliant.
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. By the end of the third quarter of 1999, we will either have received
this confirmation from the remaining vendors or have replaced the systems and
services they provide with compliant alternatives.
COSTS
To date, we have spent an immaterial amount on Year 2000 compliance issues,
and we expect to incur additional costs not to exceed $200,000 in connection
with identifying, evaluating and addressing Year 2000 compliance issues. Most of
our expenses for the Year 2000 have related to, and are expected to continue to
relate to, the operating costs associated with time spent by employees and
consultants in the evaluation process and execution of Year 2000 compliance.
Such expenses, if higher than anticipated, could have a material adverse effect
on our business, results of operations and financial condition.
RISKS
We may discover Year 2000 compliance problems in our systems that require
substantial upgrades or replacements. In addition, there can be no assurance
that third-party software, hardware or services incorporated into our material
systems will not need to be upgraded, modified or replaced, 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, any of which could have a
material adverse effect on our business, results of operations and financial
condition.
We depend heavily on a number of third-party vendors to provide both
network services and equipment. A significant Year 2000-related disruption of
the network, services or equipment that third-party vendors provide to us could
cause our sponsors, advertisers, members and visitors to consider seeking
alternate providers. Year 2000 issues could also cause an unmanageable burden on
our technical support personnel, which in turn could materially and adversely
affect our business, results of operations and financial condition.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers, including
AOL and QVC, and others outside of our control will be Year 2000 compliant. The
failure by such entities to be Year 2000 compliant could result in a systemic
failure such as a prolonged Internet, telecommunications or electrical failure.
These suppliers could also prevent us from delivering services to our customers,
decrease the use of the Internet or prevent users from
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accessing our sites which could have a material adverse effect on our business,
results of operations and financial condition.
CONTINGENCY PLAN
We are currently evaluating the need for preparing and implementing a
contingency plan. The results of our assessment will be taken into account when
we determine the need for and extent of any contingency plans. We plan to
finalize our contingency plans, if any, by November 1999.
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BUSINESS
OVERVIEW
The Knot is the leading online wedding destination and the premier wedding
content provider on America Online and several other of AOL's leading brands. We
combine comprehensive content and an active online community with
wedding-related commerce. Our easy-to-use online sites provide the full-service
offerings that today's brides and grooms require when planning their weddings.
We enable our users to overcome the many challenges of the wedding planning
process by providing a one-stop solution. 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 (keywords "Knot" and
"wedding"), our sites provide future brides and grooms with valuable information
and resources. We offer thousands of articles on wedding planning, a national
database of local wedding vendors, numerous interactive services and
personalized planning tools such as personal wedding Web pages, a budget
planning tool, the largest searchable bridal gown database, an active community
of hosted chats and message boards, a comprehensive online gift registry, an
online shop for 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.
In July 1999, we generated over 15.0 million page views on our Web site
compared to 2.5 million in December 1998. As of August 31, 1999, more than
350,000 couples had enrolled on our site to become members, and we are currently
enrolling an average of over 1,000 new couples per day. Engaged couples are
increasingly turning to The Knot as the traditional wedding industry fails to
adequately meet their needs.
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 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 2.5 million couples get married in the United
States. Weddings occur fairly evenly throughout the year, with only a 6
percentage point difference between the number of weddings in the most active
month and the number of weddings in the least active month.
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According to an independent research report, the domestic wedding market
generates approximately $45 billion in retail sales annually. This compares, for
example, with the domestic toy industry which had retail sales of $27 billion in
1998, according to Toy Manufacturers of America, Inc. 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 registry, 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 desperately 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 1998
report by Bride's magazine, engaged couples receive an average of 171 gifts,
most of which are valued 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 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 1998 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. Tradition-
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ally, 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, the
overwhelming majority of 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 advice.
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 increasingly seek 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 (18-34 yrs.) 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
The Knot is the leading online wedding destination and the premier weddings
content provider on America Online and several other of AOL's leading brands. We
combine comprehensive content and an active online community with
wedding-related commerce. Our dedicated editorial, sales and production staffs
allow us to provide our users detailed information, practical advice, access to
an active online community and the comprehensive shopping convenience that
brides and grooms require when planning their weddings. In addition to providing
significant benefits to to-be-weds, our solution creates compelling
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opportunities for advertisers and vendors in the wedding industry. Key
components of our solution include:
BENEFITS TO USERS
Compelling Content. We provide creative, compelling 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 valuable
information and resources. We offer thousands of articles on wedding planning, a
national database of local wedding vendors, numerous interactive services and
personalized planning tools such as personal wedding Web pages, a budget
planning tool, the largest searchable bridal gown database, an active community
of hosted chats and message boards, a comprehensive online gift registry, an
online shop for wedding supplies and gifts, and honeymoon travel packages. 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" site is an interactive
service in which wedding etiquette and other questions are answered daily by our
experts on wedding planning. This site includes a searchable database that draws
from an archive of up-to-date answers to over 11,000 specific questions. We also
send out a weekly newsletter to our subscribers updating them on new articles,
features and upcoming events on our site. 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
merely link users to large retailers in exchange for a bounty, we buy products
directly from leading manufacturers. This enables us to provide our users with a
large selection of products from the widest 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 we recently introduced an extensive database of local wedding
vendors. In
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July 1999, we entered into an 18-month exclusive agreement with Weddingpages,
Inc., 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 basis with estimated newsstand circulation
that exceeds the combined circulation of Bride's and Modern Bride. Through this
strategic alliance, we are the only 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. In addition, in August 1999, we
acquired Wedding Photographers Network ("WPN"), a division of The Denis Reggie
Company. WPN 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. As first-time purchasers of
many products and services, these consumers offer advertisers, sponsors and
vendors an opportunity to establish brand loyalty.
Advertisers and Sponsors. We are able to deliver to advertisers and
sponsors quantifiable leads at substantially lower costs than traditional media
can offer. Editorial content and advertising are often integrated on our sites.
For example, an article about honeymoons might feature an advertisement for a
resort. We do not feature traditional banners or buttons. Instead we provide our
sponsors with custom-developed marketing programs that offer special features,
including interactive tools. When a user clicks on an advertisement positioned
on our sites, a site-let appears. These site-lets are hosted by The Knot and
showcase the advertiser's products and services. Site-lets can provide relevant
product and contact information, electronic catalogues of products or hyperlinks
to the advertiser's online site. Companies can also enter into longer term
arrangements to exclusively sponsor entire editorial channels 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. Through our active community
participation and by utilizing the creative content portions of our sites, we
encourage and assist our users in making purchasing decisions. Vendors' products
are attractively displayed with color photographs and descriptions customized
for the bridal market. By utilizing QVC's state-of-the art fulfillment
capabilities, vendors' goods are delivered rapidly and without individual
drop-shipping costs.
OUR STRATEGY
Our objective is to expand our position as a 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 The Knot brand recognition is
critical to attracting and expanding our online user base and establishing
first-mover advantages. We have secured a dominant online position and are the
premier wedding content provider on America Online and several other of AOL's
leading brands. To maintain the focus on The Knot brand, we will continue to
emphasize our editorial and creative content. We believe
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that our compelling content and ability to make the wedding process easier, more
fun and convenient for today's busy couples will continue to build our brand.
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 40,000 in July 1999. We currently enroll an
average of over 1,000 new members per day. We intend to continue to grow our
membership base and increase member usage through our full-service 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 to be 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 leading 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 agreements with custom site
development, revenue participation, longer terms and higher dollar values than
typical banner deals. 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 trusting
relationship we build with our users and provide access to additional products
and services relevant to newlyweds and budding families.
Continue to Pursue Strategic Alliances and Acquisitions. We plan to expand
our business through strategic alliances and acquisitions. 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. We plan to
continue to form alliances with other companies to leverage our brand. We may
also expand our revenue opportunities through strategic alliances with other
retailers, online service and content providers, commerce providers, and
sponsors and advertisers.
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THE KNOT'S ONLINE NETWORK
The following is a brief description of our online content delivered in our
editorial voice.
EDITORIAL CHANNELS
Engagement - Creative proposal ideas, diamond essentials,
expert diamond-buying advice and engagement
party tips. The ins and outs of what to do once
she -- or he -- has said yes.
Planning Advice - Contract points. Must-ask vendor questions. What
to look for in a location. This area gets into
the nitty gritty of making a wedding happen
without a hitch.
Wedding Ideas - This area is all about inspiration. Hundreds of
creative ideas, intriguing traditions and the
answers to questions that begin with what, when
and where. Plus, real-world wedding stories from
around the country.
The Dress, Etc. - The latest styles. The inside scoop. The answer
to: What kind of gown will best hide...? Fashion
and accessory advice for brides who want to know
what's hot this wedding season.
Big Day Beauty - Savvy advice and trends on make-up, hair,
fitness and spa treats. We rate products, try
treatments, talk to hair stylists -- anything to
make sure every bride and groom looks
to-die-for.
Grooms and Guys - This channel is devoted to the men, namely the
grooms, groomsmen, ring bearers and dads. What's
inside: wedding-day duties, toasting tips,
groomsmen gift ideas, bachelor parties.
Maids and Moms - Moms, maids, flowergirls, guests -- this
channel's for the girls. Find bridesmaid
dresses, shower ideas, guest etiquette and tips
for coping with the bride-turned-bridezilla.
Newlywed Nesting - What to register for. Easy ways to entertain
friends. Tips on indulging each other. Plus,
advice on maintaining relationship sanity,
keeping romance alive and establishing married
finances.
Honeymoon Escapes - Resources and insider advice on hundreds of
dreamy honeymoon destinations, from Alaska to
Maui to Costa Rica. Included in each article:
where to stay, what to do, where to eat.
TOOLS
Ask Carley: Etiquette Q&A - One of The Knot co-founders, Carley Roney,
together with her team of top wedding experts,
gives the skinny on etiquette for the 90s. Find
the solutions for sticky family situations,
wedding party woes and other stress-inducing
issues.
Bridal Search - Over 13,000 gown images. Over 125 top designers.
Fully searchable. Bridal Search has the largest
collection of wedding dresses you can find in
one place, online or off. Gowns can be stored on
a "saved list" so mom and friends can take a
look. Also hundreds of bridesmaid, mother of the
bride and flower girl dresses.
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Big Day Budgeter - Enter your total wedding budget, and this
interactive tool calculates and distributes each
dollar, down to the tiniest detail, with expert
advice on each spending category. Completely
personalized. Updateable 24 hours a day.
Local Vendor Finder - In partnership with Weddingpages, our local
listings dish out complete contact information
for caterers, bakers, banquet halls, limo
drivers and other wedding professionals in 52
markets around the country.
Personal Wedding Web Pages - Knot members can create a free wedding Web page
to announce their engagement and inform guests
about their wedding. Each site includes photos,
wedding details, directions, hotel info, a list
of who's who and a link to their Knot Registry
list. Friends and family log on and inscribe
online guestbooks.
The Ultimate Wedding
Checklist - This comprehensive to-do list -- with nearly 200
critical tasks -- creates a week-by-week
checklist of what to do and when to do it.
To-be-weds can log-on each week for tasks to
keep up-to-date, as well as opt for monthly
e-mail reminders.
Wedding Photographers
Network - Search by style, price and area code. View
online portfolios. Finding a professional
wedding photographer has never been easier.
Diamond Finder - Enter a budget and size and our personalized
diamond profiler will pick the perfect stones.
Double check prices with our quick-appraisal
feature. Includes links to a commerce partner
offering high-quality stones users can buy in a
secure online environment.
Wedding Guest List Manager - The Knot's Wedding Guest List Manager enables
users to manage various aspects of their guest
list. Users can track the total number of guests
invited and guest responses. Additionally, users
can create a seating chart, record gifts
received by guest and track thank-you notes that
have been sent. Users can also send e-mails to a
selected group of guests or to all guests.
Accessory Search - Accessory Search allows users to search for
accessories by designer name or by category.
Categories include headpieces, shoes, purses,
gloves and jewelry. Users can perform a refined
search by entering search criteria such as price
point and category. Search results include price
point, style number and purchasing information
which can be saved by the users into
personalized databases.
COMMUNITY
24/7 Wedding Chat - Swap ideas. Share stories. Vent about the
in-laws with fellow brides & grooms-to-be. The
Knot chat rooms on both AOL and the Web are open
all night long. Hosts keep the conversation
flowing and answer questions with links to site
features. The world's top wedding experts visit
each week for special guest chats.
Newsletters - The weekly "Knot News" is chock-full of tips,
tricks, special promotions and updates on The
Knot. Exclusive info on the wedding world, like
sample sales, industry news and vendor tips are
another special perk.
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Discussion Groups - From "Favorite Favor Ideas" to "Keeping the Love
Alive," The Knot message boards provide a wealth
of questions, creative ideas, and personal
stories from couples all over the country. Other
features include "Dress Resale Classifieds" and
regional "Vendor Referral Boards."
Wedding Announcements - Search for brides nationwide with your same
wedding date. Find couples getting married in
your region and ask them for local vendor picks
and pans. Have fun reading how couples met and
eventually got hitched. View their list and buy
them a wedding gift or post your good wishes.
SPONSORSHIP AND ADVERTISING
We have derived a significant amount of our revenues to date from the sale
of sponsorships and advertisements. For the six months ended June 30, 1999,
sponsorship and advertising revenues represented 74% of our net revenues. For
the six months ended June 30, 1999, one advertiser accounted for 24% of our net
revenues.
Our strategy is focused in part on generating a majority of our advertising
revenues from sponsors, advertisers and vendors who seek a cost-effective means
to reach the wedding market. Vendors can purchase channel sponsorships or
special features that typically grant advertisers rights to promote their
products on a specific portion of our sites. These sponsorship programs are
typically exclusive and are for a period of up to two years.
Channel sponsorships, which include links to Knot-hosted sponsors'
site-lets, provide content while showcasing sponsors' products and services. The
brand presentation combined with editorial channel content create a relationship
between our users and our sponsors. Special features combine our customized
editorial content with a sponsor's message. The special feature programs
typically include a site-let, as well as site-wide banners and links. In
addition, special features have been expanded into broader integrated marketing
programs which may include online promotional events, such as sweepstakes, or
hosted chat sessions, user surveys and collection of user data for the sponsor,
offline promotions, such as collateral material distribution at bridal shows and
links to strategic areas of the sponsor's site. For example, OurBeginning.com, a
wedding invitation supplier, is the exclusive sponsor of The Knot's 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 channel and special feature sponsorships may also include interactive
tools. For example, Mondera, a wedding band retailer, sponsors The Wedding Band
Finder, which is co-branded with The Knot. The Wedding Band Finder tool 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 also offer traditional advertising contracts which are typically for a
period of three months to one year.
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The following is a select list of our sponsors and advertisers:
Lenox
Mondera
NextCard
Nutri/Systems
OurBeginning.com
Sandals
Wamsutta
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. Our
supplies include wedding bubbles and bells, decorated disposable cameras, 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. 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 to guests, notifying them of the
couple's registration;
- select a delivery date;
- elect registry-standard completion programs; 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 service agreement with QVC. Under this
agreement, QVC provides us certain warehousing, sales, fulfillment and
distribution services in connection with The Knot Registry. This services
contract was fully implemented on September 7, 1999. Our strategic relationship
with QVC affords us the ability to purchase certain 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 service agreement with QVC expires on the fourth
anniversary of this offering. We have the option to extend the term of the
service agreement for an additional 180 days. QVC may terminate our service
agreement only under limited circumstances.
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 premier destination
travel packages in 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 second printing. This book is the
to-be-wed's ultimate wedding-planning resource. It's a comprehensive
guide with 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
is filled with 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, in bookstores 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 current policy is not to
sell to any third party any member's personal identifying information 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 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. Under the terms of the agreement, The Knot is the premier wedding
content provider on AOL and several other of AOL's leading brands. AOL provides
promotions and reserves programming areas for The Knot. Moreover, the amended
agreement provides that The Knot will now be featured on Netscape Netcenter,
CompuServe and AOL.com. AOL may terminate the agreement with respect to our
carriage on certain of its 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 wedding expert. In addition, we
actively encourage our promotions staff to speak at industry and corporate
events in order 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.
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.
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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. We
believe that we compete favorably with respect to these factors. 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 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 infrastructure is scalable, enabling us to react quickly to a
rapidly expanding member base. Our operation is dependent on the ability to
maintain our computer and telecommunications systems in
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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 deal with 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.
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 with respect to
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 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,
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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.
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 certain 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, certain
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
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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 September 15, 1999, we had a total of 99 employees, of which 47 were
involved in product and content development, 27 were involved in sales and
marketing, and 25 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.
FACILITIES
We currently lease approximately 10,000 square feet of space at our
headquarters in New York City. The lease expires on March 31, 2003. 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 September 15, 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........................ 49 Chief Financial Officer, Treasurer and
Secretary
Carlos Manuel Abreu.................. 38 Chief Technology Officer
Carley Roney......................... 31 Editor-in-Chief
Michael Wolfson...................... 34 Vice President, Distribution
Rob Fassino.......................... 32 Vice President, Business Integration
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 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.
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<PAGE> 58
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.
ADAM SANDOW has served as Vice President of Sales since February 1999. From
June 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 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
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<PAGE> 59
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 pursuant to 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 will be Class I Directors whose terms
expire at the 2000 annual meeting of stockholders. will be Class
II Directors whose terms expire at the 2001 annual meeting of stockholders.
will be Class III Directors whose terms expire at the 2002 annual
meeting of stockholders. With respect to each class, 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 with respect to 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.
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 certain benefits.
The contract also contains a covenant by Mr. Liu not to
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<PAGE> 60
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 certain 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 certain 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 certain
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.
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.
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<PAGE> 61
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 (1) multiplying the number of shares of common stock subject to a
given option by the assumed market value on the date of grant, (2) assuming that
the aggregate stock value derived from that calculation compounds annually for
the entire term of the option, and (3) 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 pursuant to
our 1997 Long Term Incentive Plan, vest according to the following schedule:
(a) twenty-five percent (25%) upon the one year anniversary of the grant and
(b) thereafter, ratably per month for the remaining 36 months. Total options
granted to employees in the last fiscal year were 583,000.
(2) Amounts represent hypothetical gains that could be achieved for the
respective 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 certain 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 certain 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
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<PAGE> 62
between the exercise price per share payable upon exercise of such options and
the assumed initial offering price of $ 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 --
</TABLE>
1999 STOCK INCENTIVE PLAN
We intend to adopt the 1999 Stock Incentive Plan (the "1999 plan"), which
is intended to serve as the successor program to our 1997 Long Term Incentive
Plan. The 1999 plan will become effective upon its adoption by our board of
directors and ratification by our stockholders. At that time, all outstanding
options under our existing plan will be transferred to the 1999 plan, and no
further option grants will be made under the 1997 Long Term Incentive Plan. The
transferred options will continue to be governed by their existing terms, unless
our plan administrator decides to extend one or more features of the 1999 plan
to those options. 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 Long Term Incentive Plan
plus an additional increase of approximately 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 2000, by an amount
equal to percent ( %) 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 shares. In
addition, no participant in the 1999 plan may be granted stock options or direct
stock issuances for more than shares of common stock in total in any
calendar year. The individuals eligible to participate in our 1999 plan will
include our officers and other employees, our board members and any consultants
we hire. Our board of directors may amend or modify the 1999 plan at any time,
subject to any required stockholder approval. The 1999 plan will terminate no
later than , 2009.
1999 EMPLOYEE STOCK PURCHASE PLAN
We intend to adopt the 1999 Employee Stock Purchase Plan (the "ESPP"),
which will become effective upon its adoption by our board of directors and
ratification by our stockholders. The ESPP is designed to allow our eligible
employees and the eligible employees of our participating subsidiaries to
purchase shares of common stock, at semiannual intervals, with their accumulated
payroll deductions. 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 2000, by an amount
equal to percent ( %) of the total number of outstanding shares of
our common stock on the last trading day in in the prior calendar year.
In no event will any such annual increase exceed shares.
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<PAGE> 63
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
pursuant to 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 pursuant to 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 (the "Rights Agreement") pursuant to 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 with respect to their shares of stock
and the shares issuable upon the exercise of its warrant, and became a party to
the Rights Agreement. We also entered into a services agreement with QVC.
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 premier
wedding site featured on AOL and on several other of AOL's leading properties.
AOL may terminate the agreement with respect to our carriage on certain of its
properties upon 30 days' prior written notice.
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 underlying
the warrant.
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<PAGE> 64
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 whereby 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 certain 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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<PAGE> 65
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the common stock as of September 15, 1999, and as adjusted to
reflect the sale of the shares of common stock offered hereby, 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 September 15, 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 with respect to
shares. Unless otherwise indicated, the persons named in the table have sole
voting and sole investment control with respect to 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)..................... 673,383 6.4%
Sandra Stiles(3)................. 142,500 1.3
John Link(4)..................... -- *
Ann Winblad(5)................... 2,560,000 24.5
OTHER 5% STOCKHOLDERS:
QVC Interactive Holdings,
Inc.(6)....................... 5,700,000 46.9
Hummer Winblad Funds(5).......... 2,560,000 24.5
America Online, Inc.(7).......... 1,166,667 10.8
Rob Fassino(2)................... 673,383 6.4
Carley Roney(2).................. 673,383 6.4
Michael Wolfson(2)............... 673,383 6.4
All directors and executive
officers as a group (6
persons)(8)...................... 3,375,883 31.9
</TABLE>
- -------------------------
* Less than 1%.
(1) Percentage of beneficial ownership is based on 10,453,608 shares of common
stock outstanding as of September 15, 1999 and 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 pursuant to 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 September 15, 1999,
224,461 shares had vested for each
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<PAGE> 66
founder. 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) Consists of 126,667 shares of common stock issuable upon exercise of
presently exercisable options and 15,833 shares of common stock issuable
upon the exercise of options exercisable within 60 days. Does not include
237,500 shares of common stock issuable upon the exercise of options that do
not vest within 60 days of September 8, 1999.
(4) Mr. Link's address is c/o QVC, Studio Park, Westchester, PA 19830.
(5) 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. (collectively, the "Hummer Winblad
Funds"). John Hummer, Ann Winblad (one of our directors) and Mark Gorenberg
are general partners of Hummer Winblad Equity Partners II, L.P. ("HWII"),
the general partner of each of the Hummer Winblad Funds. Consequently, HWII
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. HWII,
Mr. Hummer, Ms. Winblad and Mr. Gorenberg each disclaim beneficial ownership
of such shares, except to the extent of their respective pecuniary interest
therein. The address of the Hummer Winblad Funds is 2 South Part, 2nd Floor,
San Francisco, CA 94107.
(6) Consists of common stock issuable upon automatic conversion of 4,000,0000
shares of Series B Preferred Stock owned by QVC Interactive
Holdings, LLC and 1,700,000 shares issuable upon the exercise of a currently
exercisable warrant at the time of the initial public offering. The address
of QVC Interactive Holdings, LLC is Studio Park, Westchester, PA 19830.
(7) 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.
(8) Includes 142,500 shares of common stock issuable upon the exercise of
options vested through November 15, 1999.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The following description of our common stock and preferred stock and the
relevant provisions of our amended and restated certificate of incorporation and
bylaws to be in effect upon the closing of this offering are summaries thereof
and are qualified by reference to our amended and restated certificate of
incorporation and bylaws, copies of which have been filed with the Securities
and Exchange Commission as exhibits to our registration statement, of which this
prospectus forms a part.
Upon the closing of our offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, par value $0.01 per share, and 5,000,000
shares of preferred stock, par value $0.001 per share.
COMMON STOCK
As of September , 1999, there were shares of our common
stock outstanding held of record by 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 therefor, 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 in consideration for
payment thereof, 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 shares of our common stock reserved for issuance, upon
exercise of stock options, under our 1997 Long Term Incentive Plan. As of
September 15, 1999, there were outstanding options to purchase a total of
1,756,815 shares of common stock, of
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which options to purchase approximately 222,300 will be exercisable upon the
closing of this offering. Since we intend to file a registration statement on
Form S-8 as soon as practicable following the closing of this offering, any
shares issued upon exercise of these options will be immediately available for
sale in the public market, subject to the terms of lock-up agreements entered
into with the underwriters. For more information, see "Management -- 1999 Stock
Option Plan" and "Shares Eligible for Future Sale."
REGISTRATION RIGHTS
Pursuant to the terms of 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 with respect
to the registration of their shares under the Securities Act of 1933. We are not
required to effect more than four registrations pursuant to these demand
registration rights. In addition, these holders will be entitled to piggyback
registration rights with respect to 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 with respect to their shares of common stock. These
registration rights are subject to certain 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 with respect to us and, accordingly, may discourage attempts to acquire
us.
In addition, various provisions of our amended and restated certificate of
incorporation and our amended and restated bylaws, which provisions will be in
effect upon the closing of the offering and are summarized in the following
paragraphs, may be deemed to have an anti-takeover effect and may delay, defer
or prevent a tender offer or takeover attempt that a stockholder might consider
in its best interest, including those attempts that might result in a premium
over the market price for the shares held by stockholders.
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<PAGE> 69
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 certificate of incorporation 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 120 days nor more than 150 days prior to the first
anniversary of the date of our notice of annual meeting provided with respect to
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 60 calendar days after this anniversary, notice by the
stockholder, to be timely, must be so received not more than 90 days nor later
than the later of:
- 60 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 certain requirements as to the
form and content of a stockholders' notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to various limitations imposed by the Nasdaq
National Market. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred stock could make
more difficult or discourage an attempt to obtain control of The Knot by means
of a proxy contest, tender offer, merger or otherwise.
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company, New York, New York.
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<PAGE> 70
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 certain 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
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
6,216,073 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
4,237,535 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 (i) 1%
of the number of shares of common stock then outstanding, which will equal
approximately shares immediately after the offering, or (ii) 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 with
respect to such sale. Sales under Rule 144 are also subject to certain
manner-of-sale provisions, notice requirements and the availability of current
public information about us.
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<PAGE> 71
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 certain 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 certain rights with respect to 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 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 September 15, 1999, options to purchase 1,756,815 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> 72
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.................................................
========
</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 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.
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
68
<PAGE> 73
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 pursuant to 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 shares of the common stock for employees, directors
and certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent 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 certain 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 member are purchased in a stabilizing transaction or a
syndicate covering transaction to cover syndicate short positions.
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<PAGE> 74
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.
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: (i) 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, (ii) where
required by law, such purchaser is purchasing as principal and not as agent, and
(iii) such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
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.
70
<PAGE> 75
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 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.
LEGAL MATTERS
The validity of the common stock offered hereby 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 financial statements and schedule for The Knot, Inc. as of December 31,
1997 and 1998 and June 30, 1999 and for the period from May 2, 1996 (date of
inception) to December 31, 1996, the years ended December 31, 1997 and 1998 and
the six month period ended June 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 thereon appearing elsewhere
herein, 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 thereon appearing
elsewhere herein, 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 (including exhibits and, schedules thereto), 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
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<PAGE> 76
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.
72
<PAGE> 77
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
THE KNOT, INC.
Report of Independent Auditors.............................. F-2
Balance Sheets as of December 31, 1997 and 1998 and June 30,
1999...................................................... F-3
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 six months ended
June 30, 1998 (Unaudited) and 1999........................ F-4
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 six
months ended June 30, 1999................................ F-5
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 six months ended
June 30, 1998 (Unaudited) and 1999........................ F-6
Notes to 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> 78
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
The Knot, Inc.
We have audited the accompanying balance sheets of The Knot, Inc. (the
"Company") as of December 31, 1997 and 1998 and June 30, 1999, and the related
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 six month period ended June 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 financial position of the Company at December 31,
1997 and 1998, and June 30, 1999 and the results of its operations and its 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 six month period ended June
30, 1999 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
July 30, 1999, except for paragraphs 4 through 10
of Note 11 as to which the date is August 18, 1999
F-2
<PAGE> 79
THE KNOT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 305,375 $ 1,037,589 $12,667,522
Accounts receivable, net of allowance of
$100,000 in 1999.......................... 39,480 189,545 298,430
Inventories.................................. -- 28,741 602,054
Other current assets......................... 1,667 32,018 123,391
----------- ----------- -----------
Total current assets........................... 346,522 1,287,893 13,691,397
Property and equipment, net.................... 51,144 243,044 1,115,331
Goodwill, net.................................. -- 349,677 268,715
Deferred financing costs, net.................. 747,029 -- --
Other assets................................... 8,149 69,293 175,347
----------- ----------- -----------
Total assets................................... $ 1,152,844 $ 1,949,907 $15,250,790
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Short term borrowings........................ $ -- $ -- $ 225,000
Accounts payable and accrued expenses........ 104,385 225,094 800,448
Deferred revenue............................. 48,436 60,111 761,468
----------- ----------- -----------
Total current liabilities...................... 152,821 285,205 1,786,916
Note payable................................... 2,016,770 -- --
Other liabilities.............................. -- 18,800 18,800
----------- ----------- -----------
Total liabilities.............................. 2,169,591 304,005 1,805,716
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 June 30, 1999 (liquidation value
of $3,937,920 at June 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 June 30, 1999
(liquidation value of $15,000,000 at June
30, 1999)................................. -- -- 13,963,000
Common stock, $.01 par value; 14,640,000
shares authorized; 1,625,410, 3,034,103
and 3,078,608 shares issued and
outstanding at December 31, 1997 and 1998
and June 30, 1999, respectively........... 16,254 30,341 30,786
Additional paid-in-capital................... 814,779 1,421,714 4,240,940
Deferred compensation........................ -- (387,020) (1,840,941)
Accumulated deficit.......................... (1,847,780) (3,357,053) (6,886,631)
----------- ----------- -----------
Total stockholders' (deficit) equity........... (1,016,747) 1,645,902 13,445,074
----------- ----------- -----------
Total liabilities and stockholders' (deficit)
equity....................................... $ 1,152,844 $ 1,949,907 $15,250,790
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 80
THE KNOT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1996
(DATE OF
INCEPTION) TO YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ------------------------- --------------------------
1996 1997 1998 1998 1999
------------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues.......................... $ 70,567 $ 596,071 $ 1,039,584 $ 664,704 $ 737,975
Cost of revenues...................... 9,044 66,905 131,214 60,938 241,445
---------- ----------- ----------- ---------- -----------
Gross profit.......................... 61,523 529,166 908,370 603,766 496,530
Operating expenses:
Product and content development..... 261,921 635,440 1,030,323 456,035 864,678
Sales and marketing................. 254,864 503,113 768,250 237,862 1,493,831
General and administrative.......... 242,116 264,746 809,385 236,586 1,041,360
Non-cash compensation............... -- -- 93,046 21,841 456,259
Depreciation and amortization....... 9,128 22,226 121,718 37,587 174,649
---------- ----------- ----------- ---------- -----------
Total operating expenses.............. 768,029 1,425,525 2,822,722 989,911 4,030,777
Loss from operations.................. (706,506) (896,359) (1,914,352) (386,145) (3,534,247)
Interest income (expense), net........ (45,780) (199,135) 14,968 (45,319) 4,669
---------- ----------- ----------- ---------- -----------
Loss before extraordinary items....... (752,286) (1,095,494) (1,899,384) (431,464) (3,529,578)
Extraordinary items................... -- -- 390,111 390,111 --
---------- ----------- ----------- ---------- -----------
Net loss.............................. $ (752,286) $(1,095,494) $(1,509,273) $ (41,353) $(3,529,578)
========== =========== =========== ========== ===========
Loss per share -- basic and diluted:
Loss before extraordinary items..... $ (.46) $ (.67) $ (.76) $ (.21) $ (1.15)
Extraordinary items................. -- -- .16 .19 --
---------- ----------- ----------- ---------- -----------
Net loss............................ $ (.46) $ (.67) $ (.60) $ (.02) $ (1.15)
========== =========== =========== ========== ===========
Weighted average number of shares used
in calculating basic and diluted net
loss per share...................... 1,625,410 1,625,410 2,497,065 2,083,909 3,056,233
========== =========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 81
THE KNOT, INC.
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
Deferred compensation related to
the issuance of stock options..... -- -- -- -- -- -- 1,910,180
Amortization of deferred
compensation...................... -- -- -- -- -- -- --
Net loss for the six months ended
June 30, 1999..................... -- -- -- -- -- -- --
--------- ---------- --------- ----------- --------- ------- ----------
Balance at June 30, 1999........... 3,360,000 $3,937,920 4,000,000 $13,963,000 3,078,608 $30,786 $4,240,940
========= ========== ========= =========== ========= ======= ==========
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFERRED ACCUMULATED (DEFICIT)
COMPENSATION DEFICIT EQUITY
------------ ----------- -------------
<S> <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................... -- -- --
Deferred compensation related to
the issuance of stock options..... (1,910,180) -- --
Amortization of deferred
compensation...................... 456,259 -- 456,259
Net loss for the six months ended
June 30, 1999..................... -- (3,529,578) (3,529,578)
----------- ----------- -----------
Balance at June 30, 1999........... $(1,840,941) $(6,886,631) $13,445,074
=========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 82
THE KNOT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1996
(DATE OF
INCEPTION) TO YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ------------------------- --------------------------
1996 1997 1998 1998 1999
------------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss before extraordinary items............. $(752,286) $(1,095,494) $(1,899,384) $ (431,464) $(3,529,578)
Adjustments to reconcile net loss before
extraordinary items to net cash used in
operating activities
Depreciation and amortization................. 9,128 22,226 67,429 19,531 93,687
Amortization of goodwill...................... -- -- 54,289 18,056 80,962
Amortization of deferred financing costs...... -- 83,004 27,668 27,668 --
Amortization of deferred
compensation................................ -- -- 93,046 21,841 456,259
Noncash interest expense...................... 45,780 120,990 30,248 30,248 --
Allowance for doubtful accounts and loan
receivable.................................. -- -- -- -- 150,000
Changes in operating assets and liabilities:
Accounts receivable......................... (40,567) 1,087 (150,065) (74,714) (208,885)
Inventories................................. -- -- (28,741) (4,798) (573,313)
Other current assets........................ (57,271) 56,604 (29,959) (11,231) (91,373)
Other assets................................ (29,485) 21,336 (61,144) (46,406) (106,054)
Accounts payable and accrued expenses....... 199,324 (94,939) 120,709 42,395 775,354
Deferred revenue............................ -- 48,436 11,675 80,091 501,357
Other liabilities........................... -- -- 18,800 18,800 --
--------- ----------- ----------- ---------- -----------
Net cash used in operating activities........... (625,377) (836,750) (1,745,429) (309,983) (2,451,584)
INVESTING ACTIVITIES
Purchases of property and equipment............. (58,231) (24,267) (255,299) (136,893) (965,974)
Loan receivable................................. -- -- -- -- (50,000)
Acquisition of business......................... -- -- (50,000) (50,000) --
--------- ----------- ----------- ---------- -----------
Net cash used in investing activities........... (58,231) (24,267) (305,299) (186,893) (1,015,974)
FINANCING ACTIVITIES
Proceeds from note payable...................... 700,000 1,150,000 -- -- --
Proceeds from short term borrowings............. -- -- -- -- 750,000
Repayment of short term borrowings.............. -- -- -- -- (525,000)
Financing costs................................. -- -- (217,378) (217,378) (127,509)
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 15,097,491
--------- ----------- ----------- ---------- -----------
Increase in cash and cash equivalents........... 16,392 288,983 732,214 2,286,066 11,629,933
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 $2,591,441 $12,667,522
========= =========== =========== ========== ===========
</TABLE>
F-6
<PAGE> 83
THE KNOT, INC.
STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1996
(DATE OF
INCEPTION) TO YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 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 --
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 $ --
========= =========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-7
<PAGE> 84
THE KNOT, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 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 wedding destination combining comprehensive
content and an active online community with wedding related commerce. The
Company provides wedding resources on the World Wide Web and is the premier
wedding content provider on America Online and several other of AOL's leading
brands. The Company's online sites provide articles on wedding planning, a
national 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.
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.
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 $12,247,000 at December 31, 1997
and 1998 and June 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.
F-8
<PAGE> 85
THE KNOT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 $135,000
at December 31, 1998 and June 30, 1999, respectively.
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.
F-9
<PAGE> 86
THE KNOT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NET REVENUES BY TYPE
Net revenues by type are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR ENDED SIX MONTHS ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, --------------------- ----------------------
TYPE 1996 1997 1998 1998 1999
- ---- ------------ -------- ---------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sponsorship and
advertising............ $70,567 $596,071 $ 853,240 $499,886 $549,677
Merchandise.............. -- -- 17,487 -- 82,776
Publishing and other..... -- -- 168,857 164,818 105,522
------- -------- ---------- -------- --------
Total.................... $70,567 $596,071 $1,039,584 $664,704 $737,975
======= ======== ========== ======== ========
</TABLE>
REVENUE RECOGNITION
Sponsorship and Advertising
Sponsorship revenues are derived principally from contracts ranging up to
two years in which the Company commits to provide sponsors promotional
opportunities in addition to traditional advertising. Certain sponsorship
agreements provide for the delivery of impressions on the Company's sites,
exclusive relationships, revenue participation and design and development by the
Company of customized online content areas, or site-lets, to enhance the
promotional objective of the sponsor. Advertising revenues are derived
principally from short-term advertising contracts.
Sponsorship and advertising revenues are recognized 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, the
Company defers recognition of the corresponding revenues until the guaranteed
impressions are achieved.
The Company produces site-lets and online tools for third parties. Revenues
associated with this production are recognized when the production is completed
and the site-lets and tools are delivered. To date, production revenues have not
been material.
The Company does not recognize barter revenue in its financial statements.
In order to promote the Company's brand, the Company produces customized
co-branded site-lets for third parties, the cost of which is included in
operating expenses. The Company receives distribution and exposure to their
viewers, outbound links to the Company's sites, and in certain circumstances,
offline brand marketing.
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 six months ended June 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
F-10
<PAGE> 87
THE KNOT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
new agreement with AOL which eliminated usage revenues from, and licensing fees
to AOL, subsequent to June 30, 1998.
Merchandise
Merchandise revenues from product sales 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.
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 principally from commissions on the sale of
travel packages. Such revenues are recognized when the customer commences
travel. Through June 30, 1999, no travel revenues were generated (See Note 11).
DEFERRED REVENUE
Deferred revenue represents payments received or billings in excess of
revenue recognized related to sponsorship or advertising contracts, as well as
advances received against future royalties to be earned relating to book
publishing contracts.
COST OF REVENUES
Cost of sponsorship and advertising revenues include payroll and related
expenses for personnel who are responsible for the development of site-lets and
tools and costs of Internet and hosting services.
Cost of merchandise and publishing revenues include the cost of merchandise
and books sold, including inbound and outbound shipping expenses.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense totaled
approximately $69,000, $79,000, $46,000, $0 (unaudited) and $14,000 for the
period from inception through December 31, 1996 and for the years ended December
31, 1997 and 1998 and the six months ended June 30, 1998 and 1999, respectively.
F-11
<PAGE> 88
THE KNOT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 six months ended June 30, 1999, one advertiser accounted for 24% of
our net revenues. For the year ended December 31, 1998, another 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 June 30, 1999, five advertisers accounted for 21%, 17%, 14%, 14% and 13%
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.
INTERIM FINANCIAL INFORMATION
The unaudited interim financial information as of June 30, 1998 and for the
six 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
F-12
<PAGE> 89
THE KNOT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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, 1998. The Company has adopted the provisions of SOP 98-1
during the six months ended June 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.
F-13
<PAGE> 90
THE KNOT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
------- -------- ----------
<S> <C> <C> <C>
Leasehold improvements....................... $ 8,200 $ 8,200 $ 53,659
Software..................................... -- 47,900 398,923
Furniture and fixtures....................... 3,761 14,222 28,785
Computer equipment........................... 70,537 271,505 826,434
------- -------- ----------
82,498 341,827 1,307,801
Less accumulated depreciation and
amortization............................... 31,354 98,783 192,470
------- -------- ----------
$51,144 $243,044 $1,115,331
======= ======== ==========
</TABLE>
4. RELATED PARTY TRANSACTIONS
AOL
During 1996, AOL advanced $700,000 to the Company to fund the development
of the Company's on-line property located on AOL. During 1996, the Company
entered into an Interactive Services Agreement with AOL whereby AOL agreed to
carry the Company's content for a period of three years. As a result of this
agreement, AOL paid the Company a usage fee based on hours of viewership of the
Company's site on AOL. AOL received a commission equal to a percentage of the
Company's advertising revenues, as defined, that were derived from its site.
This agreement was amended in 1998 eliminating usage fees paid to the Company
and eliminating commissions paid to AOL.
On January 17, 1997, the Company and AOL entered into a Note and Warrant
Purchase Agreement, whereby the Company issued to AOL a Secured Promissory Note
(the "AOL Note") and a Stock Subscription Warrant (the "AOL Warrant") to
purchase 3,250,820 shares of the Company's Series A Convertible Preferred Stock.
The AOL Warrant was valued at approximately $830,000, based on its estimated
fair value. Such value was recorded as deferred financing costs and was
amortized on a straight line basis over the life of the AOL Warrant.
The Company borrowed a total of $1,850,000 under the AOL Note, inclusive of
the $700,000 advanced in 1996. The AOL Note bore interest at 6.54% per annum and
was payable January 16, 2007.
On April 28, 1998, AOL converted $937,600 of the outstanding balance under
the AOL Note to 800,000 shares of Series A Convertible Preferred Stock (See Note
6). The remaining balance of $1,109,418 which included accrued interest of
$197,018, was forgiven and the AOL Note and AOL Warrant were canceled. The
forgiveness of debt and the write-off of the related unamortized deferred
financing costs at April 28, 1998 of $719,307 are included in extraordinary
items.
F-14
<PAGE> 91
THE KNOT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In October 1998, the Company entered into an Anchor Tenant Agreement with
AOL (the "AOL Agreement"), whereby the Company received distribution within the
AOL service. Beginning January 1, 1999, the Company was obligated to pay
carriage fees throughout the term of the AOL Agreement. This agreement
superseded any prior agreements between the Company and AOL.
In July 1999, the Company entered into an amended and restated Anchor
Tenant Agreement with AOL ("Restated AOL Agreement") which superseded the AOL
Agreement. The Restated AOL Agreement expires on January 6, 2003 and provides
for a quarterly carriage fee payable over the remaining term of the Restated AOL
Agreement.
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 five years, 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. As of June 30, 1999, the Company was in the process of implementing the
services under this 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. ACQUISITION
CASENHISER CLOTHING COMPANY, INC. DBA 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 are issuable upon the
attainment of certain revenue based goals. Bridal Search has agreed to forego
its rights to receive such shares in exchange for a payment of $150,000 (See
Note 11). The purchase price, net of tangible assets acquired, principally fixed
assets of approximately $4,000, was recorded as goodwill.
F-15
<PAGE> 92
THE KNOT, INC.
NOTES TO 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 (see
Note 8). As of June 30, 1999, 44,504 shares had vested pursuant to the
agreement.
Unaudited pro forma data for the Company for the year ended December 31,
1998 giving effect to the acquisition of Bridal Search as if the acquisition had
occurred at the beginning of 1998, are shown below.
<TABLE>
<S> <C>
Net revenues.............................................. $ 1,046,000
Loss before extraordinary item............................ (2,063,000)
Net loss.................................................. (1,673,000)
Basic and diluted net loss per share...................... (.66)
</TABLE>
6. CAPITAL STOCK
The Company's Amended and Restated Articles of Incorporation provides for
22,000,000 authorized shares of capital stock consisting of 14,640,000 shares of
common stock each having a par value of $.01 per share and 7,360,000 shares of
convertible preferred stock, each having a par value of $.001.
PREFERRED STOCK
On April 28, 1998, the Company sold 2,560,000 shares of Series A
Convertible Preferred Stock ("Series A") for $3,000,320. Simultaneously,
$937,600 of the AOL Note was converted into 800,000 shares of Series A
Convertible Preferred Stock (See Note 4).
On April 13, 1999, the Company sold 4,000,000 shares of Series B
Convertible Preferred Stock ("Series B") for $15,000,000 to QVC (see Note 4).
Each share of Series A and Series B Preferred Stock is convertible into one
share of the Company's common stock subject to certain anti-dilution provisions.
The Series A and Series B Convertible Preferred Stock will be automatically
converted into common stock upon completion of an initial public offering of the
Company's common stock with minimum net proceeds to the Company of $10,000,000
with a minimum price per share of $7.50.
The holders of the Series A and Series B Preferred Stock shall be entitled
to receive noncumulative annual dividends, at the rate of $.09 and $.30 per
share, respectively, if and when declared by the Board of Directors. The holders
of preferred stock are entitled to the number of votes equal to the number of
shares of common stock into which their preferred stock is convertible. Neither
series of preferred stock is redeemable.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Series A and B Preferred Stock shall be entitled to receive
$1.172 and $3.75 for each outstanding share of stock, respectively, plus
declared but unpaid dividends on such shares.
F-16
<PAGE> 93
THE KNOT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 308,634 at December 31, 1998, and
June 30, 1999, respectively.
7. WARRANTS
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 (see Note 4).
8. STOCK OPTIONS
Under the terms of the Company's 1997 Long Term Incentive Plan (the "1997
Plan"), 1,849,868 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-17
<PAGE> 94
THE KNOT, INC.
NOTES TO 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...................................... (38,810) .39
---------
Options outstanding at December 31, 1998.............. 643,015 .43
Options granted....................................... 761,500 1.02
Options canceled...................................... (3,000) 1.58
---------
Options outstanding at June 30, 1999.................. 1,401,515 $ .75
=========
</TABLE>
As of December 31, 1998 and June 30, 1999, 34,828 and 192,601,
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>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------- --------------------------
1997 1998 1998 1999
----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss before extraordinary
items, as reported............ $(1,095,494) $(1,899,384) $(431,464) $(3,529,578)
Net loss before extraordinary
items, pro forma.............. (1,096,282) (1,988,488) (457,474) (3,367,621)
Basic and diluted loss before
extraordinary items per share,
as reported................... (.67) (.76) (.21) (1.15)
Basis and diluted loss per
share, pro forma.............. (.67) (.80) (.22) (1.21)
</TABLE>
F-18
<PAGE> 95
THE KNOT, INC.
NOTES TO 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,
------------------ JUNE 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 six months ended June 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 $1,910,000 during the six months ended
June 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.
9. 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-19
<PAGE> 96
THE KNOT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ --------------------------
1997 1998 1998 1999
--------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss
carryforwards......... $ 804,600 $ 1,374,000 $ 850,000 $ 2,735,000
Deferred revenue......... -- 5,800 2,900 2,900
Depreciation and
amortization.......... 8,900 49,500 29,000 93,000
Other.................... 500 800 900 44,100
--------- ----------- ----------- -----------
Total deferred tax
assets................... 814,000 1,430,100 882,800 2,875,000
Deferred tax liabilities:
Capitalized software
costs................. -- -- -- (24,000)
--------- ----------- ----------- -----------
Net deferred tax assets.... 814,000 1,430,100 882,800 2,851,000
Valuation allowance...... (814,000) (1,430,100) (882,800) (2,851,000)
--------- ----------- ----------- -----------
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.
10. COMMITMENTS
OPERATING LEASES
The Company leases office facilities and certain warehouse space under
noncancelable operating lease agreements which expire at various dates through
2003. Future minimum lease payments under noncancelable operating leases as of
June 30, 1999 are as follows:
<TABLE>
<S> <C>
Year ending June 30:
2000....................................... $247,000
2001....................................... 250,000
2002....................................... 253,000
2003....................................... 150,000
--------
Total........................................ $900,000
========
</TABLE>
F-20
<PAGE> 97
THE KNOT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense for the period from Inception to December 31, 1996, the years
ended December 31, 1997 and 1998 and the six months ended June 30, 1998 and 1999
amounted to approximately $30,000, $43,000, $183,000, $22,000 (unaudited) and
$122,000, respectively.
Sublease income for the year ended December 31, 1998 and the six months
ended June 30, 1998 and 1999 amounted to $97,000, $24,000 (unaudited) and
$36,000, respectively.
OTHER
At June 30, 1999, the Company is obligated to pay certain fees as follows:
<TABLE>
<S> <C>
Year ending June 30:
2000..................................... $1,100,000
2001..................................... 1,200,000
2002..................................... 1,200,000
2003..................................... 600,000
----------
Total...................................... $4,100,000
==========
</TABLE>
11. SUBSEQUENT EVENTS
RELATED PARTY TRANSACTIONS
Pursuant to the Restated AOL Agreement (see Note 4), the Company issued a
warrant to purchase 366,667 shares of the Company's common stock at $7.20 per
share, subject to certain anti-dilution provisions. The warrant is immediately
exercisable and expires in July 2007. The Company valued this warrant at
approximately $2,250,000, by using the Black-Scholes option pricing model with
an expected volatility factor of 55%, risk free interest rate of 5%, no dividend
yield, and a 2-year life, which will be recognized as noncash sales and
marketing expense on the straight line basis over the term of the agreement.
ACQUISITION OF 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.
Bridalink.com operates an online wedding supply store located in Northern
California. The acquisition will be accounted for under the purchase method of
accounting. Goodwill related to this transaction will be amortized using the
straight line method over a period of three years.
ALLIANCE AGREEMENT WITH WEDDINGPAGES, INC.
In July 1999, the Company entered into an 18-month exclusive alliance
agreement with Weddingpages, Inc., ("Weddingpages") a leading publisher of local
wedding
F-21
<PAGE> 98
THE KNOT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
magazines and a related Web site. The alliance agreement provides for the
Company to share in certain advertising revenues generated and to reimburse
Weddingpages for certain costs incurred.
ACQUISITIONS OF 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. Such shares will be 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 certain revenue goals 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 will be accounted for under the purchase method
of accounting. Goodwill related to this transaction will be amortized using the
straight line method over a period of three years.
1997 LONG TERM INCENTIVE PLAN (THE "1997 PLAN")
In August 1999, the Company's Board of Directors authorized an increase in
the number of shares of common stock reserved for issuance under the Company's
1997 Plan from 1,849,868 to 2,849,868.
INITIAL PUBLIC OFFERING
In August 1999, the Company's Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock in connection with an Initial
Public Offering.
BRIDAL SEARCH SETTLEMENT AND RELEASE AGREEMENT
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 will be recorded as contingent purchase price and
therefore will be recorded as additional goodwill.
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. As of
June 30, 1999, the outstanding balance amounted to $225,000. In August 1999,
this balance was paid in full.
F-22
<PAGE> 99
THE KNOT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ACQUISITION OF 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. WPN offers a search engine to
obtain a listing of professional wedding photographers in various local areas.
This acquisition will be accounted for under the purchase method of accounting
and goodwill related to the acquisition will be amortized on the straight line
basis over a period of three years.
COMMON STOCK
At August 18, 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 1997 Long Term Incentive Plan........ 2,849,868
Common stock warrant................................... 1,700,000
Common stock warrant................................... 366,667
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........ 12,430,046
==========
</TABLE>
F-23
<PAGE> 100
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> 101
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> 102
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> 103
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> 104
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> 105
CASENHISER CLOTHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 1, 1998
1. ORGANIZATION AND NATURE OF OPERATIONS
Casenhiser Clothing Company, Inc. dba 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> 106
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> 107
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> 108
[BACK COVER]
[LOGO]
<PAGE> 109
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.......................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Printing and engraving...................................... *
Blue Sky fees and expenses.................................. *
Transfer Agent and Registrar fees and expenses.............. *
Miscellaneous............................................... *
Total.................................................. *
-------
$ *
=======
</TABLE>
- ---------------
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The registrant's Certificate of Incorporation in effect as of the date
hereof, and the registrant's Amended and Restated Certificate of Incorporation
to be in effect upon the closing of this offering (collectively, the
"Certificate") provides that, except to the extent prohibited by the Delaware
General Corporation Law, as amended (the "DGCL"), the registrant's directors
shall not be personally liable to the registrant or its stockholders for
monetary damages for any breach of fiduciary duty as directors of the
registrant. Under the DGCL, the directors have a fiduciary duty to the
registrant which is not eliminated by this provision of the Certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the registrant, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the Federal securities laws or state or Federal environmental laws. The
registrant intends to obtain liability insurance for its officers and directors.
II-1
<PAGE> 110
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 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.
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.
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, to Casenhiser Clothing Company, Inc. d/b/a Bridal Search and
certain members of its management. On April 28, 1998 the registrant issued to
each of its four founders 267,030 shares of common stock. On July 30, 1999, the
registrant issued 5,000 shares of common stock 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 to the Denis Reggie Co., Inc. 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 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.
II-2
<PAGE> 111
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, 3.4 and 3.5 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* 1999 Employee Stock Purchase Plan
10.7* Amended and Restated Investor Rights Agreement
</TABLE>
II-3
<PAGE> 112
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
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.
11.1* Statement re: Computation of Basic and Diluted Net Loss Per
Share
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.
+ Confidential treatment requested for certain portions of this Exhibit pursuant
to Rule 406 promulgated under the Securities Act.
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts, Six Months Ended June
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.
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.
II-4
<PAGE> 113
(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> 114
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this 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 17th day of September, 1999.
THE KNOT, INC.
By: /s/ DAVID LIU
------------------------------------
David Liu
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned directors and/or officers of The Knot, Inc. (the
"Company"), hereby severally constitute and appoint David Liu, Richard Szefc,
and Sandra Stiles, each of them individually, with full powers of substitution
and resubstitution, our true and lawful attorneys, with full powers to them and
each of them to sign for us, in our names and in the capacities indicated below,
the Registration Statement on Form S-1 filed with the Securities and Exchange
Commission, and any and all amendments to said Registration Statement (including
post-effective amendments), and any registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, in connection with the
registration under the Securities Act of 1933, as amended, of equity securities
of the Company, and to file or cause to be filed the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, and hereby ratifying and
confirming all that said attorneys, and each of them, or their substitute or
substitutes, shall do or cause to be done by virtue of this Power of Attorney.
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 September 17, 1999
- --------------------------------------------------- Officer and Chairman of
David Liu the Board of Directors
(principal executive
officer)
/s/ RICHARD SZEFC Chief Financial Officer, September 17, 1999
- --------------------------------------------------- Treasurer and Secretary
Richard Szefc (principal financial and
accounting officer)
</TABLE>
II-6
<PAGE> 115
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
/s/ SANDRA STILES Chief Operating Officer, September 17, 1999
- --------------------------------------------------- Assistant Secretary and
Sandra Stiles Director
/s/ JOHN LINK Director September 17, 1999
- ---------------------------------------------------
John Link
/s/ ANN WINBLAD Director September 17, 1999
- ---------------------------------------------------
Ann Winblad
</TABLE>
II-7
<PAGE> 116
REPORT OF INDEPENDENT AUDITORS
We have audited the financial statements of The Knot, Inc. as of December
31, 1997 and 1998 and June 30, 1999, and the related 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 six month period ended June 30, 1999, and have issued our report
thereon dated July 30, 1999, except for paragraphs 4 through 10 of Note 11 as to
which the date is August 18, 1999. Our audits also included the 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 financial statement schedule referred to above, when
considered in relation to the basic 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
August 18, 1999
S-1
<PAGE> 117
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT
BEGINNING COSTS AND CHARGED TO NET OF JUNE 30,
OF YEAR EXPENSES OTHER ACCOUNTS RECOVERIES 1999
---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
1999............................. $ -- $100,000 $ -- $ -- $100,000
Allowance for Loan Receivable
1999............................. $ -- $ 52,500 $ -- $ -- $ 52,500
</TABLE>
S-2
<PAGE> 118
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, 3.4 and 3.5 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* 1999 Employee Stock Purchase Plan
10.7* 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.
11.1* Statement re: Computation of Basic and Diluted Net Loss Per
Share
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.
+ Confidential treatment requested for certain portions of this Exhibit pursuant
to Rule 406 promulgated under the Securities Act.
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
THE KNOT, INC.
(PURSUANT TO SECTIONS 242 AND 245 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
The Knot, Inc., a corporation organized and existing under and
by virtue of the provisions of the General Corporation Law of the State of
Delaware (the "General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: The present name of this corporation is "The Knot,
Inc." The name under which this corporation was originally incorporated was
"Weddings.com, Inc." The date of filing of the original Certificate of
Incorporation of this corporation with the Secretary of State of the State of
Delaware was May 2, 1996. The date of filing of the Amended and Restated
Certificate of Incorporation of this corporation with the Secretary of State of
the State of Delaware was April 27, 1998.
SECOND: This Amended and Restated Certificate of Incorporation
(the "Restated Certificate") amends and restates in its entirety the present
Amended and Restated Certificate of Incorporation by, among other things: (a)
changing the authorized capital stock of this corporation so as to provide for
22,000,000 authorized shares of capital stock, consisting of 14,640,000 shares
of common stock, each such share having a par value of $0.01, and 7,360,000
shares of preferred stock, each such share having a par value of $0.001,
creating two series of such Preferred Stock, designated respectively, "Series A
Preferred Stock" and "Series B Preferred Stock", with 3,360,000 shares of Series
A Preferred Stock and 4,000,000 shares of Series B Preferred Stock, and (b)
providing for the designations, powers, preferences and other rights, and
qualifications, limitations and restrictions of such Preferred Stock.
RESOLVED, that the Certificate of Incorporation of this
corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is The Knot, Inc.
ARTICLE II
The address of the registered office of this corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington County of
New Castle. The name of its registered agent at such address is Corporation
Trust Company.
<PAGE> 2
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law.
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue
two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares that this corporation is
authorized to issue is Twenty-two Million (22,000,000) shares of capital stock.
Fourteen Million Six Hundred Forty Thousand (14,640,000) shares shall be Common
Stock with a par value of $0.01 per share and Seven Million Three Hundred Sixty
Thousand (7,360,000) shares shall be Preferred Stock with a par value of $0.001
per share.
B. Rights, Preferences and Restrictions of Preferred Stock.
The Preferred Stock shall be divided into two series. The first series shall
consist of 3,360,000 shares and is designated "Series A Preferred Stock." The
second series shall consist of 4,000,000 shares and is designated "Series B
Preferred Stock." The rights, preferences, privileges, and restrictions granted
to and imposed on the Series A Preferred Stock and the Series B Preferred Stock
are as set forth below in this Article IV(B). No fractional shares of Common
Stock shall be issued upon conversion of the Preferred Stock and any shares of
Preferred Stock surrendered for conversion that would otherwise result in a
fractional share shall be redeemed for the then fair market value thereof, as
determined by this corporation's Board of Directors in good faith, payable as
promptly as possible whenever funds are legally available therefor.
1. Dividend Provisions. The holders of shares of
Series A and B Preferred Stock shall be entitled to receive dividends, out of
any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation) on the Common Stock of this corporation, at the rate of $0.09 and
$0.30 per share per annum, respectively, (as adjusted for any stock splits,
stock dividends, combinations, recapitalizations or the like), payable when, as,
and if declared by the Board of Directors out of funds legally available
therefor. Such dividends shall not be cumulative. The holders of the outstanding
Series A and B Preferred Stock can waive, respectively, any dividend preference
that such holders shall be entitled to receive under this Section 1 upon the
affirmative vote or written consent of the holders of at least a majority of the
Series A or B Preferred Stock, each voting separately as a series. Dividends if
declared must be declared and paid on all of the Series A and B Preferred Stock,
and if so declared on any of the Series A and B Preferred Stock, then any
payment with respect to such dividends shall be made ratably among the holders
of the Series A and B Preferred Stock in proportion to the dividend that each
holder would have been entitled to receive. For any other dividends or
distributions, Series A and Series B Preferred Stock shall participate with
Common Stock on an as-converted basis.
2
<PAGE> 3
2. Liquidation Preference.
(a) In the event of any liquidation,
dissolution or winding up of this corporation, either voluntary or involuntary,
the holders of Series A and B Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets of this
corporation to the holders of Common Stock by reason of their ownership thereof,
an amount per share equal to the sum of $1.172 and $3.75 for each outstanding
share of Series A and B Preferred Stock, respectively, (the "Original Series A
Issue Price" and "Original Series B Issue Price," respectively) plus declared
but unpaid dividends on such shares (subject to adjustment of such fixed dollar
amounts for any stock splits, stock dividends, combinations, recapitalizations
or the like). The Series A and B Preferred Stock shall rank pari passu as to the
receipt of the respective preferential amounts for each such series upon the
occurrence of such event. If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series A and B Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amount, then the entire assets and funds of this
corporation legally available for distribution shall be distributed ratably
among the holders of the Series A and B Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to receive.
(b) Upon completion of the distribution
required by subsection 2(a), all of the remaining assets of this corporation
available for distribution to stockholders shall be distributed among the
holders of Series A and B Preferred Stock and Common Stock pro rata based on the
number of shares of Common Stock held by each (assuming full conversion of all
such Series A and B Preferred Stock, respectively).
(c) (i) For purposes of this Section 2, a
liquidation, dissolution or winding up of this corporation shall be deemed to be
occasioned by, or to include (unless the holders of at least a majority of the
then outstanding shares of Series A and B Preferred Stock shall determine
otherwise with respect thereto, each voting separately as a series), (A) the
acquisition of this corporation by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation) that results in the transfer of fifty
percent (50%) or more of the outstanding voting power of this corporation; or
(B) a sale of all or substantially all of the assets of this corporation.
(i) In any of such events, if the
consideration received by this corporation is other than cash, its value will be
deemed its fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the thirty (30)
day period ending three (3) days prior to the closing;
3
<PAGE> 4
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty (30) day period ending three (3) days prior to
the closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by this
corporation and the holders of at least a majority of all then outstanding
shares of each of the Series A and B Preferred Stock, each voting separately as
a series, provided, however, in the event this corporation and the holders of
the Series A and B Preferred Stock cannot mutually agree upon the valuation of
the securities paid, this corporation shall promptly engage competent
independent appraisers from a nationally recognized investment banking firm
reasonably acceptable to this corporation and the holders of at least a majority
of the then outstanding shares of each of the Series A and B Preferred Stock,
each voting separately as a series, to determine the value of such securities
paid.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by this corporation and the holders
of at least a majority of the then outstanding shares of the Series A and B
Preferred Stock, each voting separately as a series.
(ii) In the event the requirements of this
subsection 2(c) are not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time as the
requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of each of the Series A and B
Preferred Stock shall revert to and be the same as such rights, preferences and
privileges existing immediately prior to the date of the first notice referred
to in subsection 2(c)(iii) hereof.
(iii) This corporation shall give each
holder of record of the Series A and B Preferred Stock written notice of such
impending transaction not later than twenty (20) days prior to the stockholders'
meeting called to approve such transaction, or twenty (20) days prior to the
closing of such transaction, whichever is earlier, and shall also notify such
holders in writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 2, and this corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than twenty (20) days after this
corporation has given the first notice provided for herein or sooner than ten
(10) days after this corporation has given notice of any material changes
provided for herein; provided, however, that such periods may be shortened upon
the written consent of the holders of a majority of the then outstanding shares
of the Series A and B Preferred Stock that are entitled to such notice rights or
similar notice rights, each voting separately as a series.
4
<PAGE> 5
3. Redemption. Neither the Series A Preferred Stock
nor the Series B Preferred Stock is redeemable.
4. Conversion. The holders of the Series A and Series
B Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert. (i) Each share of
Series A Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
this corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing the
Original Series A Issue Price by the conversion price applicable to such share,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion. The initial conversion price per share for shares of
Series A Preferred Stock shall be the Original Series A Issue Price (the "Series
A Conversion Price"); provided, however, that the Series A Conversion Price for
shall be subject to adjustment as set forth in subsection 4(d).
(ii) Each share of Series B
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of this
corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the
Original Series B Issue Price by the conversion price applicable to such share,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion. The initial conversion price per share for shares of
Series B Preferred Stock shall be the Original Series B Issue Price (the "Series
B Conversion Price"); provided, however, that the Series B Conversion Price
shall be subject to adjustment as set forth in subsection 4(d).
(b) Automatic Conversion. Each share of
Series A and B Preferred Stock shall automatically be converted into shares of
Common Stock at the then in effect Series A Conversion Price and Series B
Conversion Price, respectively, immediately upon the earlier of (I) this
corporation's sale of its Common Stock in a firm commitment underwritten public
offering led by a nationally recognized underwriter pursuant to a registration
statement on Form S-1 or Form S-3 (or any successor forms thereto) under the
Securities Act of 1933, as amended (the "Securities Act"), with a price per
share greater than $7.50 (subject to adjustment in the same fashion as the
conversion prices set forth in section 4(d)) and aggregate proceeds which exceed
$10,000,000 (the "Qualified Public Offering") or (II) the date specified by
written consent or agreement of the holders of a majority of the then
outstanding shares of Series A and B Preferred Stock, each voting separately as
a series.
(c) Mechanics of Conversion. Before any
holder of Series A or B Preferred Stock shall be entitled to convert the same
into shares of Common Stock, pursuant to Section 4(a), such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of this corporation or of any transfer agent for the Series A or B Preferred
Stock, and shall give written notice to this corporation at its principal
corporate office, of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. This corporation shall, as soon as practicable
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thereafter, issue and deliver at such office to such holder of Series A or B
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series A or B Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offering of securities registered pursuant to the
Securities Act the conversion may, at the option of any holder tendering Series
A or B Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the persons entitled to receive the Common Stock upon conversion of the Series A
or B Preferred Stock shall not be deemed to have converted such Series A or B
Preferred Stock until immediately prior to the closing of such sale of
securities.
(d) Conversion Price Adjustments of
Preferred Stock for Certain Dilutive Issuances, Splits and Combinations. Each of
the Series A Conversion Price and the Series B Conversion Price shall be subject
to adjustment from time to time as follows:
(i) (A) If this corporation shall
issue, after the date upon which any shares of Series B Preferred Stock were
first issued (the "Series B Issue Date"), any Additional Stock (as defined
below) without consideration or for a consideration per share less than the
Series A or B Conversion Price, as applicable, in effect immediately prior to
the issuance of such Additional Stock, the conversion price for such series in
effect immediately prior to each such issuance shall forthwith (except as
otherwise provided in this clause (i)) be adjusted to a price determined by
multiplying such conversion price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance (including shares of Common Stock deemed to be issued pursuant to
subsection 4(d)(i)(E)(1) or (2)) (but not including shares excluded from the
definition of Additional Stock by Section 4(d)(ii)(B)) plus the number of shares
of Common Stock that the aggregate consideration received by this corporation
for such issuance would purchase at such conversion price; and the denominator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance (including shares of Common Stock deemed to be issued
pursuant to subsection 4(d)(i)(E)(1) or (2)) (but not including shares excluded
from the definition of Additional Stock by subsection 4(d)(ii)(B)) plus the
number of shares of such Additional Stock.
However, the foregoing calculation shall not take into account
shares deemed issued pursuant to Section 4(d)(i)(E) on account of options,
rights or convertible or exchangeable securities (or the actual or deemed
consideration therefor), except to the extent (i) such options, rights or
convertible or exchangeable securities have been exercised, converted or
exchanged or (ii) the consideration to be paid upon such exercise, conversion or
exchange per share of underlying Common Stock is less than or equal to the per
share consideration for the Additional Stock that has given rise to the
conversion price adjustment being calculated. To the extent both the Series A
and Series B Conversion Prices are adjusted, the Series A Conversion Price shall
be adjusted first and the Series B Conversion Price shall be adjusted as set
forth above and further adjusted by treating the additional shares of Common
Stock issuable upon conversion of the Series A Preferred Stock as having been
issued for zero consideration. To the extent the Series B Conversion Price is
adjusted, the Series A Conversion Price shall be
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<PAGE> 7
adjusted by treating the additional shares of Common Stock issuable upon
conversion of the Series B Preferred Stock as having been issued for zero
consideration and the Series B Conversion Price shall be further adjusted by
treating the additional shares of Common Stock issuable upon conversion of the
Series A Preferred Stock as having been issued for zero consideration; provided
that the calculations required by this sentence shall be performed interactively
until the incremental additional shares of Common Stock issuable upon conversion
of the Series A or Series B Preferred Stock after such adjustment is less than
100 shares.
(B) No adjustment of the Series A or B Conversion Price shall
be made in an amount less than one cent per share, provided that any adjustments
that are not required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent adjustment made
prior to three (3) years from the date of the event giving rise to the
adjustment being carried forward, or shall be made at the end of three (3) years
from the date of the event giving rise to the adjustment being carried forward.
Except to the limited extent provided for in subsections 4(d)(i)(E)(3) and (4),
no adjustment of such conversion price pursuant to this subsection 4(d)(i) shall
have the effect of increasing the conversion price above the conversion price in
effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by this corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors, in its good faith judgement, irrespective of any accounting
treatment.
(E) In the case of the issuance (whether before, on or after
the Series B Issue Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (to the extent then exerciseable) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)), if any, received by this corporation upon
the issuance of such options or rights plus the minimum exercise price provided
in such options or rights for the Common Stock covered thereby.
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(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of, or in exchange (to the extent then
exerciseable) for, any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration, if any, received by this corporation for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by this corporation upon the conversion or exchange of such
securities or the exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in subsections 4(d)(i)(C)
and (d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof (unless
such options or rights or convertible or exchangeable securities were merely
deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 4(d)(i)(A)), the Series A Conversion Price and the Series B
Conversion Price, as applicable, to the extent in any way affected by or
computed using such options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Series A Conversion Price and the Series B Conversion Price, as
applicable, to the extent in any way affected by or computed using such options,
rights or securities or options or rights related to such securities (unless
such options or rights were merely deemed to be included in the numerator and
denominator for purposes of determining the number of shares of Common Stock
outstanding for purposes of subsection 4(d)(i)(A)), shall be recomputed to
reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities that remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any
shares of Common Stock issued (or deemed to have been issued pursuant to
subsection 4(d)(i)(E)) by this corporation after the Series B Issue Date other
than:
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(A) Common Stock issued pursuant to a transaction described in
subsection 4(d)(iii) hereof; or
(B) up to 1,849,868 shares of Common Stock (as adjusted for
any stock splits, combinations, recapitalizations or the like) (excluding shares
repurchased at cost by this corporation in connection with the termination of
service) issuable or issued to employees, consultants, directors or vendors (if
in transactions with primarily non-financing purposes) of this corporation
directly or pursuant to this corporation's stock option plan, as such plan may
be amended from time to time, or any greater number of shares of Common Stock
unanimously approved by the Board of Directors of this corporation.
(iii) In the event this corporation
should at any time or from time to time after the Series B Issue Date fix a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Series A and B Conversion Price shall be appropriately decreased
so that the number of shares of Common Stock issuable on conversion of each
share of such series shall be increased in proportion to such increase of the
aggregate of shares of Common Stock outstanding and those issuable with respect
to such Common Stock Equivalents with the number of shares issuable with respect
to Common Stock Equivalents determined from time to time in the manner provided
for deemed issuances in subsection 4(d)(i)(E).
(iv) If the number of shares of
Common Stock outstanding at any time after the Series B Issue Date is decreased
by a combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Series A and B Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares of Common Stock.
(e) Other Distributions. In the event this
corporation shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by this corporation or other persons, assets
(excluding cash dividends) or options or rights not referred to in subsection
4(d)(iii), then, in each such case for the purpose of this subsection 4(e), the
holders of each of the Series A and B Preferred Stock shall be entitled to
receive a proportionate share of any such distribution as though they were the
holders of the number of shares of Common Stock of this corporation into which
their shares of Series A or B Preferred Stock are convertible as of the record
date fixed for the determination of the holders of Common Stock of this
corporation entitled to receive such distribution.
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(f) Recapitalizations. If at any time or
from time to time there shall be a recapitalization of the Common Stock (other
than a subdivision, combination or merger or sale of assets transaction provided
for elsewhere in this Section 4 or Section 2) provision shall be made so that
the holders of the Series A and B Preferred Stock shall thereafter be entitled
to receive upon conversion of the Series A and B Preferred Stock the number of
shares of stock or other securities or property of this corporation or
otherwise, to which a holder of Common Stock would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A and B Preferred Stock after the recapitalization to
the end that the provisions of this Section 4 (including adjustment of the
conversion price then in effect for each of the Series A and B Preferred Stock
and the number of shares purchasable upon conversion of the Series A and B
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.
(g) No Impairment. This corporation will
not, by amendment of its Certificate of Incorporation or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by this corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Series A and B Preferred Stock
against impairment.
(h) No Fractional Shares and Certificate as
to Adjustments.
(i) No fractional shares shall be
issued upon the conversion of any share or shares of the Series A or B Preferred
Stock, and the number of shares of Common Stock to be issued shall be rounded to
the nearest whole share (with one-half being rounded upward). Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Series A or B Preferred Stock the holder
is at the time converting into Common Stock and the number of shares of Common
Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each
adjustment or readjustment of the Series A or B Conversion Price pursuant to
this Section 4, this corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A or B Preferred Stock, as applicable, a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. This corporation
shall, upon the written request at any time of any holder of Series A or B
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
conversion price for such series of Preferred Stock at the time in effect, and
(C) the number of shares of Common Stock and the amount, if any, of other
property that at the time would be received upon the conversion of a share of
Series A or B Preferred Stock.
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(i) Notices of Record Date. In the event of
any taking by this corporation of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A or B Preferred Stock, as
applicable, at least twenty (20) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon
Conversion. This corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A and B Preferred Stock,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series A
and B Preferred Stock; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Series A and B Preferred Stock, in addition to
such other remedies as shall be available to the holder of such Series A or B
Preferred Stock, this corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in its best efforts to obtain
the requisite shareholder approval of any necessary amendment to this Restated
Certificate.
(k) Notices. Any notice required by the
provisions of this Section 4 to be given to the holders of shares of the Series
A or B Preferred Stock shall be deemed given if deposited in the United States
mail, postage prepaid, and addressed to each holder of record at its address
appearing on the books of this corporation.
5. Voting Rights.
(a) General Voting Rights. Each holder of
shares of Series A and B Preferred Stock shall have the right to one vote for
each share of Common Stock into which such shares of Series A and B Preferred
Stock could then be converted, and with respect to such vote, such holder shall
have full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any stockholders' meeting in accordance with the Bylaws of
this corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Series A and B Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number (with
one-half being rounded upward).
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(b) Voting for the Election of Directors.
The holders of the Series A Preferred Stock shall be entitled to elect one (1)
director of this corporation at each annual election of directors; provided,
however, in the event that the holders of the Series A Preferred Stock desire
not to elect a director, the holders of the Series A Preferred Stock may appoint
an observer to attend all meetings of the Board of Directors. The holders of the
Series B Preferred Stock shall be entitled to elect one (1) director of this
corporation at each annual election of directors, provided, however, in the
event that the holders of the Series B Preferred Stock desire not to elect a
director, the holders of the Series B Preferred Stock may appoint an observer to
attend all meetings of the Board of Directors. The holders of the Common Stock
shall be entitled to elect two (2) directors of this corporation at each annual
election of directors. The holders of Preferred Stock and Common Stock, voting
together as a single class, shall be entitled to elect one (1) director of this
corporation at each annual election of directors; provided, however, that such
director shall be an independent director nominated and unanimously approved by
this corporation's Board of Directors.
In the case of any vacancy (other than a vacancy caused by
removal) in the office of a director occurring among the directors elected by
the holders of a class or series of stock pursuant to this Section 5(b), the
remaining directors so elected by that class or series may by affirmative vote
of a majority thereof (or the remaining director so elected if there be but one,
or if there are no such directors remaining, by the affirmative vote of the
holders of a majority of the shares of that class or series), elect a successor
or successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a class or series of stock or by any directors so elected as
provided in the immediately preceding sentence hereof may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of the shares of the class or series of stock
entitled to elect such director or directors, given either at a special meeting
of such stockholders duly called for that purpose or pursuant to a written
consent of stockholders, and any vacancy thereby created may be filled by the
holders of that class or series of stock represented at the meeting or pursuant
to unanimous written consent.
6. Protective Provisions.
(a) So long as any shares of Series A and B
Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of the Series A
and B Preferred Stock, each voting separately as a series; provided, however,
that with respect to subparagraphs (i) and (iii) set forth below, only the
series of Preferred Stock which is or will be adversely affected by such action
shall have the right to vote pursuant to this Section 6:
(i) alter or change the rights,
preferences or privileges of the shares of Series A or B Preferred Stock so as
to affect adversely any such shares;
(ii) increase or decrease (other
than by conversion) the total number of authorized shares of Series A or B
Preferred Stock;
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(iii) authorize or issue any,
obligate itself to issue any or reclassify any outstanding, equity security,
including any other security convertible into or exercisable for any equity
security having a preference over, or being on a parity with, the Series A or B
Preferred Stock with respect to dividends, liquidation, redemption or voting;
(iv) redeem, purchase or otherwise
acquire (or pay into or set aside for a sinking fund for such purpose) any share
or shares of Series A or B Preferred Stock or Common Stock; provided, however,
that this restriction shall not apply to the repurchase of shares of Common
Stock from employees, officers, directors, consultants or other persons
performing services for this corporation or any subsidiary pursuant to
agreements under which this corporation has the option to repurchase such shares
at cost or at cost upon the occurrence of certain events, such as the
termination of employment;
(v) amend this corporation's
Restated Certificate or Bylaws;
(vi) change the authorized number of
directors of this corporation;
(vii) attempt to dissolve, liquidate
or wind up this corporation;
(viii) hire or remove the Chief
Executive Officer of this corporation; or
(ix) sell the Common Stock in a
registered offering other than the Qualified Public Offering.
(b) So long as any shares of Series A
Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of the Series A
Preferred Stock:
(i) sell, convey, or otherwise dispose of
all or substantially all of its property or business;
(ii) merge into or consolidate with any
other corporation (other than a wholly-owned subsidiary of this corporation); or
(iii) enter into any transaction or series
of related transactions in which fifty percent (50%) or more of the voting power
of this corporation is transferred.
7. Status of Redeemed or Converted Stock. In the
event any shares of Series A or B Preferred Stock shall be converted pursuant to
Section 4 hereof, the shares so converted shall be cancelled and shall not be
issuable by this corporation. This Restated
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Certificate shall be appropriately amended to effect the corresponding reduction
in this corporation's authorized capital stock.
C. Common Stock. The rights, preferences, privileges and
restrictions granted to and imposed on the Common Stock are as set forth below
in this Article IV(C).
1. Dividend Rights. Subject to the prior rights of
holders of all classes of stock at the time outstanding having prior rights as
to dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of this corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors; provided, however, that no dividends shall be
declared on the Common Stock during any year in which dividends have not been
declared and paid on the Series A and B Preferred Stock.
2. Liquidation Rights. Upon the liquidation,
dissolution or winding up of this corporation, the assets of this corporation
shall be distributed as provided in subsection 2(b) of Article IV hereof.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common
Stock shall have the right to one vote for each such share, and shall be
entitled to notice of any stockholders' meeting in accordance with the Bylaws of
this corporation, and shall be entitled to vote upon such matters and in such
manner as may be provided by law.
ARTICLE V
Except as otherwise provided in this Restated Certificate, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be five (5).
Subject to Section 6(a)(vi) of Article IV, the number of directors may be
changed from time to time by a bylaw or amendment thereof duly adopted by the
Board of Directors or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless
the Bylaws of this corporation shall so provide.
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ARTICLE VIII
Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of this corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of this corporation.
ARTICLE IX
A director of this corporation shall, to the fullest extent
permitted by the General Corporation Law as it now exists or as it may hereafter
be amended, not be personally liable to this corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to this
corporation or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law, or (iv) for any transaction from
which the director derived any improper personal benefit. If the General
Corporation Law is amended, after approval by the stockholders of this Article,
to authorize corporation action further eliminating or limiting the personal
liability of directors, then the liability of a director of this corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law, as so amended.
Any amendment, repeal or modification of this Article IX, or
the adoption of any provision of this Restated Certificate inconsistent with
this Article IX, by the stockholders of this corporation shall not apply to or
adversely affect any right or protection of a director of this corporation
existing at the time of such amendment, repeal, modification or adoption.
ARTICLE X
This corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ARTICLE XI
To the fullest extent permitted by applicable law, this
corporation is authorized to provide indemnification of (and advancement of
expenses to) agents of this corporation (and any other persons to which General
Corporation Law permits this corporation to provide indemnification) through
bylaw provisions, agreements with such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
General Corporation Law, subject only to limits created by applicable General
Corporation Law (statutory or non-statutory), with respect to actions for breach
of duty to this corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing
provisions of this Article XI shall not adversely affect any right or protection
of a director, officer, agent, or other
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person existing at the time of, or increase the liability of any director of
this corporation with respect to any acts or omissions of such director, officer
or agent occurring prior to, such amendment, repeal or modification.
* * *
THIRD: This Restated Certificate has been duly adopted,
approved and declared advisable and in the best interest of this corporation by
the Board of Directors of this corporation by written consent of the directors
in lieu of a meeting thereof in accordance with the provisions of Sections
141(f), 242 and 245 of the General Corporation Law.
FOURTH: This Restated Certificate has been duly adopted and
approved by the stockholders of this corporation by written consent of the
stockholders in lieu of a meeting thereof in accordance with the provisions of
Sections 228, 242 and 245 of the General Corporation Law.
FIFTH: This Restated Certificate shall become effective
immediately upon its filing with the Secretary of State of the State of
Delaware.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been executed by the President and Chief Executive Officer and
the Secretary of this corporation on this 8th day of April, 1999.
/S/ DAVID LIU
Name: David Liu
Title: President and Chief
Executive Officer
Attest:
/S/ MICHAEL WOLFSON
Name: Michael Wolfson
Title: Secretary
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Exhibit 3.3
BY-LAWS
OF
THE KNOT, INC.
(a Delaware corporation)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office shall be
established and maintained at Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware. The Corporation Trust Company shall be the registered
agent of this corporation in charge thereof.
Section 2. Other Offices. The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meetings. Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting.
Section 2. Other Meetings. Meetings of stockholders for any purpose
other than the election of directors may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting.
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Section 3. Voting. Each stockholder entitled to vote in accordance with
the terms of the Certificate of Incorporation and in accordance with the
provisions of these By-Laws shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held by such stockholder, but no
proxy shall be voted after three years from its date unless such proxy provides
for a longer period. At all elections of directors the voting may, but need not
be by ballot. All elections for directors shall be decided by plurality vote;
all other questions shall be decided by majority vote except as otherwise
provided by the Certificate of Incorporation or the laws of the State of
Delaware.
A complete list of the stockholders entitled to vote in the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be opened to the examination of any
stockholder for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof and may be inspected by any
stockholder who is present.
Where a separate vote by a class or classes, present in person or
represented by proxy, shall constitute a quorum entitled to vote on that matter,
the affirmative vote of the majority of shares of that class or classes present
in person or represented by proxy at the meeting shall be the act of the class,
unless otherwise provided in the corporation's Certificate of Incorporation.
Section 4. Quorum. Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote at the meeting shall constitute a quorum
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at all meetings of the stockholders. In case a quorum shall not be present at
any meeting, a majority in interest of the stockholders entitled to vote
thereat, present in person or by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until the requisite amount of stock entitled to vote shall be present.
At such adjourned meeting at which the requisite amount of stock entitled to
vote shall be represented, any business may be transacted which might have been
transacted at the meeting as originally noticed; but only those stockholders
entitled to vote at the meeting as originally noticed shall be entitled to vote
at any adjournment or adjournments thereof. When a quorum is once present it is
not broken by the subsequent withdrawal of any stockholder.
Section 5. Special Meetings. Special meetings of the stockholders for
any purpose or purposes may be called by a President, or by resolution of the
directors.
Section 6. Notice of Meetings. Written notice, stating the place, date
and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than sixty days before the date of the meeting.
Section 7. Action Without Meeting. Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the
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corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
Section 8. Inspectors. The Board of Directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election to act at
the meeting or any adjournment thereof. If an inspector or inspectors are not so
appointed, the person presiding at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector at the
meeting with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares of stock represented at
the meeting, the existence of a quorum, and the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result, and do all acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors, if
any, shall make a report in writing of any challenge, question or matter
determined by the inspector or inspectors and execute a certificate of any fact
found by the inspector in inspectors.
ARTICLE III
DIRECTORS
Section 1. Number and Term. The number of directors shall be such
number as the stockholders or the Board of Directors may from time to time
determine by resolution. The directors shall be elected at the annual meeting of
the stockholders or at a special meeting called
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for that purpose, and each director shall be elected to serve until his
successor shall be elected and qualified. Directors need not be stockholders.
Section 2. Removal. Any director or directors may be removed either for
or without cause at any time by the affirmative vote of the holders of a
majority of all the shares of stock outstanding and entitled to vote, at a
special meeting of the stockholders called for the purpose, and the vacancies
thus created may be filled, at the meeting held for the purpose of removal, by
the affirmative vote of a majority in interest of the stockholders entitled to
vote.
Section 3. Increase of Number. The number of directors may be increased
by the affirmative vote of a majority of the directors, though less than a
quorum, or by the affirmative vote of a majority in interest of the
stockholders, at the annual meeting or at a special meeting called for that
purpose, and by like vote the additional directors may be chosen at such meeting
to hold office until the next annual election and until their successors shall
have been elected and qualified.
Section 4. Powers. The Board of Directors shall exercise all of the
powers of the corporation except such as are by law or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
Section 5. Committees. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of such committee or committees. The member or members thereof present
at any meeting and not disqualified from voting, whether or not he or they
constitute a
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quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority to amend the Certificate of Incorporation, to adopt an
agreement of merger or consolidation, to recommend to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, to recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or to amend the By-Laws of the corporation; and,
unless the resolution, these By-Laws or the Certificate of Incorporation
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
Section 6. Meetings. The newly elected directors shall hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed by consent in writing of all the
directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the Board may be called by the Chairman of the
Board or a President on the written request of any two directors on at least two
days' notice to each director and shall be held at such place or places as may
be determined by the directors, or as shall be stated in the call of the
meeting.
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Section 7. Quorum. A majority of the total number of directors shall
constitute a quorum for the transaction of business. If at any meeting of the
Board of Directors there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time until a quorum is
obtained, and no further notice thereof need be given other than by announcement
at the meeting which shall be so adjourned. The vote of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 8. Compensation. Directors shall not receive any stated salary
for their services as directors or as members of committees, but by resolution
of the Board of Directors a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
Section 9. Action Without Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting, if a written consent thereto is signed by all
members of the Board of Directors, or of such committee as the case may be, and
such written consent is filed with the minutes of proceedings of the Board of
Directors or committee.
Section 10. Participation by Telephone. Members of the Board of
Directors of the corporation, or any committee designated by such Board, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
shall constitute presence in person at such meeting.
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ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the corporation shall be one or
more Presidents, Treasurers and Secretaries, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualified. In addition, the Board of Directors may elect a Chairman, one or
more Vice Presidents and such Assistant Secretaries and Assistant Treasurers as
they may deem proper. None of the officers of the corporation need be directors.
The officers shall be elected at the first meeting of the Board of Directors
after each annual meeting. More than two offices may be held by the same person.
Section 2. Other Officers and Agents. The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
Section 3. Chairman. The Chairman of the Board of Directors, if one be
elected, shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
Section 4. Presidents. One or more Presidents may be elected, each
having the general powers and duties of supervision and management usually
vested in the office of president of a corporation. The Presidents shall preside
at all meetings of the stockholders if present thereat and, in the absence or
nonelection of the Chairman of the Board of Directors, at all meetings of the
Board of Directors, and shall have general supervision, direction and control of
the business of the corporation. Except as the Board of Directors shall
authorize the execution thereof in some other manner, each President shall
execute bonds, mortgages and other contracts on behalf
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of the corporation, and shall cause the seal to be affixed to any instrument
requiring it and when so affixed the seal shall be attested by the signature of
the Secretary or the Treasurer or an Assistant Secretary or an Assistant
Treasurer.
Section 5. Vice Presidents. Each Vice President shall have such powers
and shall perform such duties as shall be assigned to him by the Presidents or
the directors.
Section 6. Treasurers. The Treasurers shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. The Treasurers
shall deposit all moneys and other valuables in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors.
The Treasurers shall disburse the funds of the corporation as may be
ordered by the Board of Directors, or the Presidents, taking proper vouchers for
such disbursements. He shall render to the President and Board of Directors at
the regular meetings of the Board of Directors, or whenever they may request it,
an account of all his transactions as Treasurer and of the financial condition
of the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the Board of Directors shall prescribe.
Section 7. Secretaries. The Secretaries shall give, or cause to be
given, notice of all meetings of stockholders and directors, and all other
notices required by law or by these By-Laws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the President, or by the directors, or stockholders, upon
whose requisition the meeting is called as provided in these By-Laws. He shall
record all the proceedings of the meetings of the corporation and of the
directors in a book to be kept for that
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purpose, and shall perform such other duties as may be assigned to him by the
directors or the President. He shall have the custody of the seal of the
corporation and shall affix the same to all instruments requiring it, when
authorized by the directors or the President, and attest the same.
Section 8. Assistant Treasurers and Assistant Secretaries. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
ARTICLE V
MISCELLANEOUS
Section 1. Resignations. Any director, member of a committee or
corporate officer may, provided the same would not result in a breach of any
contract to which said person is a party, resign at any time. Such resignation
shall be made in writing, and shall take effect at the time specified therein,
and if no time be specified, at the time of its receipt by the President or
Secretary. The acceptance of a resignation shall not be necessary to make it
effective.
Section 2. Vacancies. If the office of any director, member of a
committee or corporate officer becomes vacant, by reason of death, disability or
otherwise, the remaining directors in office, though less than a quorum, by a
majority vote may appoint any qualified person to fill such vacancy, who shall
hold office for the unexpired term and until his successor shall be duly chosen.
Section 3. Certificates of Stock. Certificates of stock, signed by the
Chairman of the Board of Directors, or the President or any Vice President, and
the Treasurer or an Assistant Treasurer, or Secretary or an Assistant Secretary,
shall be issued to each stockholder certifying the number of shares owned by him
in the corporation, unless otherwise required by the Board of Directors. When
such certificates are countersigned (1) by a transfer agent other than the
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corporation or its employee, or (2) by a registrar other than the corporation or
its employee, the signatures of such officers may be facsimiles.
Section 4. Lost Certificates. A new certificate of stock may be issued
in the place of any certificate theretofore issued by the corporation, alleged
to have been lost or destroyed, and the directors may, in their discretion,
require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock represented by such certificate, to
indemnify the corporation against any claim that may be made against it on
account of the alleged loss of any such certificate, or the issuance of any such
new certificate.
Section 5. Transfer of Shares. The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives, and upon such transfer
the old certificates shall be surrendered to the corporation by the delivery
thereof to the person in charge of the stock transfer books and ledgers, or to
such other person as the directors may designate, by whom they shall be
canceled, and new certificates shall thereupon be issued. A record shall be made
of each transfer and whenever a transfer shall be made for collateral security,
and not absolutely, it shall be so expressed in the entry of the transfer.
Section 6. Stockholders Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall
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not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 7. Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
Section 8. Seal. The corporate seal shall be circular in form and shall
contain the name of the corporation, the year of its creation and the words
"CORPORATE SEAL DELAWARE". Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or otherwise reproduced.
Section 9. Fiscal Year. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors. In the absence of such
determination, the fiscal year shall be the calendar year.
Section 10. Checks. All checks, drafts or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
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Section 11. Notice and Waiver of Notice. Whenever any notice is
required by these By-Laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage prepaid,
addressed to the person entitled thereto at his address as it appears on the
records of the corporation, and such notice shall be deemed to have been given
on the day of such mailing. Stockholders not entitled to vote shall not be
entitled to receive notice of any meetings except as otherwise provided by
statute.
Whenever any notice whatever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation of the corporation or these By-Laws, a waiver thereof in writing,
signed by- the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VI
INDEMNIFICATION
To the full extent permitted law, the corporation must (a) indemnify
any person or his heirs, distributees, next of kin, successors, appointees,
executors, administrators, legal representatives and assigns who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he is or was a director or officer, or
is or was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
domestic or foreign, against expenses, attorneys' fees, court costs, judgments,
fines, amounts paid in settlement and other losses actually and reasonably
incurred by him in connection with such action, suit or proceeding, and (b)
advance expenses incurred by an officer or director in defending such civil or
criminal action,
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suit or proceeding to the full extent authorized or permitted by the laws of the
State of Delaware upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized by
Section 145 of the Delaware General Corporation Law.
ARTICLE VII
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof by the
affirmative vote of a majority of the stock issued and outstanding and entitled
to vote thereat, or by the affirmative vote of a majority of the Board of
Directors, at any regular or special meeting of the Board of Directors.
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Exhibit 4.3
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED
UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE OR UNLESS
AN OPINION OF COUNSEL SATISFACTORY TO ISSUER IS OBTAINED TO THE EFFECT
THAT SUCH SALE, TRANSFER, OR ASSIGNMENT IS EXEMPT FROM THE REGISTRATION
PROVISIONS OF THE ACT
THE KNOT, INC.
COMMON STOCK WARRANT CERTIFICATE
Certificate No.: 1 Date: April 13, 1999
FOR VALUE RECEIVED, THE KNOT, INC., a Delaware corporation
(the "Corporation"), hereby grants to QVC Interactive Holdings, LLC, a Delaware
corporation, or its registered assigns (the "Warrant Holder") this warrant
certificate (this "Warrant") to purchase, in accordance with the terms set forth
herein, ONE MILLION SEVEN HUNDRED THOUSAND (1,700,000) shares of the
Corporation's Common Stock, par value $.01 per share (the "Common Stock") at a
price per share equal to $5.00 (the "Exercise Price").
This Warrant is issued pursuant to that certain Series B
Preferred Stock Purchase Agreement, dated as of the date hereof (the "Purchase
Agreement"), by and between the Corporation and the Warrant Holder. Each
capitalized term used in this Warrant but not otherwise defined herein has the
meaning given to such term in the Purchase Agreement.
This Warrant is subject to the following provisions:
Section 1. Warrant Terms.
(a) This Warrant is for the purchase of shares of ONE MILLION
SEVEN HUNDRED THOUSAND (1,700,000) shares of Common Stock at the Exercise Price,
as such price may be adjusted from time to time under the terms hereof.
(b) This Warrant shall expire at 5:00 p.m., E.S.T., on the
second anniversary of the date that this Warrant is exercisable (the "Expiration
Date"); provided, however, that in the event that at any time the Warrant Holder
is not able to exercise this Warrant as a result of the limitations set forth in
Section 3 of the Investors' Rights Agreement, then Expiration Date shall be
extended by the amount of time the Warrant Holder was prevented from exercising
this Warrant.
Section 2. Anti-dilution Provisions. In order to prevent
dilution of the purchase rights granted under Section 1 hereof, the Exercise
Price shall be subject to adjustment from time to time pursuant to this Section
2.
<PAGE> 2
(a) Exercise Price. If and whenever the Corporation issues or
sells, or in accordance with Section 2(b) hereof is deemed to have issued or
sold, any shares of its Common Stock for a consideration per share less than
$3.75, then immediately upon such issue or sale the Exercise Price shall be
reduced or sale to the price determined by dividing (i) an amount equal to the
sum of (x) the number of shares of Common Stock outstanding immediately prior to
such issue or sale on a fully diluted and converted basis multiplied by the then
existing Exercise Price and (y) the consideration, if any, received by the
Corporation upon such issue or sale, by (ii) the total number of shares of
Common Stock outstanding immediately after such issue or sale on a fully diluted
and converted basis; provided however the restrictions contained herein shall
not apply to (i) options issued or issuable pursuant to the Company's stock
option plan up to 1,849,868 or such greater number as authorized by the Board of
Directors or (ii) the conversion of the issued and outstanding Series A
Preferred Stock (unless the exercise or conversion price of such options or
Series A Preferred Stock is amended after the date hereof).
(b) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 2(a), the following
shall be applicable:
(1) If the Corporation in any manner grants or sells
(whether directly or by assumption in a merger or otherwise)
any Options (as defined in Section 2(g)) and the price per
share for which Common Stock is issuable upon the exercise of
such Options, or upon conversion or exchange of any
Convertible Securities (as defined in Section 2(g)) issuable
upon exercise of such Options, is less than (A) the Exercise
Price in effect immediately prior to the time of the granting
or sale of such Options or (B) the Market Price determined as
of such time, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the exercise of such
Options shall be deemed to be outstanding and to have been
issued and sold by the Corporation at the time of the granting
or sale of such Options for such price per share. For purposes
of this paragraph, the "price per share for which Common Stock
is issuable" shall be determined by dividing (A) the total
amount, if any, received or receivable by the Corporation as
consideration for the granting or sale of such Options, plus
the minimum aggregate amount of additional consideration
payable to the Corporation upon exercise of all such Options,
plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the
issuance or sale of such Convertible Securities and the
conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
Options. No further adjustment of the Exercise Price shall be
made when Convertible Securities are actually issued upon the
exercise of such Options or when Common Stock is actually
issued upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(2) Issuance of Convertible Securities. If the
Corporation in any manner issues or sells any Convertible
Securities and the price per share for
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which Common Stock is issuable upon conversion or exchange
thereof is less than the Exercise Price in effect immediately
prior to the time of such issue or sale then the maximum
number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the
Corporation at the time of the issuance or sale of such
Convertible Securities for such price per share. For the
purposes of this paragraph, the "price per share for which
Common Stock is issuable" shall be determined by dividing (A)
the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustments of the Exercise
Price had been or are to be made pursuant to other provisions
of this Section 2, no further adjustment of the Exercise Price
shall be made by reason of such issue or sale.
(3) Change in Option Price or Conversion Rate. If the
purchase price provided for with respect to the Options, the
additional consideration, if any, payable upon the conversion
or exchange of any Convertible Securities or the rate at which
any Convertible Securities are convertible into or
exchangeable for Common Stock changes at any time, the
Exercise Price in effect at the time of such change shall be
immediately adjusted to the Exercise Price which would have
been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed
purchase price, additional consideration or conversion rate,
as the case may be, at the time initially granted, issued or
sold For purposes of this Section 2(b), if the terms of any
Option or Convertible Security which was outstanding as of the
date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such
Option or Convertible Security and the Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall
deemed to have been issued as of the date of such change.
(4) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option or
the termination of any right to convert or exchange any
Convertible Security without the exercise of any such Option
or right, the Exercise Price then in effect hereunder shall be
adjusted immediately to the Exercise Price which would have
been in effect at the time of such expiration or termination
had such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or
termination, never been issued. For purposes of this Section
2(b), the expiration or termination of any Option or
Convertible Security which was outstanding as of the date of
issuance of this Warrant shall not cause the Exercise Price to
be adjusted unless, and only to the extent that, a change in
the terms of such Option or Convertible Security caused it to
be deemed to have been issued after the date of issuance of
such Warrant.
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(5) Calculation of Consideration Received. If any
Common Stock, Option or Convertible Security is issued or sold
or deemed to have been issued or sold for cash, the
consideration received therefor shall be deemed to be the
amount received by the Corporation therefor (net of discounts,
commissions and related expenses). If any Common Stock, Option
or Convertible Security is issued or sold for consideration
other than cash, the amount of the consideration other than
cash received by the Corporation shall be the fair value of
such consideration. If any Common Stock, Option or Convertible
Security is issued to the owners of the non-surviving entity
in connection with any merger in which the Corporation is the
surviving corporation, the amount of consideration therefor
shall be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is
attributable to such Common Stock, Option or Convertible
Security, as the case may be. The fair value of any
consideration other than cash and securities shall be
determined jointly by the Corporation and the Warrant Holder.
If such parties are unable to reach agreement within a
reasonable period of time, the fair value of such
consideration shall be determined by an independent appraiser
experienced in valuing such type of consideration jointly
selected by the Corporation and the Warrant Holder. The
determination of such appraiser shall be final and binding
upon the parties, and the fees and expenses of such appraiser
shall be borne by the Corporation.
(6) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other
securities of the Corporation, together comprising one
integrated transaction in which no specific consideration is
allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for a consideration of
$.01.
(7) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Corporation or any
Subsidiary (as defined in Section 2(g)) hereof, and the
disposition of any shares so owned or held shall be considered
an issue or sale of Common Stock.
(8) Record Date. If the Corporation takes a record of
the warrant holders of Common Stock for the purpose of
entitling them (a) to receive a dividend or other distribution
payable in Common Stock, Options or in Convertible Securities
or (b) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed
to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration
of such dividend or upon the making of such other distribution
or the date of the granting of such right of subscription or
purchase, as the case may be.
(c) Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately reduced, and if
the
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<PAGE> 5
Corporation at any time combines (by reverse stock split or otherwise) one or
more classes of its outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination shall
be proportionately increased.
(d) Reorganization, Reclassification. Consolidation. Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Corporation's assets or other
transaction, in each case which is effected in such a manner that the warrant
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock, is referred to herein as an "Organic Change." Prior
to the consummation of any Organic Change, the Corporation shall make
appropriate provisions (in form and substance satisfactory to the Warrant
Holder) to insure that the Warrant Holder shall thereafter have the right to
acquire and receive, in lieu of or in addition to (as the case may be) the
shares of Common Stock immediately theretofore acquirable and receivable upon
the exercise of this Warrant, such shares of stock, securities or assets as such
Warrant Holder would have received in connection with such Organic Change if
such Warrant Holder had exercised this Warrant immediately prior to such Organic
Change, without giving effect to the restriction set forth in Section 3(a) of
the Investors' Rights Agreement. (For the avoidance of doubt, the immediately
preceding phrase addressing the effect of Section 3(a) of the Investors' Rights
Agreement on this Warrant shall mean that in the event of an Organic Change,
adjustment shall be made to the number of shares subject to the Warrant and the
exercise price for such shares in direct proportion to changes made to the
Common Stock of the Company. Such phrase shall not be construed to effect the
applicability of Section 3(a) of the Investors' Rights Agreement.) In each such
Organic Change, the Corporation shall also make appropriate provisions (in form
and substance satisfactory to the Warrant Holder) to insure that the provisions
of this Section 2 shall thereafter be applicable to this Warrant (including, in
the case of any such consolidation, merger or sale in which the successor entity
or purchasing entity is other than the Corporation, an immediate adjustment of
the Exercise Price to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and a corresponding immediate adjustment in
the number of shares of Common Stock acquirable and receivable upon exercise of
this Warrant, if the value so reflected is less than the Exercise Price in
effect immediately prior to such consolidation, merger or sale). The Corporation
shall not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Corporation)
resulting from consolidation or merger or the entity purchasing such assets
assumes by written instrument (in form and substance satisfactory to the Warrant
Holder), the obligation to deliver to each such Warrant Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Warrant Holder may be entitled to acquire.
(e) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 2, but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features)
other than the grant of options to purchase Common Stock pursuant to the
Corporation's Stock Option Plan, the Corporation shall make an appropriate
adjustment in the Exercise Price so as to protect the rights of the Warrant
Holder; provided that no such adjustment shall increase the Exercise Price as
otherwise determined pursuant to this Section 2 or decrease the number of shares
of Common Stock issuable upon exercise of this Warrant.
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<PAGE> 6
(f) Notices. Immediately upon any adjustment of the Exercise
Price, the Corporation shall give written notice thereof to the Warrant Holder,
setting forth in reasonable detail and certifying the calculation of such
adjustment. The Corporation shall give written notice to the Warrant Holder at
least twenty (20) days prior to the date on which the Corporation closes its
books or takes a record (i) with respect to any dividend or distribution upon
Common Stock, (ii) with respect to any pro rata subscription offer to warrant
holders of Common Stock or (iii) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation. The Corporation shall also give
written notice to the Warrant Holder at least twenty (20) days prior to the date
on which any Organic Change shall take place.
(g) Definitions.
"Common Stock Deemed Outstanding" means, at any given time,
the number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant to Sections
2(b)(1) and 2(b)(2) hereof whether or not the Options or Convertible Securities
are actually exercisable at such time.
"Convertible Securities" means any stock or securities of the
Corporation directly or indirectly convertible into or exchangeable for Common
Stock.
"Investors' Rights Agreement" means the Second Amended and
Restated Investors' Rights Agreement dated as of April 13, 1999 by and among the
Corporation and the parties listed on the signature pages attached thereto.
"Options" means any rights, warrants or options to subscribe
for or purchase Common Stock or Convertible Securities other than options
granted pursuant to the 1997 Stock Option Plan or any other plan approved by the
Warrant Holder.
"Qualified Public Offering" means the consummation of a firm
commitment underwritten public offering with a per share price greater than
$7.50 (subject to adjustment in the same fashion as the conversion prices set
forth in Section 4(d) of the Amended and Restated Certificate of Incorporation
of the Corporation) and aggregate proceeds in excess of $10,000,000.
"Series B Preferred Stock Purchase Agreement" means the Series
B Preferred Stock Purchase Agreement dated as of April 13, 1999 by and among the
Corporation and the parties listed on the signature pages attached thereto.
"Subsidiary" means, with respect to the Corporation, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by the Corporation
or one or more of the other Subsidiaries of the Corporation or a combination
thereof, or (ii) if a limited liability company, partnership, association or
other business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
the Corporation or one or more Subsidiaries of the Corporation or a combination
thereof For purposes hereof, the Corporation shall be deemed to have a majority
ownership interest in a
6
<PAGE> 7
limited liability company, partnership, association or other business entity if
the Corporation shall be allocated a majority of limited liability company,
partnership, association or other business entity gains or losses or shall be or
control the managing general partner of such limited liability company,
partnership, association or other business entity.
Section 3. Exercise of Warrant.
(a) Exercise Rights. The Warrant Holder shall have the right
to exercise all or a portion of this Warrant upon the first to occur of the
following events (each, an "Exercise Date"):
(i) the disposition of Common Stock pursuant to a
Qualified Public Offering;
(ii) simultaneously with the closing of an
acquisition in a transaction or series of transactions; beneficially or of
record of shares that results in the transfer of fifty (50%) or more of the
outstanding voting power of the Corporation;
(iii) simultaneously with the closing of a sale of
all or substantially all of the assets of the Corporation; or
(iv) the fourth anniversary of the issuance of this
Warrant.
This Warrant is only exercisable pursuant to Sections 3(a)(ii)
or 3(a)(iii) if the Warrant Holder has voted its voting capital stock in favor
of such transaction, to the extent a vote of the shareholders of the Company is
necessary to permit the consummation of the transactions contemplated by
Sections 3(a)(ii) or 3(a)(iii), respectively. The voting obligation of the
Warrant Holder described in the preceding sentence shall only apply in the event
that the Company has already received the minimum number of votes necessary to
authorize the transactions contemplated by Sections 3(a)(ii) or 3(a)(iii). The
Warrant Holder acknowledges the right to exercise this Warrant pursuant to
Section 3(a)(ii) is subject to the restrictions set forth in Section 3(b) of the
Investors' Rights Agreement.
(b) Exercise Procedure: The Warrant Holder may exercise all or
a portion of this Warrant at any time and from time to time commencing after
9:00 a.m., E.S.T., on the Exercise Date and shall be so exercisable until 5:00
p.m., E.S.T. on the Expiration Date by surrendering at the principal office of
the Corporation this Warrant and a completed Exercise Agreement (substantially
in the form of Exhibit A attached hereto) and by paying the Exercise Price by
check or wire transfer to an account designated by the Corporation as to the
number of shares of Common Stock as to which the Warrant is being exercised (the
"Exercise Amount") and receiving in exchange therefor the number of shares of
Common Stock equal to the Exercise Amount.
(c) Certificates for shares of Common Stock acquired through
exercise of this Warrant shall be delivered by the Corporation to the Warrant
Holder within five (5) business days after receipt by the Corporation of the
items required by Section 3(a) for the respective method or methods of exercise.
Unless this Warrant has expired or all of the purchase rights represented hereby
have been exercised, the Corporation shall prepare a new Warrant,
7
<PAGE> 8
substantially identical hereto, representing the rights formerly represented by
this Warrant which have not expired or been exercised and shall, within such
five-day period, deliver such new Warrant to such Warrant Holder.
(d) The Common Stock issuable upon exercise of this Warrant
shall be deemed to have been issued to the Warrant Holder on the date by which
the Corporation receives the completed Exercise Agreement and payment of the
Exercise Price, if any, and the Warrant Holder shall be deemed for all purposes
to have become the record Warrant Holder of such Common Stock on such date.
(e) The issuance of certificates for shares of Common Stock
upon exercise of this Warrant shall be made without charge to the Warrant Holder
for any issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such exercise and the related issuance of shares
of Common Stock.
(f) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of issuance upon exercise of this Warrant, such number of shares of
Common Stock as are issuable upon exercise of this Warrant. All such shares of
Common Stock shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Corporation shall
take all such actions as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Common Stock may be listed (except for official notice of
issuance which shall be immediately delivered by the Corporation upon each such
issuance). In addition, prior to the issuance of any Common Stock upon an
exercise of this Warrant, the Company shall at its expense procure the listing
of such Common Stock which shall be issued upon exercise of this Warrant as then
may be required on all stock exchanges or interdealer quotation systems on which
the Common Stock is then listed and shall maintain such listing if and so long
as any shares of the Common Stock shall be listed on such stock exchanges or
interdealer quotation systems.
Section 4. Warrant Transferable. Subject to the transfer
conditions referred to in the legend endorsed hereon, this Warrant and all
rights hereunder are transferable, in whole or in part, without charge to the
Warrant Holder; upon surrender of this Warrant with a properly executed
Assignment (substantially in the form of Exhibit B hereto) at the principal
office of the Corporation; provided, however, that such transferee agrees to be
bound by the provisions set forth in the Investors' Rights Agreement.
Section 5. Warrant Exchangeable for Different Denominations.
This Warrant is exchangeable, upon the surrender hereof by the Warrant Holder at
the principal office of the Corporation, for new warrants, substantially
identical hereto, representing in the aggregate the rights formerly represented
by this Warrant, and each of such new warrants shall represent such portion of
such rights as is designated by the Warrant Holder at the time of such
surrender. The date the Corporation initially issues this Warrant shall be the
date of issuance of such new warrants regardless of the number of times new
certificates representing the unexpired and unexercised rights formerly
represented by this Warrant shall be issued.
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<PAGE> 9
Section 6. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the Warrant Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided, that if such Warrant Holder is a financial institution or
other institutional investor its own agreement shall be satisfactory), or, in
the case of any such mutilation upon surrender of such certificate, the
Corporation shall (at its expense) execute and deliver in lieu of such
certificate a new certificate, substantially identical hereto, representing the
rights represented by such lost, stolen, destroyed or mutilated certificate and
dated the date of such lost, stolen, destroyed or mutilated certificate; the
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses and charges payable in connection with the preparation, execution, and
delivery of warrants pursuant to Sections 4, 5 and 6.
Section 7. Successors and Assigns. This instrument is intended
to bind and inure to the benefit of and be enforceable by the Warrant Holder and
its respective heirs, successors and assigns.
Section 8. Amendment and Waiver. Except as otherwise provided
herein, the provisions of this Warrant may be amended only if the Corporation
has obtained the written consent of the Warrant Holder.
Section 9. Descriptive Headings; Governing Law. The
descriptive headings of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant. The corporate laws of the State of
Delaware will govern all questions concerning the relative rights of the
Corporation and its stockholders. All other questions concerning the
construction, validity and interpretation of this Warrant will be governed by
the domestic substantive laws of the State of New York without giving effect to
any choice of law or conflicts of law provision or rule that would cause the
application of the domestic substantive laws of any other jurisdiction. Any
action to enforce the terms of this Warrant may be brought in a New York State
or United States Federal District Court located in the City of New York, and the
Warrant Holder and the Corporation hereby irrevocably consents to the
jurisdiction of any such court over its person, and waives any defenses based
upon improper venue, inconvenient forum or lack of jurisdiction.
Section 10. Complete Agreement; Severability. Except as
otherwise expressly set forth herein, this Warrant, the Series B Preferred Stock
Purchase Agreement and any other agreement or instrument executed by the parties
and contemplated by the Series B Preferred Stock Purchase Agreement embodies the
complete agreement and understanding among the parties hereto with respect to
the subject matter hereof and supersedes and preempts any prior understandings,
agreements or representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way. In case any provision
of this warrant shall be invalid, illegal or unenforceable, such invalidity,
illegality, or unenforceability shall not in any way affect or impair any other
provision of this Agreement.
Section 11. Notices. Any notice or other communication
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been received (a) upon hand delivery (receipt acknowledged) or
delivery by telex (with correct answer back received), telecopy or facsimile
(with transmission confirmation report) at the address or number
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<PAGE> 10
designated below (if received by 8:00 E.S.T.), or the first business day
following such delivery (if delivered after 8:00 E.S.T.) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be
those as set forth on the signature pages attached hereto, or such other address
as may be designated in writing hereafter, in the same manner, by such parties.
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IN WITNESS WHEREOF, the Corporation has caused this Warrant to
be signed and attested by its duly authorized officer and to be dated the date
of issuance hereof.
THE KNOT, INC.
By: /s/ David Liu
--------------------------------------------
Name: David Liu
Title: President and Chief Executive Officer
Attest:
/s/ Michael Wolfson
- --------------------------------------------
Name: Michael Wolfson
Title: Secretary
<PAGE> 1
EXHIBIT 4.4
CONFIDENTIAL
WARRANT AGREEMENT
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY
OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT.
THIS WARRANT MAY NOT BE EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE
FEDERAL AND STATE SECURITIES LAWS TO THE REASONABLE SATISFACTION OF THE COMPANY
AND LEGAL COUNSEL FOR THE COMPANY.
WARRANT TO PURCHASE
366,667 SHARES OF COMMON STOCK
OF
THE KNOT, INC.
A DELAWARE CORPORATION
ISSUED
JULY 23, 1999
THIS CERTIFIES THAT, for value received, America Online, Inc. (as the
context requires, "AOL" or the "WARRANTHOLDER") is entitled to purchase, on the
terms hereof, 366,667 shares (subject to adjustment as set forth herein,
"WARRANT STOCK"), of common stock, par value $.01 per share ("COMMON STOCK"), of
The Knot, Inc., a Delaware corporation (the "COMPANY"), at a purchase price and
upon the terms and conditions as set forth herein. The Company hereby represents
and warrants to Warrantholder that as of the date hereof, (i) the capitalization
of the Company is as set forth in the capitalization table attached hereto as
Schedule A, and (ii) the Warrant Stock constitutes two and one-half percent
(2.5%) of the number of shares of voting capital stock of the Company
outstanding as of the date hereof, after giving effect to the exercise, exchange
or conversion of all outstanding securities, rights, options, warrants
(including this Warrant), calls, commitments or agreements of any nature or
character (whether debt or equity) that are, directly or indirectly, exercisable
or exchangeable for, or convertible into or otherwise represent the right to
purchase or otherwise receive, directly or indirectly, any such capital stock or
other arrangement to acquire at any time or under any circumstance, voting
capital stock of the Company or any such other securities and assuming that all
stock options and/or shares of capital stock reserved for grant or issuance to
officers, directors, employees and consultants under all agreements, plans or
arrangements theretofore approved by the Board of Directors of the Company have
been so granted or issued (as the case may be).
1. EXERCISE OF WARRANT.
The terms and conditions upon which this Warrant may be exercised and
the shares of Common Stock covered hereby that may be purchased, are as follows:
<PAGE> 2
CONFIDENTIAL
1.1. Exercise.
(a) This Warrant is being issued pursuant to an Amended and
Restated Anchor Tenant Agreement, dated as of the date hereof (as same
may be amended, the "Agreement"), between the Company and AOL. All
terms used but not defined herein shall have the meanings set forth in
the Agreement. This Warrant may be exercised, in whole or in part, from
and after the date of issuance hereof until the Termination Date (the
"Exercise Period").
(b) Notwithstanding the foregoing, this Warrant may not be
exercised under any circumstances after 5:00 p.m., Dulles, Virginia
time on the eighth (8th) anniversary hereof (the "TERMINATION DATE"),
after which time this Warrant shall terminate and shall be void and of
no further force of effect.
1.2. Exercise Price. The purchase price for the shares of Common Stock
to be issued upon exercise of this Warrant shall be Seven and 20/100 Dollars
($7.20) per share (subject to adjustment as set forth herein, the "EXERCISE
PRICE").
1.3. Method of Exercise. The exercise of the purchase rights evidenced
by this Warrant shall be effected by (a) the surrender of this Warrant, together
with a duly executed copy of the form of Election to Purchase attached hereto,
to the Company at its principal office and (b) the delivery of the Exercise
Price multiplied by the number of shares for which the purchase rights hereunder
are being exercised, payable (x) by certified check, corporate check of America
Online, Inc., or wire transfer of immediately available funds payable to the
Company's order or (y) on a net basis, such that, without the exchange of any
funds, the Warrantholder receives that number of shares otherwise issuable (or
other consideration payable) upon exercise of this Warrant less that number of
shares of Warrant Stock having an aggregate fair market value (as defined below)
at the time of exercise (i.e., the date a duly executed Election to Purchase is
delivered to the Company) equal to the aggregate Exercise Price that would
otherwise have been paid by the Warrantholder for the shares of the Warrant
Stock issuable. In connection with such exercise the holder shall, if requested
by the Company, include confirmation of the accuracy of the representations set
forth in Section 12 and otherwise as reasonably requested by the Company to
evidence compliance with any applicable securities laws as of the date of
exercise. For purposes of the foregoing, "FAIR MARKET VALUE" of the Warrant
Stock on any date shall be the average of the Quoted Prices of the Common Stock
of the Company for 20 consecutive trading days ending the trading day prior to
such date (if, during such 20-day period, there is a day in which no trades are
reported, such date shall be discarded and the 20-day period extended). The
"QUOTED PRICE" of the Common Stock as reported by Nasdaq or, if the principal
trading market for the Common Stock is then a securities exchange, the last
reported sales price of the Common Stock on such exchange which shall be
consolidated trading if applicable to such exchange, or if neither so reported
or listed, the last reported bid price of the Common Stock. In the absence of
such quotation or listing, such determination as to the "Quoted Price" shall be
made in good faith by the Board of Directors of the Company after taking into
consideration all factors it deems appropriate, including, without limitation,
recent sale and offer prices of the capital stock of the Company in private
transactions negotiated at arm's length.
1.4. Issuance of Shares. In the event that the purchase rights
evidenced by this Warrant are exercised in whole or in part in accordance with
the terms of this Warrant, a certificate or certificates for the purchased
shares shall be issued to the Warrantholder as soon as practicable. The Warrant
Stock shall be stamped or imprinted with a legend in substantially the following
form:
<PAGE> 3
CONFIDENTIAL
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. NO SALE OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMPANY AND WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE ACT."
In the event the purchase rights evidenced by this Warrant are
exercised in part, the Company will also issue to the Warrantholder a new
warrant within a reasonable time representing the unexercised purchase rights.
1.5 Exercise of Warrants on Termination Date. If as of the Termination
Date the Warrants are in the money based on the cash or other property to be
received, such exercise shall take place automatically with respect to all then
outstanding and exercisable (but not exercised) Warrants (the "TERMINATION DATE
EXERCISE"), on a net exercise basis, immediately prior to the Termination Date;
provided, however, that the Company may condition such exercise on the delivery
by the Warrantholder of a duly completed Election to Purchase and the reasonable
satisfaction of the Company that all applicable securities laws have been
complied with, which the Company shall give notice to the Warrantholder of
within ten (10) days prior to the Termination Date. No such Termination Date
Exercise shall take place if such issuance would not comply with applicable
securities laws, whereupon the Termination Date shall occur as scheduled.
2. CERTAIN ADJUSTMENTS.
2.1 Weighted Average Anti-Dilution. The Exercise Price shall be subject
to adjustment from time to time as follows:
(a) If the Company shall at any time or from time to time
during the Exercise Period, issue any shares of Common Stock (or be
deemed to have issued any shares of Common Stock as provided herein),
other than Excluded Securities (as defined in Section 2.1(c)) without
consideration or for a consideration per share less than the Exercise
Price in effect immediately prior to the issuance of Common Stock, the
Exercise Price in effect immediately prior to such issuance shall
forthwith be lowered to a price equal to the quotient obtained by
dividing: (x) an amount equal to the sum of (1) the total number of
shares of Common Stock outstanding (including any shares of Common
Stock deemed to have been issued pursuant to Section 2.1(b)(iv))
immediately prior to such issuance multiplied by the Exercise Price in
effect immediately prior to such issuance, plus (2) the consideration
received by the Company upon such issuance, by (y) the total number of
shares of Common Stock outstanding (including any shares of Common
Stock deemed to have been issued pursuant to Section 2.1(b)(iv))
immediately after the issuance of such Common Stock. All calculations
under this Section 2 shall be made to the nearest one tenth (1/10) of a
cent or to the nearest one tenth (1/10) of a share, as the case may be.
(b) For the purposes of any adjustment of the Exercise Price
pursuant to Section 2.1(a), the following provisions shall be
applicable:
(i) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting therefrom any
<PAGE> 4
CONFIDENTIAL
discounts, commissions or other expenses allowed, paid or incurred by
the Company for any underwriting or otherwise in connection with the
issuance and sale thereof.
(ii) In the case of the issuance of Common Stock for
a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board
of Directors of the Company, irrespective of any accounting
treatment.
(iii) In the case of the issuance of Common Stock
without consideration, the consideration shall be deemed to be
$0.01 per share.
(iv) In the case of the issuance of (x) options to
purchase or rights to subscribe for Common Stock, (y) securities by
their terms convertible into or exchangeable for Common Stock or (z)
options to purchase rights to subscribe for such convertible or
exchangeable securities:
(A) the aggregate maximum number of shares
of Common Stock deliverable upon exercise of such
options to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued at the time
such options or rights were issued and for a
consideration equal to the consideration (determined
in the manner provided in subdivisions (i), (ii) and
(iii) above), if any, received by the Company upon
the issuance of such options or rights plus the
minimum purchase price provided in such options or
rights for the Common Stock covered thereby;
(B) the aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable
securities or upon the exercise of options to
purchase or rights to subscribe for such convertible
or exchangeable securities and subsequent conversion
or exchange thereof shall be deemed to have been
issued at the time such securities were issued or
such options or rights were issued and for a
consideration equal to the consideration received by
the Company for any such securities and related
options or rights (excluding any cash received on
account of accrued interest or accrued dividends),
plus the additional consideration, if any, to be
received by the Company upon the conversion or
exchange of such securities or the exercise of any
related options or rights (the consideration in each
case to be determined in the manner provided in
subdivisions (i), (ii) and (iii) above);
(C) on any change in the number of shares or
exercise price of Common Stock deliverable upon
exercise of any such options or rights or conversions
of or exchanges for such securities, other than a
change resulting from the antidilution provisions
thereof, the applicable Exercise Price shall
forthwith be readjusted to such Exercise Price as
would have resulted had the adjustment made upon the
issuance of such options, rights or securities not
converted prior to such change (or options or rights
related to such securities not converted prior to
such change) been made upon the basis of such change;
provided, however, that such readjustment shall not
result in a Exercise Price that is greater than the
original Exercise Price; and
<PAGE> 5
CONFIDENTIAL
(D) on the expiration of all such options or
rights, the termination of all such rights to convert
or exchange or the expiration of all options or
rights related to such convertible or exchangeable
securities in each case having been issued by the
Company for the same consideration (as determined
pursuant to subdivision (i), (ii) and (iii) above),
the applicable Exercise Price shall forthwith be
readjusted to such Exercise Price as would have
resulted had the adjustment made upon the issuance of
such options, rights, securities or options or rights
related to such securities not been made; provided,
however, that such readjustment shall not result in a
Exercise Price that is greater that the original
Exercise Price.
(c) For purposes of Section 2(a), the term "Excluded
Securities" shall mean (i) up to 2,000,000 shares of Common Stock
(subject to equitable adjustment for stock splits, dividends,
combinations and like occurrences) issued to officers, employees,
directors or consultants of Company, pursuant to any agreement, plan or
arrangement approved by the Board of Directors of the Company, or
options to purchase or rights to subscribe for such Common Stock, or
securities by their terms convertible into or exchangeable for such
Common Stock, or options to purchase or rights to subscribe for such
convertible or exchangeable securities pursuant to such agreement, plan
or arrangement; (ii) shares of Common Stock issued as a stock dividend
or upon any stock split or other subdivision or combination of shares
of Common Stock; (iii) shares of Common Stock (subject to equitable
adjustment for stock splits, dividends, combinations and like
occurrences) reserved for issuance upon the conversion of presently
issued and outstanding securities which by their terms are convertible
into or exchangeable for such Common Stock; or (iv) securities issued
pursuant to the acquisition of another corporation or other entity by
the Company by merger or purchase of stock or purchase of all or
substantially all of such other corporation's or other entity's assets
whereby the Company owns not less than a majority of the voting power
of such other corporation or other entity following such acquisition or
purchase.
2.2 Stock Dividends. If at any time while this Warrant remains
outstanding and unexpired, the Company pays a dividend or makes a distribution
with respect to the Common Stock payable in shares of Common Stock, then the
Exercise Price shall be adjusted, as of the record date of stockholders
established for such purpose (or if no such record is taken, as at the date of
such payment or distribution), to that price determined by multiplying the
Exercise Price in effect immediately prior to such payment or distribution by a
fraction (A) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution, and
(B) the denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution. The Warrantholder
shall thereafter be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of shares of Common Stock (calculated to the nearest
whole share) obtained by multiplying the Exercise Price in effect immediately
prior to such adjustment by the number of shares of Common Stock issuable upon
the exercise hereof immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. The
provisions of this Section 2.1 shall not apply under any of the circumstances
for which an adjustment is provided under Sections 2.3, 2.4 or 2.5.
2.3 Mergers, Consolidations or Sale of Assets. If at any time while
this Warrant remains outstanding and unexpired, there shall be a capital
reorganization of the shares of the Company's capital stock (other than a
combination, reclassification, exchange or subdivision otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation in which the Company is not the surviving corporation (collectively,
a "CORPORATE TRANSACTION"), then lawful provision shall be
<PAGE> 6
CONFIDENTIAL
made so that such successor corporation or entity shall assume this Warrant such
that the Warrantholder shall thereafter be entitled to receive, upon
exercise of this Warrant, during the period specified in this Warrant and
upon payment of the Exercise Price then in effect, the number of shares of
stock or other securities or property of the successor corporation
resulting from such Corporate Transaction to which a holder of the
securities deliverable upon exercise of this Warrant would have been entitled
under the provisions of the agreement in such Corporate Transaction if this
Warrant had been exercised immediately prior to such Corporate Transaction.
Appropriate adjustment (as determined in good faith by the Company's Board of
Directors after taking into consideration all factors it deems appropriate,
including, without limitation, recent sale and offer prices of the capital
stock of the Company in private transactions negotiated at arm's length) shall
be made in the application of the provisions of this Warrant with respect to
the rights and interests of the Warrantholder after the Corporate Transaction
to the end that the provisions of this Warrant (including adjustment of the
Exercise Price then in effect and the number of shares of Common Stock issuable
under this Warrant) shall be applicable after the Corporate Transaction, as
near as reasonably may be, in relation to any shares or other property
deliverable after the Corporate Transaction upon exercise of this Warrant. The
provisions of this Section 2.3 shall similarly apply to successive
reorganizations, consolidations or mergers.
2.4 Reclassification. If the Company at any time shall, by subdivision,
combination or reclassification or securities or otherwise, change any of the
securities issuable under this Warrant into the same or a different number of
securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as a result of such change with respect to the securities issuable
under this Warrant immediately prior to such subdivision, combination,
reclassification or other change.
2.5 Subdivision or Combination of Shares. If at any time while this
Warrant remains outstanding and unexpired, the number of shares of Common Stock
outstanding is decreased by a combination of the outstanding shares of Common
Stock, then the Exercise Price shall be proportionately increased in the case of
a combination of such shares, or shall be proportionately decreased in the case
of a subdivision of such shares, and the number of shares of Common Stock
issuable upon exercise of the Warrant shall thereafter be adjusted to equal the
product obtained by multiplying the number of shares of Common Stock issuable
under this Warrant immediately prior to such Exercise Price adjustment by a
fraction (A) the numerator of which shall be the Exercise Price immediately
prior to such adjustment, and (B) the denominator of which shall be the Exercise
Price immediately after such adjustment.
2.6 Liquidating Dividends, Etc. If the Company at any time while the
Warrant remains outstanding and unexpired makes a distribution of its assets to
the holders of its Common Stock as a dividend in liquidation or by way of return
of capital or other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any distribution to such
holders made in respect of the sale of all or substantially all of the Company's
assets (other than under the circumstances provided for in the foregoing
Sections 2.2 through 2.6), the holder of this Warrant shall be entitled to
receive upon the exercise hereof, in addition to the shares of Common Stock
receivable upon such exercise, and without payment of any consideration other
than the Exercise Price, an amount in cash equal to the value of such
distribution per share of Common Stock multiplied by the number of shares of
Common Stock which, on the record date for such distribution, are issuable upon
exercise of this Warrant (with no further adjustment being made following any
event which causes a subsequent adjustment in the number of shares of Common
Stock issuable upon the exercise hereof), and an appropriate provision therefor
should be made a part of any such distribution. The value of a distribution
which is paid in other than cash shall be determined in good faith by the Board
of Directors.
<PAGE> 7
CONFIDENTIAL
2.7 ADJUSTMENT OF WARRANT STOCK. Upon each adjustment of the Exercise
Price as provided in Section 2, the holder hereof shall thereafter be entitled
to subscribe for and purchase, at the Exercise Price resulting from such
adjustment, the number of shares of Warrant Stock equal to the product of (i)
the number of shares of Warrant Stock existing prior to such adjustment and (ii)
the quotient obtained by dividing (A) the Exercise Price existing prior to such
adjustment by (B) the new Exercise Price resulting from such adjustment. No
fractional shares of Common Stock shall be issued as a result of any such
adjustment, and any fractional shares resulting from the computations pursuant
to this paragraph shall be eliminated without consideration.
2.8 Notice of Adjustments. Whenever any of the Exercise Price or the
number of securities purchasable under the terms of this Warrant at that
Exercise Price shall be adjusted pursuant to Section 2 hereof, the Company shall
promptly notify the Warrantholder in writing of such adjustment, setting forth
in reasonable detail the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares of Common Stock or other securities issuable at that
Exercise Price after giving effect to such adjustment. Such notice shall be
mailed (by first class and postage prepaid) to the registered Warrantholder. In
the event of:
(a) The taking by the Company of a record of the holders of
any class of securities of the Company for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares of stock
of any class or any other securities or property, or to receive any other right
for which no adjustment is required by the operation of this Section 2,
(b) Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all of the assets of the Company to any other
person or any consolidation or merger involving the Company for which no
adjustment is required by the operation of this Section 2, or
(c) Any voluntary or involuntary dissolution, liquidation, or
winding-up of the Company,
the Company will mail (by first class and postage prepaid) to the Warrantholder,
at its last address at least ten (10) days prior to the earliest date specified
therein as described below, a notice specifying:
(i) The date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right; and
(ii) The date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding-up is expected to become effective and the
record date for determining shareholders entitled to vote thereon.
Failure to give any notice required under this Section 2.8, or any
defect in such notice, shall not affect the legality or validity of the
underlying corporate action taken or transaction entered into by the Company.
<PAGE> 8
CONFIDENTIAL
3. FRACTIONAL SHARES.
No fractional shares shall be issued in connection with any exercise of
this Warrant. In lieu of the issuance of such fractional share, the Company
shall make a cash payment equal to the then fair market value of such fractional
share as determined under Section 1.3.
4. RESERVATION OF COMMON STOCK.
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the exercise of this Warrant, a sufficient number of shares of Common
Stock to effect the exercise of the entire Warrant and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of the entire Warrant, in addition to such other remedies as
shall be available to the holder of this Warrant, the Company will use its
reasonable efforts to take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
5. PRIVILEGE OF STOCK OWNERSHIP.
Other than as set forth herein, prior to the exercise of this Warrant
and the issuance to the Warrantholder of certificates representing the resulting
shares of Common Stock, and except as otherwise provided herein, the
Warrantholder shall not be entitled, by virtue of holding this Warrant, to any
rights of a Stockholder of the Company, including (without limitation) the right
to vote, receive dividends or other distributions or be notified of Stockholder
meetings, and such holder shall not be entitled to any notice or other
communication concerning the business or affairs of the Company, except as
required by law.
6. LIMITATION OF LIABILITY.
No provision hereof, in the absence of affirmative action by the holder
hereof to purchase the securities issuable under this Warrant, and no mere
enumeration herein of the rights of privileges of the holder hereof, shall give
rise to any liability of such holder for the purchase price or as a Stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. TRANSFERS AND EXCHANGES.
This Warrant may be transferred or assigned in whole or in part at any
time or from time to time, provided such transfer complies with (i) all
applicable federal and state securities laws, (ii) the requirements of any
legend on this Warrant, and (iii) any corresponding lock-up period agreed to by
AOL with underwriters to the Company with respect to an IPO, for a period not to
exceed 180 days (or such lesser period as may be requested by the underwriters
in the offering), provided that all officers and directors of the Company agree
to enter into lock-up agreements no less restrictive than the terms outlined
above.
8. PAYMENT OF TAXES.
The Company shall pay all stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of the securities issuable under
this Warrant. The Company shall not be required, however,
<PAGE> 9
CONFIDENTIAL
to pay any tax or other charge imposed in connection with any transfer involved
in the issue of any certificate for shares of the securities issuable under
this Warrant in any name other than that of the Warrantholder, and in such
case, the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the Company's satisfaction that no such tax or other charge is
due.
9. NO IMPAIRMENT OF RIGHTS.
The Company hereby agrees that it will not, through the amendment of
its Certificate of Incorporation or otherwise, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the Warrantholder against impairment.
10. SUCCESSORS AND ASSIGNS.
The terms and provisions of this Warrant shall be binding upon the
Company and the Warrantholder and their respective successors and assigns.
11. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and in case of
loss, theft or destruction, upon receipt of an indemnity or security reasonably
satisfactory to the Company, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new warrant of
like tenor and dated as of such cancellation, in lieu of this Warrant.
12. SECURITIES LAW MATTERS.
Warrantholder represents to the Company as follows:
(a) the Warrants and Common Stock to be acquired by
Warrantholder pursuant hereto will be acquired for its own account and not with
a view to, or intention of, distribution thereof in violation of the Securities
Act of 1933 (the "SECURITIES ACT") or any applicable state securities laws, and
such securities will not be disposed of in contravention of the Securities Act
or any applicable state securities laws;
(b) the Warrantholder understands that (a) the Warrants and
Common Stock issuable on exercise have not been registered under the Securities
Act, nor qualified under the securities laws of any other jurisdiction, (b) such
securities cannot be resold unless they subsequently are registered under the
Securities Act and qualified under applicable state securities laws, unless the
Company determines that exemptions from such registration and qualification
requirements are available, and (c) this Warrant does not grant the
Warrantholder any right to require such registration or qualification;
(c) Warrantholder is familiar with the term "accredited
investor" as defined in Rule 501 under the Securities Act and investor is an
"accredited investor" within the meaning of such term in Rule 501 under the
Securities Act;
<PAGE> 10
CONFIDENTIAL
(d) Warrantholder is sophisticated in financial matters and
the market for Internet companies and is able to evaluate the risks and benefits
of the investment in the Warrants and Common Stock issuable on exercise;
(e) Warrantholder is able to bear the economic risk of its
investment in the Warrants and the Common Stock issuable on exercise for an
indefinite period of time; and
(f) Warrantholder has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
securities and has had full access to such other information concerning the
Company as investor has requested.
13. SATURDAYS, SUNDAYS, HOLIDAYS.
If the last or appointed day for the taking of any action or the
expiration of any right required or granted herein shall be a Saturday or Sunday
or shall be a legal holiday, then such action may be taken or such right may be
exercised on the next succeeding day not a legal holiday.
14. GOVERNING LAW.
This Warrant shall be construed, interpreted, and the rights of the
Company and the Warrantholder determined in accordance with the internal laws of
the State of Delaware, without regard to the conflict of laws provision thereof.
15. BENEFITS OF THIS WARRANT.
Nothing in this Warrant shall be construed to give any person other
than the Company and the registered Warrantholder any legal or equitable right,
remedy or claim.
16. COUNTERPARTS.
This Warrant may be exercised in counterpart with each constitution; an
original and together constituting but one and the same Warrant.
(signature page follows)
<PAGE> 11
CONFIDENTIAL
IT WITNESS WHEREOF, The Knot, Inc. has caused this Warrant to be duly
executed and delivered to the Warrantholder identified below on the date first
set forth above.
THE KNOT, INC.
By:
Dated: July ___, 1999
Acknowledged and Accepted:
America Online, Inc.
By:____________________________
Name:
Title:
Address for Notice:
22000 AOL Way
Dulles, VA 20166
Attention: General Counsel
<PAGE> 12
CONFIDENTIAL
ELECTION TO PURCHASE
The Knot, Inc.
_____________________
_____________________
Ladies and Gentlemen:
The undersigned hereby elects to purchase, pursuant to the provisions
of the Warrant dated July ___, 1999 held by the undersigned, _________ shares of
the Common Stock of The Knot, Inc., a Delaware corporation.
Payment of the per share purchase price required under such Warrant
[accompanies this Election to Purchase.][shall be made pursuant to the net
exercise provision contained in Section 1.3 of the Warrant.]
The undersigned hereby confirms the representations made in Section 12
of the Warrant are true and correct as of the date of this Election to Purchase.
Dated: ___________________, 200_
___________________________
Print Name of Warrantholder
By_________________________
Address: ___________________________
___________________________
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT") is made between The Knot,
Inc. (the "COMPANY") and David Liu ("EXECUTIVE",), as of April 12, 1999 (the
"EFFECTIVE DATE").
The Company desires to continue to employ Executive and Executive
desires to continue in the employ of the Company in the executive capacity
described below. Therefore, the Company and Executive, intending to be legally
bound hereby, agree as follows:
1. Term of Employment. Subject to the provisions of Section 6,
Executive shall be employed by the Company for a period commencing on the
Effective Date and ending on the third anniversary thereof (the "TERM").
2. Position. (a) Executive shall serve as Chief Executive Officer of
the Company or in such similar position determined by the Board of Directors of
the Company (the "BOARD") or such other position as may be agreed by the
parties. In such position, Executive shall report to the Board and shall have
such duties and authority commensurate with such position as shall be determined
from time to time by the Board.
(b) During the period of Executive's employment hereunder, Executive
will devote substantially all of Executive's business time and skill and
knowledge to the performance of Executive's duties hereunder, and will not
engage in any other business, profession or occupation for compensation or
otherwise; provided that Executive may participate in civic, charitable and
other outside activities permitted with the consent of the Board, which consent
shall not be unreasonably withheld.
3. Base Salary. During the period of Executive's employment hereunder,
the Company shall pay Executive an annual base salary at the annual rate of
$110,000 or such greater amount as may be determined in the sole discretion of
the Board from time to time, payable in regular installments in accordance with
the Company's usual payroll practices (the "BASE SALARY").
4. Bonus. During the period of Executive's employment hereunder, the
Board, in its sole discretion may, implement one or more annual bonus
arrangements for the benefit of Executive. The terms of any such bonus
arrangement, if any, (including without limitation the target bonus amount, the
performance criteria and the payment terms) shall be determined by the Board in
its sole discretion and shall be set out in a writing signed by the Company.
4. Executive Benefits. During the period of Executive's employment
hereunder, Executive shall participate in all employee benefits plans of the
Company on the same basis as those benefits are generally made available from
time to time to senior executives of the Company.
5. Business Expenses. During the period of Executive's employment
hereunder, the Company shall reimburse Executive for all reasonable and
necessary expenses incurred by Executive in connection with business conducted
on behalf of the Company subject to such reasonable rules and procedures as may
be established from time to time by the Board.
<PAGE> 2
6. Termination.
(a) Termination Without Cause by the Company or for Good Reason by
Executive.
(i) If, prior to the last day of the Employment Term,
Executive's employment is terminated without Cause by the
Company (other than by reason of Executive's Disability or
death) or Executive terminates his employment for Good Reason,
the Company shall pay Executive accrued unpaid Base Salary
through the last day of Executive's employment. In addition,
Executive shall continue to receive as severance ("SEVERANCE")
the Base Salary, payable in regular installments in accordance
with the Company's usual payroll practices for active
executive level employees until the later of the last day of
the Employment Term or the date occurring 365 days after the
last date of Executive's employment. The Company will have no
further obligations with respect to Executive hereunder,
except as explicitly provided under the terms of any bonus
arrangement or benefit plan maintained by the Company.
(ii) Notwithstanding anything to the contrary
contained in this Section 6 or in any other provision of this
Agreement, the Company shall have no obligation to pay
Severance to Executive in respect of any period during or
after which Executive is or has engaged in a Prohibited
Solicitation, Competitive Activity or Prohibited Disclosure
(each as defined in Section 7), regardless of whether such
Prohibited Solicitation, Competitive Activity or Prohibited
Disclosure occurs during or after the applicable restricted
period set forth in Section 7, it being understood and agreed
that Executive shall be absolutely prohibited from engaging in
any Prohibited Solicitation, Competitive Activity or
Prohibited Disclosure during the applicable restricted period
set forth in Section 7 (including any extended period
prescribed under Section 7(d)) and shall thereafter be
permitted to engage in such activities subject to Executive's
forfeiture of entitlement to any additional Severance. If
Executive has received Severance payments after engaging in a
Prohibited Solicitation, Competitive Activity or a Prohibited
Disclosure, Executive shall reimburse the Company for all such
Severance payments made in respect of the period of time
following such Prohibited Solicitation, Competitive Activity
or Prohibited Disclosure, as the case may be.
(b) Termination Other Than Without Cause by the Company or for Good
Reason. If, during the Employment Term, Executive's employment is terminated by
reason of a Termination Other than Without Cause or for Good Reason, the Company
shall pay to Executive the accrued unpaid Base Salary earned by Executive
through the last date of Executive's employment, and the Company will have no
further obligations with respect to Executive hereunder, except as explicitly
provided under the terms of any bonus arrangement or benefit plan maintained by
the Company.
(c) Definitions. For purposes of this Section 6:
2
<PAGE> 3
(i) "CAUSE" means (A) Executive's willful failure
substantially to perform Executive's duties under this Agreement (other than as
a result of total or partial incapacity due to physical or mental illness), (B)
any willful act or omission by Executive constituting dishonesty, fraud or other
malfeasance against the Company, (C) Executive's conviction of a felony under
the laws of the United States or any state thereof or (D) breach by Executive of
the restrictive covenants contained in Section 7.
(ii) "DISABILITY" means Executive's inability, as a result of
physical or mental incapacity, to perform the duties of Executive's position
specified in Section 2 for a period of four (4) consecutive months or for an
aggregate of six (6) months during the Employment Term.
(iii) "GOOD REASON" means (A) any action by the Company which
results in a material diminution in Executive's title or responsibilities as set
forth in Section 2; or (B) any failure by the Company to timely pay the amounts
or provide the benefits implemented in accordance with this Agreement, provided,
however, that any isolated, insubstantial or inadvertent change, condition or
failure described under clause (A) or (B) immediately above which is not taken
in bad faith and is remedied by the Company after notice to the Company from
Executive shall not constitute Good Reason. A termination of employment by
Executive for Good Reason shall be effectuated by Executive giving the Company
notice within ninety (90) days after the initial occurrence of the event
constituting Good Reason, setting forth in reasonable detail the specific
conduct of the Company that constitutes Good Reason, and such termination shall
be effective on the fifteenth (15th) business day following such notice to the
Company by Executive, absent remediation by the Company (as described above).
Any termination of employment purported to be for Good Reason shall nonetheless
be treated as a termination by Executive without Good Reason if (x) notice has
not been provided by Executive within the applicable ninety-day time period as
described above or (y) such notice has been provided by Executive within the
applicable ninety-day time period and the Company has remedied the condition
described in such notice within fifteen (15) business days after such notice.
(iv) "TERMINATION OTHER THAN WITHOUT CAUSE OR FOR GOOD REASON"
means a termination of Executive's employment with the Company for any reason
other than a termination without Cause by the Company or for Good Reason by
Executive, including a termination by the Company for Cause, a termination by
the Company or Executive due to Disability, a voluntary termination, resignation
or retirement by Executive without Good Reason or the Executive's death.
7. Restrictions.
(a) Executive agrees that:
(i) DURING EXECUTIVE'S EMPLOYMENT WITH THE COMPANY AND FOR A
PERIOD OF ONE (1) YEAR AFTER EXECUTIVE CEASES TO BE EMPLOYED BY COMPANY FOR ANY
REASON, EXECUTIVE WILL NOT DIRECTLY OR INDIRECTLY SOLICIT OR ATTEMPT TO SOLICIT
ANY CUSTOMER, EXECUTIVE, EMPLOYEE, DIRECTOR, CONSULTANT, SUBSCRIBER, ADVERTISER,
SALESPERSON, SERVICE PROVIDER, AGENT OR VENDOR OF THE COMPANY ON BEHALF OF ANY
3
<PAGE> 4
PERSON ENGAGING IN A COMPETITIVE ACTIVITY (AS DEFINED BELOW) (ANY SUCH
SOLICITATION OR ATTEMPTED SOLICITATION, A "PROHIBITED SOLICITATION").
(ii) DURING EXECUTIVE'S EMPLOYMENT WITH THE COMPANY AND FOR A
PERIOD OF ONE (1) YEAR AFTER EXECUTIVE CEASES TO BE EMPLOYED BY THE COMPANY FOR
ANY REASON, EXECUTIVE WILL NOT ENGAGE IN ANY COMPETITIVE ACTIVITY.
(iii) The term "COMPETITIVE ACTIVITY" means, directly or
indirectly, to own any interest in, manage, operate, control, finance,
participate in the management, operation, control or financing of, or be an
employee, partner, director, officer, principal, agent, representative,
consultant, independent contractor or beneficial interest holder as to, any
Person engaged in or planning to engage in business activities involving (i) the
design, authorship, creation, organization, sale, transmission, dissemination,
distribution, supply or other provision of information, advice, services or
advertising in any form or format, whether verbal, written, illustrational or
expositional, by or through any medium whether printed, electronic, audio or
visual, relating to the planning or execution of any wedding service, ceremony,
reception or related gathering or event of any kind, or the provision or
procurement of any wedding-related services or merchandise or (ii) the design,
manufacture, offering, sale, supply, distribution or advertising of
wedding-related merchandise, where any such business activities are being
carried on by, or being planned to be carried on by, such Person in any of the
Geographic Area (as defined below), whether the location of Executive's
participation or connection shall be inside or outside the Geographic Area.
Nothing herein shall prevent Executive from owning for investment up to five
percent (5%) of any class of equity security of a Person whose securities are
traded on a national securities exchange or market.
(iv) The term "GEOGRAPHIC AREA" means the United States of
America.
(v) The term "AFFILIATE" means, with respect to any Person,
any other Person that directly or indirectly controls, is controlled by, or is
under common control with, such Person. The term "CONTROLS" (including its
correlative meanings "controlled by" and "under common control with") means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
(vi) The term "PERSON" means any individual, proprietorship,
partnership, corporation, limited liability company, trust or other entity.
(vii) DURING EXECUTIVE'S EMPLOYMENT WITH THE COMPANY AND FOR A
PERIOD OF FIVE (5) YEARS AFTER EXECUTIVE CEASES TO BE EMPLOYED BY COMPANY FOR
ANY REASON, EXECUTIVE WILL NOT USE FOR EXECUTIVE'S PERSONAL BENEFIT OR DISCLOSE
TO OR USE FOR THE BENEFIT OF ANY OTHER PERSON ANY CONFIDENTIAL INFORMATION OF
COMPANY WHICH EXECUTIVE ACQUIRED FROM ANY SOURCE DURING THE COURSE OF
4
<PAGE> 5
EXECUTIVE'S EMPLOYMENT BY THE COMPANY, INCLUDING, BUT NOT LIMITED TO, THE
IDENTITY OF OR OTHER INFORMATION CONCERNING CUSTOMERS, EXECUTIVES, CONSULTANTS,
SUBSCRIBERS, ADVERTISERS, SALESPERSONS, SERVICE PROVIDERS, AGENTS OR VENDORS OF
COMPANY (ANY SUCH DISCLOSURE OR USE OF COMPANY CONFIDENTIAL INFORMATION, A
"PROHIBITED DISCLOSURE").
(viii) DURING EXECUTIVE'S EMPLOYMENT WITH THE COMPANY AND FOR
A PERIOD OF ONE (1) YEAR AFTER EXECUTIVE CEASES TO BE EMPLOYED BY COMPANY FOR
ANY REASON, EXECUTIVE WILL PROMPTLY DISCLOSE TO THE COMPANY FULLY AND IN WRITING
ALL TRADE SECRETS, INVENTIONS, MASK WORKS, IDEAS, PROCESSES, FORMULAE, SOURCE
AND OBJECT CODES, DATA, PROGRAMS, OTHER WORKS OF AUTHORSHIP, KNOW HOW,
IMPROVEMENTS, DISCOVERIES, DEVELOPMENTS, DESIGNS AND TECHNIQUES (COLLECTIVELY,
THE "INVENTIONS") AUTHORED, CONCEIVED OR REDUCED TO PRACTICE BY EXECUTIVE,
WHETHER ALONE OR JOINTLY WITH OTHERS. IN ADDITION, EXECUTIVE WILL PROMPTLY
DISCLOSE TO THE COMPANY ALL PATENT APPLICATIONS FILED BY EXECUTIVE OR ON
EXECUTIVE'S BEHALF DURING EXECUTIVE'S EMPLOYMENT WITH COMPANY AND WITHIN SUCH
ONE (1) YEAR PERIOD. EXECUTIVE FURTHER AGREES TO KEEP AND MAINTAIN COMPLETE AND
CURRENT RECORDS (IN THE FORM OF NOTES, SKETCHES, DRAWINGS AND IN ANY OTHER FORM
THAT MAY BE REQUIRED BY THE COMPANY) OF ALL INVENTIONS DEVELOPED AND MADE BY
EXECUTIVE DURING EXECUTIVE'S EMPLOYMENT WITH THE COMPANY AND WITHIN SUCH ONE (1)
YEAR PERIOD, WHICH RECORDS SHALL BE AVAILABLE TO AND REMAIN THE SOLE PROPERTY OF
THE COMPANY AT ALL TIMES.
EXECUTIVE AGREES THAT ALL INVENTIONS CONCEIVED, CREATED, DEVELOPED,
WRITTEN, PREPARED, AUTHORED OR REVISED BY EXECUTIVE, ALONE OR WITH OTHERS,
DURING THE COURSE OF PERFORMING WORK FOR THE COMPANY OR ANY OF ITS AFFILIATES
SHALL BELONG EXCLUSIVELY TO THE COMPANY AND SHALL, TO THE EXTENT POSSIBLE, BE
CONSIDERED A WORK MADE BY EXECUTIVE FOR HIRE BY THE COMPANY. TO THE EXTENT ANY
SUCH INVENTION MAY NOT BE CONSIDERED WORK MADE FOR HIRE BY EXECUTIVE FOR THE
COMPANY, EXECUTIVE AGREES TO ASSIGN, AND HEREBY AUTOMATICALLY ASSIGNS TO THE
COMPANY AS OF THE TIME OF CREATION OF SUCH INVENTION, WITHOUT ANY REQUIREMENT OF
FURTHER CONSIDERATION, ALL RIGHT, TITLE, AND INTEREST EXECUTIVE MAY HAVE IN SUCH
INVENTION.
UPON REQUEST OF THE COMPANY, EXECUTIVE SHALL TAKE, AT THE COMPANY'S
EXPENSE, SUCH FURTHER ACTIONS AND SHALL COOPERATE IN GOOD FAITH WITH THE COMPANY
TO OBTAIN PROTECTION FOR SUCH INVENTIONS, INCLUDING EXECUTION AND DELIVERY OF
INSTRUMENTS OF CONVEYANCE, AS MAY BE APPROPRIATE TO GIVE FULL AND PROPER EFFECT
TO EXECUTIVE'S ASSIGNMENT TO THE COMPANY, AND THE EXECUTION OF SUCH DOCUMENTS AS
MAY BE NECESSARY TO OBTAIN PROTECTION FOR SUCH WORK PRODUCT, INCLUDING WITHOUT
LIMITATION, EXECUTION OF DOCUMENTS TO
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ASSIST THE COMPANY IN OBTAINING COPYRIGHT REGISTRATION ON ALL SUCH INVENTIONS
THAT ARE COPYRIGHTABLE.
(ix) UPON EXECUTIVE'S CEASING TO BE EMPLOYED BY THE COMPANY
FOR ANY REASON, EXECUTIVE WILL DELIVER TO THE COMPANY ANY AND ALL DRAWINGS,
NOTES, MEMORANDA, SPECIFICATIONS, DEVICES, FORMULAS, PROGRAMS, FILES, AND
DOCUMENTS TOGETHER WITH ALL COPIES THEREOF, AND ANY OTHER MATERIAL ON ANY FORM
OF MEDIA CONTAINING OR DISCLOSING ANY INVENTIONS OR PROPRIETARY INFORMATION OF
COMPANY. EXECUTIVE FURTHER AGREES THAT ANY PROPERTY SITUATED ON COMPANY'S
PREMISES AND OWNED BY THE COMPANY, INCLUDING DISKS AND OTHER STORAGE MEDIA,
FILING CABINETS OR OTHER WORK AREAS, IS SUBJECT TO INSPECTION BY THE COMPANY
PERSONNEL AT ANY TIME WITH OR WITHOUT NOTICE.
(b) Executive represents that Executive has sufficient skills and
experience to earn a living following termination of Executive's employment with
the Company without violating any of the restrictions contained in this
Agreement.
(c) Executive acknowledges that these restrictions, in view of the
nature of the businesses in which the Company is engaged and Executive's
position with the Company, are reasonable and necessary to protect the
legitimate interests of the Company, and that any violation of these
restrictions will result in irreparable injury to the Company. Executive
therefore agrees that, in the event of Executive's violation of any of these
restrictions, the Company shall be entitled to obtain from any court of
competent jurisdiction preliminary and permanent injunctive relief against
Executive, in addition to damages from Executive and an equitable accounting of
all commissions, earnings, profits and other benefits arising from such
violation.
(d) Executive agrees that if any of these restrictions are construed to
be invalid or unenforceable, the remainder of the restrictions shall not be
affected. If any restriction is held to be unenforceable because of the area
covered, the duration or the scope, Executive agrees that the court making such
determination shall have the power to reduce the area and/or the duration,
and/or limit the scope, and the restriction shall then be enforceable in its
reduced form. If Executive violates any of the restrictions, the period of such
violation (from the commencement of any violation until the time the violation
shall be cured by Executive to the satisfaction of the Company) shall not count
toward or be included in the restrictive period and the applicable restricted
period shall be extended accordingly.
(e) Executive acknowledges and accepts that the restrictions and
remedies in this Agreement will apply without regard to the reason for
termination of Executive's employment with the Company, or to whether
Executive's employment is terminated by Executive or by the Company.
8. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if delivered by hand or sent by
overnight courier service or by registered or certified mail, if to Executive,
to Executive's last known address listed in the
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<PAGE> 7
records of the Company, and if to the Company, to the Board, with a copy to each
member of the Board and a copy to the General Counsel of QVC, Inc., at the last
known address of each. Notices shall be effective upon receipt.
9. Assignment. The rights and obligations of the Company shall inure to
the benefit of and be binding upon its successors and assigns. Neither this
Agreement nor any rights or interests in this Agreement or created by this
Agreement may be assigned or otherwise transferred voluntarily or involuntarily
by Executive.
10. Other Agreements and Amendment. This Agreement is in addition to
any other agreements between Executive and the Company except to the extent such
agreements directly relate to the subject matter of this Agreement, in which
case this Agreement shall govern. This Agreement shall not be changed or
altered, except by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought.
11. Continuation of Employment. Unless the parties otherwise agree in
writing, continuation of Executive's employment with the Company after the end
of the Term shall be deemed an employment at will and shall not be deemed to
extend any of the provisions of this Agreement.
12. Governing Law. This Agreement shall be deemed to be made in, and
all respects shall be interpreted, construed and governed by and in accordance
with, the laws of the State of New York, without regard to conflicts of law
principles thereof.
13. Withholding Taxes. The Company may withhold from any amounts
payable under this Agreement such federal, state and local taxes as may be
required to be withheld pursuant to any applicable law or regulation.
14. Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
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<PAGE> 8
IN WITNESS WHEREOF, Executive and the Company have executed and
delivered this Agreement as of the Effective Date.
THE KNOT, INC.
By: /s/ Sandra Stiles
Name: Sandra Stiles
Title: COO-CFO
EXECUTIVE:
By: /s/ David Liu
Name: David Liu
Date: 4-12-99
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<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT") is made between The Knot,
Inc. (the "COMPANY") and Carly Roney ("EXECUTIVE"), as of April 12, 1999 (the
"EFFECTIVE DATE").
The Company desires to continue to employ Executive and Executive
desires to continue in the employ of the Company in the executive capacity
described below. Therefore, the Company and Executive, intending to be legally
bound hereby, agree as follows:
1. Term of Employment. Subject to the provisions of Section 6,
Executive shall be employed by the Company for a period commencing on the
Effective Date and ending on the third anniversary thereof (the "TERM").
2. Position. (a) Executive shall serve as Vice President and
Editor-in-Chief of the Company or in such similar position determined by the
Board of Directors of the Company (the "BOARD") or such other position as may be
agreed by the parties. In such position, Executive shall report to the Board and
shall have such duties and authority commensurate with such position as shall be
determined from time to time by the Board.
(b) During the period of Executive's employment hereunder, Executive
will devote substantially all of Executive's business time and skill and
knowledge to the performance of Executive's duties hereunder, and will not
engage in any other business, profession or occupation for compensation or
otherwise; provided that Executive may participate in civic, charitable and
other outside activities permitted with the consent of the Board, which consent
shall not be unreasonably withheld.
3. Base Salary. During the period of Executive's employment hereunder,
the Company shall pay Executive an annual base salary at the annual rate of
$90,000 or such greater amount as may be determined in the sole discretion of
the Board from time to time, payable in regular installments in accordance with
the Company's usual payroll practices (the "BASE SALARY").
4. Bonus. During the period of Executive's employment hereunder, the
Board, in its sole discretion may, implement one or more annual bonus
arrangements for the benefit of Executive. The terms of any such bonus
arrangement, if any, (including without limitation the target bonus amount, the
performance criteria and the payment terms) shall be determined by the Board in
its sole discretion and shall be set out in a writing signed by the Company.
4. Executive Benefits. During the period of Executive's employment
hereunder, Executive shall participate in all employee benefits plans of the
Company on the same basis as those benefits are generally made available from
time to time to senior executives of the Company.
5. Business Expenses. During the period of Executive's employment
hereunder, the Company shall reimburse Executive for all reasonable and
necessary expenses incurred by Executive in connection with business conducted
on behalf of the Company subject to such reasonable rules and procedures as may
be established from time to time by the Board.
<PAGE> 2
6. Termination.
(a) Termination Without Cause by the Company or for Good Reason by
Executive.
(i) If, prior to the last day of the Employment Term,
Executive's employment is terminated without Cause by the
Company (other than by reason of Executive's Disability or
death) or Executive terminates her employment for Good Reason,
the Company shall pay Executive accrued unpaid Base Salary
through the last day of Executive's employment. In addition,
Executive shall continue to receive as severance ("SEVERANCE")
the Base Salary, payable in regular installments in accordance
with the Company's usual payroll practices for active
executive level employees until the later of the last day of
the Employment Term or the date occurring 365 days after the
last date of Executive's employment. The Company will have no
further obligations with respect to Executive hereunder,
except as explicitly provided under the terms of any bonus
arrangement or benefit plan maintained by the Company.
(ii) Notwithstanding anything to the contrary
contained in this Section 6 or in any other provision of this
Agreement, the Company shall have no obligation to pay
Severance to Executive in respect of any period during or
after which Executive is or has engaged in a Prohibited
Solicitation, Competitive Activity or Prohibited Disclosure
(each as defined in Section 7), regardless of whether such
Prohibited Solicitation, Competitive Activity or Prohibited
Disclosure occurs during or after the applicable restricted
period set forth in Section 7, it being understood and agreed
that Executive shall be absolutely prohibited from engaging in
any Prohibited Solicitation, Competitive Activity or
Prohibited Disclosure during the applicable restricted period
set forth in Section 7 (including any extended period
prescribed under Section 7(d)) and shall thereafter be
permitted to engage in such activities subject to Executive's
forfeiture of entitlement to any additional Severance. If
Executive has received Severance payments after engaging in a
Prohibited Solicitation, Competitive Activity or a Prohibited
Disclosure, Executive shall reimburse the Company for all such
Severance payments made in respect of the period of time
following such Prohibited Solicitation, Competitive Activity
or Prohibited Disclosure, as the case may be.
(b) Termination Other Than Without Cause by the Company or for Good
Reason. If, during the Employment Term, Executive's employment is terminated by
reason of a Termination Other than Without Cause or for Good Reason, the Company
shall pay to Executive the accrued unpaid Base Salary earned by Executive
through the last date of Executive's employment, and the Company will have no
further obligations with respect to Executive hereunder, except as explicitly
provided under the terms of any bonus arrangement or benefit plan maintained by
the Company.
(c) Definitions. For purposes of this Section 6:
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<PAGE> 3
(i) "CAUSE" means (A) Executive's willful failure
substantially to perform Executive's duties under this Agreement (other than as
a result of total or partial incapacity due to physical or mental illness), (B)
any willful act or omission by Executive constituting dishonesty, fraud or other
malfeasance against the Company, (C) Executive's conviction of a felony under
the laws of the United States or any state thereof or (D) breach by Executive of
the restrictive covenants contained in Section 7.
(ii) "DISABILITY" means Executive's inability, as a result of
physical or mental incapacity, to perform the duties of Executive's position
specified in Section 2 for a period of four (4) consecutive months or for an
aggregate of six (6) months during the Employment Term.
(iii) "GOOD REASON" means (A) any action by the Company which
results in a material diminution in Executive's title or responsibilities as set
forth in Section 2; or (B) any failure by the Company to timely pay the amounts
or provide the benefits implemented in accordance with this Agreement, provided,
however, that any isolated, insubstantial or inadvertent change, condition or
failure described under clause (A) or (B) immediately above which is not taken
in bad faith and is remedied by the Company after notice to the Company from
Executive shall not constitute Good Reason. A termination of employment by
Executive for Good Reason shall be effectuated by Executive giving the Company
notice within ninety (90) days after the initial occurrence of the event
constituting Good Reason, setting forth in reasonable detail the specific
conduct of the Company that constitutes Good Reason, and such termination shall
be effective on the fifteenth (15th) business day following such notice to the
Company by Executive, absent remediation by the Company (as described above).
Any termination of employment purported to be for Good Reason shall nonetheless
be treated as a termination by Executive without Good Reason if (x) notice has
not been provided by Executive within the applicable ninety-day time period as
described above or (y) such notice has been provided by Executive within the
applicable ninety-day time period and the Company has remedied the condition
described in such notice within fifteen (15) business days after such notice.
(iv) "TERMINATION OTHER THAN WITHOUT CAUSE OR FOR GOOD REASON"
means a termination of Executive's employment with the Company for any reason
other than a termination without Cause by the Company or for Good Reason by
Executive, including a termination by the Company for Cause, a termination by
the Company or Executive due to Disability, a voluntary termination, resignation
or retirement by Executive without Good Reason or the Executive's death.
7. Restrictions.
(a) Executive agrees that:
(i) DURING EXECUTIVE'S EMPLOYMENT WITH THE COMPANY AND FOR A
PERIOD OF ONE (1) YEAR AFTER EXECUTIVE CEASES TO BE EMPLOYED BY COMPANY FOR ANY
REASON, EXECUTIVE WILL NOT DIRECTLY OR INDIRECTLY SOLICIT OR ATTEMPT TO SOLICIT
ANY CUSTOMER, EXECUTIVE, EMPLOYEE, DIRECTOR, CONSULTANT, SUBSCRIBER, ADVERTISER,
SALESPERSON, SERVICE PROVIDER, AGENT OR VENDOR OF THE COMPANY ON BEHALF OF ANY
3
<PAGE> 4
PERSON ENGAGING IN A COMPETITIVE ACTIVITY (AS DEFINED BELOW) (ANY SUCH
SOLICITATION OR ATTEMPTED SOLICITATION, A "PROHIBITED SOLICITATION").
(ii) DURING EXECUTIVE'S EMPLOYMENT WITH THE COMPANY AND FOR A
PERIOD OF ONE (1) YEAR AFTER EXECUTIVE CEASES TO BE EMPLOYED BY THE COMPANY FOR
ANY REASON, EXECUTIVE WILL NOT ENGAGE IN ANY COMPETITIVE ACTIVITY.
(iii) The term "COMPETITIVE ACTIVITY" means, directly or
indirectly, to own any interest in, manage, operate, control, finance,
participate in the management, operation, control or financing of, or be an
employee, partner, director, officer, agent, representative, consultant,
independent contractor or beneficial interest holder as to, any Person engaged
in or planning to engage in business activities involving (i) the design,
authorship, creation, organization, sale, transmission, dissemination,
distribution, supply or other provision of information, advice, services or
advertising in any form or format, whether verbal, written, illustrational or
expositional, by or through any medium whether printed, electronic, audio or
visual, relating to the planning or execution of any wedding service, ceremony,
reception or related gathering or event of any kind, or the provision or
procurement of any wedding-related services or merchandise or (ii) the design,
manufacture, offering, sale, supply, distribution or advertising of
weddingrelated merchandise, where any such business activities are being carried
on by, or being planned to be carried on by, such Person in any of the
Geographic Area (as defined below), whether the location of Executive's
participation or connection shall be inside or outside the Geographic Area.
Nothing herein shall prevent Executive from owning for investment up to five
percent (5%) of any class of equity security of a Person whose securities are
traded on a national securities exchange or market.
(iv) The term "GEOGRAPHIC AREA" means the United States of
America.
(v) The term "AFFILIATE" means, with respect to any Person,
any other Person that directly or indirectly controls, is controlled by, or is
under common control with, such Person. The term "CONTROLS" (including its
correlative meanings "controlled by" and "under common control with") means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
(vi) The term "PERSON" means any individual, proprietorship,
partnership, corporation, limited liability company, trust or other entity.
(vii) DURING EXECUTIVE'S EMPLOYMENT WITH THE COMPANY AND FOR A
PERIOD OF FIVE (5) YEARS AFTER EXECUTIVE CEASES TO BE EMPLOYED BY COMPANY FOR
ANY REASON, EXECUTIVE WILL NOT USE FOR EXECUTIVE'S PERSONAL BENEFIT OR DISCLOSE
TO OR USE FOR THE BENEFIT OF ANY OTHER PERSON ANY CONFIDENTIAL INFORMATION OF
COMPANY WHICH EXECUTIVE ACQUIRED FROM ANY SOURCE DURING THE COURSE OF
EXECUTIVE'S EMPLOYMENT BY THE COMPANY, INCLUDING, BUT NOT LIMITED TO, THE
IDENTITY OF OR OTHER INFORMATION CONCERNING CUSTOMERS,
4
<PAGE> 5
EXECUTIVES, CONSULTANTS, SUBSCRIBERS, ADVERTISERS, SALESPERSONS, SERVICE
PROVIDERS, AGENTS OR VENDORS OF COMPANY (ANY SUCH DISCLOSURE OR USE OF COMPANY
CONFIDENTIAL INFORMATION, A "PROHIBITED DISCLOSURE").
(viii) DURING EXECUTIVE'S EMPLOYMENT WITH THE COMPANY AND FOR
A PERIOD OF ONE (1) YEAR AFTER EXECUTIVE CEASES TO BE EMPLOYED BY COMPANY FOR
ANY REASON, EXECUTIVE WILL PROMPTLY DISCLOSE TO THE COMPANY FULLY AND IN WRITING
ALL TRADE SECRETS, INVENTIONS, MASK WORKS, IDEAS, PROCESSES, FORMULAE, SOURCE
AND OBJECT CODES, DATA, PROGRAMS, OTHER WORKS OF AUTHORSHIP, KNOW HOW,
IMPROVEMENTS, DISCOVERIES, DEVELOPMENTS, DESIGNS AND TECHNIQUES (COLLECTIVELY,
THE "INVENTIONS") AUTHORED, CONCEIVED OR REDUCED TO PRACTICE BY EXECUTIVE,
WHETHER ALONE OR JOINTLY WITH OTHERS. IN ADDITION, EXECUTIVE WILL PROMPTLY
DISCLOSE TO THE COMPANY ALL PATENT APPLICATIONS FILED BY EXECUTIVE OR ON
EXECUTIVE'S BEHALF DURING EXECUTIVE'S EMPLOYMENT WITH COMPANY AND WITHIN SUCH
ONE (1) YEAR PERIOD. EXECUTIVE FURTHER AGREES TO KEEP AND MAINTAIN COMPLETE AND
CURRENT RECORDS (IN THE FORM OF NOTES, SKETCHES, DRAWINGS AND IN ANY OTHER FORM
THAT MAY BE REQUIRED BY THE COMPANY) OF ALL INVENTIONS DEVELOPED AND MADE BY
EXECUTIVE DURING EXECUTIVE'S EMPLOYMENT WITH THE COMPANY AND WITHIN SUCH ONE (1)
YEAR PERIOD, WHICH RECORDS SHALL BE AVAILABLE TO AND REMAIN THE SOLE PROPERTY OF
THE COMPANY AT ALL TIMES.
EXECUTIVE AGREES THAT ALL INVENTIONS CONCEIVED, CREATED, DEVELOPED,
WRITTEN, PREPARED, AUTHORED OR REVISED BY EXECUTIVE, ALONE OR WITH OTHERS,
DURING THE COURSE OF PERFORMING WORK FOR THE COMPANY OR ANY OF ITS AFFILIATES
SHALL BELONG EXCLUSIVELY TO THE COMPANY AND SHALL, TO THE EXTENT POSSIBLE, BE
CONSIDERED A WORK MADE BY EXECUTIVE FOR HIRE BY THE COMPANY. TO THE EXTENT ANY
SUCH INVENTION MAY NOT BE CONSIDERED WORK MADE FOR HIRE BY EXECUTIVE FOR THE
COMPANY, EXECUTIVE AGREES TO ASSIGN, AND HEREBY AUTOMATICALLY ASSIGNS TO THE
COMPANY AS OF THE TIME OF CREATION OF SUCH INVENTION, WITHOUT ANY REQUIREMENT OF
FURTHER CONSIDERATION, ALL RIGHT, TITLE, AND INTEREST EXECUTIVE MAY HAVE IN SUCH
INVENTION.
UPON REQUEST OF THE COMPANY, EXECUTIVE SHALL TAKE, AT THE COMPANY'S
EXPENSE, SUCH FURTHER ACTIONS AND SHALL COOPERATE IN GOOD FAITH WITH THE COMPANY
TO OBTAIN PROTECTION FOR SUCH INVENTIONS, INCLUDING EXECUTION AND DELIVERY OF
INSTRUMENTS OF CONVEYANCE, AS MAY BE APPROPRIATE TO GIVE FULL AND PROPER EFFECT
TO EXECUTIVE'S ASSIGNMENT TO THE COMPANY, AND THE EXECUTION OF SUCH DOCUMENTS AS
MAY BE NECESSARY TO OBTAIN PROTECTION FOR SUCH WORK PRODUCT, INCLUDING WITHOUT
LIMITATION, EXECUTION OF DOCUMENTS TO ASSIST THE COMPANY IN OBTAINING COPYRIGHT
REGISTRATION ON ALL SUCH INVENTIONS THAT ARE COPYRIGHTABLE.
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<PAGE> 6
(ix) UPON EXECUTIVE'S CEASING TO BE EMPLOYED BY THE COMPANY
FOR ANY REASON, EXECUTIVE WILL DELIVER TO THE COMPANY ANY AND ALL DRAWINGS,
NOTES, MEMORANDA, SPECIFICATIONS, DEVICES, FORMULAS, PROGRAMS, FILES, AND
DOCUMENTS TOGETHER WITH ALL COPIES THEREOF, AND ANY OTHER MATERIAL ON ANY FORM
OF MEDIA CONTAINING OR DISCLOSING ANY INVENTIONS OR PROPRIETARY INFORMATION OF
COMPANY. EXECUTIVE FURTHER AGREES THAT ANY PROPERTY SITUATED ON COMPANY'S
PREMISES AND OWNED BY THE COMPANY, INCLUDING DISKS AND OTHER STORAGE MEDIA,
FILING CABINETS OR OTHER WORK AREAS, IS SUBJECT TO INSPECTION BY THE COMPANY
PERSONNEL AT ANY TIME WITH OR WITHOUT NOTICE.
(b) Executive represents that Executive has sufficient skills
and experience to earn a living following termination of Executive's employment
with the Company without violating any of the restrictions contained in this
Agreement.
(c) Executive acknowledges that these restrictions, in view of
the nature of the businesses in which the Company is engaged and Executive's
position with the Company, are reasonable and necessary to protect the
legitimate interests of the Company, and that any violation of these
restrictions will result in irreparable injury to the Company. Executive
therefore agrees that, in the event of Executive's violation of any of these
restrictions, the Company shall be entitled to obtain from any court of
competent jurisdiction preliminary and permanent injunctive relief against
Executive, in addition to damages from Executive and an equitable accounting of
all commissions, earnings, profits and other benefits arising from such
violation.
(d) Executive agrees that if any of these restrictions are
construed to be invalid or unenforceable, the remainder of the restrictions
shall not be affected. If any restriction is held to be unenforceable because of
the area covered, the duration or the scope, Executive agrees that the court
making such determination shall have the power to reduce the area and/or the
duration, and/or limit the scope, and the restriction shall then be enforceable
in its reduced form. If Executive violates any of the restrictions, the period
of such violation (from the commencement of any violation until the time the
violation shall be cured by Executive to the satisfaction of the Company) shall
not count toward or be included in the restrictive period and the applicable
restricted period shall be extended accordingly.
(e) Executive acknowledges and accepts that the restrictions
and remedies in this Agreement will apply without regard to the reason for
termination of Executive's employment with the Company, or to whether
Executive's employment is terminated by Executive or by the Company.
8. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if delivered by hand or sent by
overnight courier service or by registered or certified mail, if to Executive,
to Executive's last known address listed in the records of the Company, and if
to the Company, to the Board, with a copy to each member of the Board and a copy
to the General Counsel of QVC, Inc., at the last known address of each. Notices
shall be effective upon receipt.
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<PAGE> 7
9. Assignment. The rights and obligations of the Company shall inure to
the benefit of and be binding upon its successors and assigns. Neither this
Agreement nor any rights or interests in this Agreement or created by this
Agreement may be assigned or otherwise transferred voluntarily or involuntarily
by Executive.
10. Other Agreements and Amendment. This Agreement is in addition to
any other agreements between Executive and the Company except to the extent such
agreements directly relate to the subject matter of this Agreement, in which
case this Agreement shall govern. This Agreement shall not be changed or
altered, except by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought.
11. Continuation of Employment. Unless the parties otherwise agree in
writing, continuation of Executive's employment with the Company after the end
of the Term shall be deemed an employment at will and shall not be deemed to
extend any of the provisions of this Agreement.
12. Governing Law. This Agreement shall be deemed to be made in, and
all respects shall be interpreted, construed and governed by and in accordance
with, the laws of the State of New York, without regard to conflicts of law
principles thereof.
13. Withholding Taxes. The Company may withhold from any amounts
payable under this Agreement such federal, state and local taxes as may be
required to be withheld pursuant to any applicable law or regulation.
14. Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
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IN WITNESS WHEREOF, Executive and the Company have executed and delivered this
Agreement as of the Effective Date.
THE KNOT, INC.
By: /s/ Sandra Stiles
Name: Sandra Stiles
Title: COO-CFO
EXECUTIVE:
By: /s/ Carly Roney
Name: Carly Roney
Vice President, Editor-in-Chief
Date: 4-12-99
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<PAGE> 1
Exhibit 10.3
[THE KNOT LETTERHEAD]
May 31, 1999
Mr. Richard E. Szefc
12 Cardinal Lane
Westport, CT 06880
Dear Richard:
On behalf of The Knot, Inc., I am pleased to offer you an agreement of
employment for your services on the following terms:
1. Knot agrees to employ you as Chief Financial Officer commencing on May
31, 1999. During your employment, you shall report to the Chief
Executive Officer of The Knot and perform the duties described, and any
additional duties as the Chief Executive Officer shall from time to
time assign to you. Your direct responsibilities will encompass all
areas of acquisitions, general accounting, treasury, cash management,
corporate budgeting, office management, publishing, and retail sales.
You agree to perform the duties of any position you hold in an
efficient and competent manner and to devote your skills and efforts to
the business and affairs of The Knot.
2. Your salary during The period of your employment under this agreement
shall be at a rate of $135,000 per annum, or such other amount, nor
less than that figure, as the Chief Executive Officer shall from time
to time determine. Your salary shall be reviewed not less frequently
than every twelve (12) months. You will be eligible to participate in
any officer or employee bonus plan created.
3. If during the period of your employment hereunder you shall become
temporarily disabled, through illness or otherwise, from performing
your duties hereunder, you shall be entitled to a leave of absence from
The Knot for the duration of any such disability, up to, but not
exceeding an aggregate of six months. Your employment hereunder shall
continue during any such leave of absence. If any disability shall at
any time appear to the Chief Executive Officer of The Knot to be
permanent or your leave for disability shall continue for more than six
months in the aggregate, The Knot will thereupon have the right to
terminate you employment, hereunder, subject to your rights under The
Knot's Long Term Disability Plan.
4. You are eligible for participation in The Knot's employee benefit
plans. Your eligibility for The Knot's health plan will be determined
by the terms of that plan, which may be changed at any time. Your
eligibility for participation in The Knot's Stock Option Plan --1997
Long Term Incentive Plan will begin upon employment. Under such plan
the company will grant you 250,000 options at a strike price of $1.50,
these options will vest over a 4 year period, with 25% vesting after
one year of employment and the remaining on a monthly basis over the
remaining period. If at any time 50% of the voting stocking of the
Company is sold or obtained by one or a related group of persons, your
vesting will accelerate so that not less than 50% of your options are
vested upon the transaction. You
<PAGE> 2
will be eligible to participate in any other plans which The Knot may
from time to time make available to it's officers and employees.
5. The Knot reserves the right to terminate Your employment at any time.
However if your employment hereunder is terminated for other than
cause, you shall be entitled to continue on the Knot's payroll for
twelve months, at the rate of pay then in effect, and receive all
benefits associated with your employment.
6. During your employment by The Knot, you will not serve any interests or
do any act or thing that might conflict with the interests of The Knot,
the determination by The Knot of its interests are final and
conclusive. You will regard as confidential all information developed
by you or communicated to you concerning the business of The Knot in
the course of or in connection with your employment, and you will not,
without The Knot's written approval, make any oral or written
disclosure thereof during the term of your employment.
7. This letter sets forth the entire agreement between us. The terms of
this letter may not be changed except in writing signed by both
parties.
If the foregoing is acceptable, please sign the extra copy of this
letter and return it to me.
Sincerely yours,
/s/ David Liu
David Liu
Chief Executive Officer
Agreed: /s/ Richard E. Szefc
By: Richard E. Szefc
Dated: 5/31/99
<PAGE> 1
Exhibit 10.4
[THE KNOT LETTERHEAD]
Ms. Sandra Stiles
450 North End Avenue
New York, Now York 10282
Dear Sandy:
On behalf of The Knot, Inc., I am pleased to offer you an agreement of
employment for your services on the following terms:
1. Knot agrees to employ you as Chief Operating Officer and Chief
Financial Officer commencing on November 2, 1998. During you
employment, you shall report to the Chief Executive Officer of The Knot
and perform the duties described, and any additional duties as the
Chief Executive Officer shall from time to time assign to you. Your
direct responsibilities will encompass all areas of operations,
registry, sales, distribution, acquisitions, general accounting,
treasury, cash management and corporate budgeting. You agree to perform
the duties of any position you hold in an efficient and competent
manner and to devote your skills and efforts to the business and
affairs of The Knot.
2. Your salary during the period of your employment under this agreement
shall be at a rate of $110,000 Per annum, or such other amount, not
less than that figure, as the Chief Executive Officer shall from time
to time determine. Your salary shall be reviewed not less frequently
than every twelve (12) months. You will be eligible to participate in
any officer or employee bonus plan created.
3. If during the period of your employment hereunder you shall become
temporarily disabled, through illness or otherwise, from performing
your duties hereunder, you shall be entitled to a leave of absence from
The Knot for the duration of any such disability, up to, but not
exceeding an aggregate of six months. Your employment hereunder shall
continue during any such leave of absence. If any disability shall at
any time appear to the Chief Executive Officer of The Knot to be
permanent or your leave for disability shall continue for more than six
months in the aggregate, The Knot will thereupon have the right to
terminate you employment, hereunder, subject to your rights under The
Knot's Long Term Disability Plan.
4. You are eligible for participation in The Knot's employee benefit
plans. Your eligibility for The Knot's health plan will be determined
by the terms of that plan, which may be changed at any time. Your
eligibility for participation in The Knot's Stock Option Plan will
begin on May 1, 1998. Your will be eligible to participate in any other
plans which The Knot may from time to time make available to it's
officers and employees.
5. The Knot reserves the right to terminate your employment at any time.
However if your employment Hereunder is terminated for other than
cause, you shall be entitled to
<PAGE> 2
continue on the Knot's payroll for six months, at the rate of pay then
in effect. and receive all benefits associated with your employment.
6. During your employment by The Knot, you will not serve any interests or
do any act or thing that might conflict with the interests of The Knot,
the determination by the Knot of its interests are final and
conclusive. You will regard as confidential all information developed
by you or communicated to you concerning the business of The Knot in
the course of or in connection with your employment, and you will not,
without The Knot's written approval, make any oral or written
disclosure thereof during the term of your employment.
7. This letter sets forth the entire agreement between us. The terms of
this letter may not be changed. Except in writing signed by both
parties.
If the foregoing is acceptable, please sign the extra copy of this
letter and return it to me.
Sincerely yours,
/s/ David Liu
David Liu
Chief Executive Officer
Agreed: /s/ Sandra Stiles
By:
Dated:
<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
[****] and aggregate proceeds in excess of [****]. 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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PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<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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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> 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 [****] 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
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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 [****] 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 [****] 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 [****] 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 [****]
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.
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<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
5
<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 [****] 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
[****] 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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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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PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
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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.
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<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
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<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
[****] warehouse fee associated with respect to the Goods subject to the Order
affected by such breach.
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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.
[THIS SPACE IS LEFT BLANK INTENIONALLY
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<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
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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
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 [****] ICP shall pay AOL
[****]. Thereafter, ICP shall pay AOL [****] [****] on or
before each of [****] 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.
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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
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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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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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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[****] 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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(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 [****] 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
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
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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.
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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.
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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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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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- --------------------------------------------------------------------------------
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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<PAGE> 28
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").
32
CONFIDENTIAL
<PAGE> 33
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
CONFIDENTIAL
<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
CONFIDENTIAL
<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
[****]
- ---------------
[****] 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.
36
CONFIDENTIAL
<PAGE> 37
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.
37
CONFIDENTIAL
<PAGE> 38
- ---------------
[****] 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.
38
CONFIDENTIAL
<PAGE> 39
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> 40
EXHIBIT K
CONFIDENTIAL
WARRANT AGREEMENT
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY
OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT.
THIS WARRANT MAY NOT BE EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE
FEDERAL AND STATE SECURITIES LAWS TO THE REASONABLE SATISFACTION OF THE COMPANY
AND LEGAL COUNSEL FOR THE COMPANY.
WARRANT TO PURCHASE
366,667 SHARES OF COMMON STOCK
OF
THE KNOT, INC.
A DELAWARE CORPORATION
ISSUED
JULY 23, 1999
THIS CERTIFIES THAT, for value received, America Online, Inc. (as the
context requires, "AOL" or the "WARRANTHOLDER") is entitled to purchase, on the
terms hereof, 366,667 shares (subject to adjustment as set forth herein,
"WARRANT STOCK"), of common stock, par value $.01 per share ("COMMON STOCK"), of
The Knot, Inc., a Delaware corporation (the "COMPANY"), at a purchase price and
upon the terms and conditions as set forth herein. The Company hereby represents
and warrants to Warrantholder that as of the date hereof, (i) the capitalization
of the Company is as set forth in the capitalization table attached hereto as
Schedule A, and (ii) the Warrant Stock constitutes two and one-half percent
(2.5%) of the number of shares of voting capital stock of the Company
outstanding as of the date hereof, after giving effect to the exercise, exchange
or conversion of all outstanding securities, rights, options, warrants
(including this Warrant), calls, commitments or agreements of any nature or
character (whether debt or equity) that are, directly or indirectly, exercisable
or exchangeable for, or convertible into or otherwise represent the right to
purchase or otherwise receive, directly or indirectly, any such capital stock or
other arrangement to acquire at any time or under any circumstance, voting
capital stock of the Company or any such other securities and assuming that all
stock options and/or shares of capital stock reserved for grant or issuance to
officers, directors, employees and consultants under all agreements, plans or
arrangements theretofore approved by the Board of Directors of the Company have
been so granted or issued (as the case may be).
1. EXERCISE OF WARRANT.
The terms and conditions upon which this Warrant may be exercised and
the shares of Common Stock covered hereby that may be purchased, are as follows:
<PAGE> 41
CONFIDENTIAL
1.1. Exercise.
(a) This Warrant is being issued pursuant to an Amended and
Restated Anchor Tenant Agreement, dated as of the date hereof (as same
may be amended, the "Agreement"), between the Company and AOL. All
terms used but not defined herein shall have the meanings set forth in
the Agreement. This Warrant may be exercised, in whole or in part, from
and after the date of issuance hereof until the Termination Date (the
"Exercise Period").
(b) Notwithstanding the foregoing, this Warrant may not be
exercised under any circumstances after 5:00 p.m., Dulles, Virginia
time on the eighth (8th) anniversary hereof (the "TERMINATION DATE"),
after which time this Warrant shall terminate and shall be void and of
no further force of effect.
1.2. Exercise Price. The purchase price for the shares of Common Stock
to be issued upon exercise of this Warrant shall be Seven and 20/100 Dollars
($7.20) per share (subject to adjustment as set forth herein, the "EXERCISE
PRICE").
1.3. Method of Exercise. The exercise of the purchase rights evidenced
by this Warrant shall be effected by (a) the surrender of this Warrant, together
with a duly executed copy of the form of Election to Purchase attached hereto,
to the Company at its principal office and (b) the delivery of the Exercise
Price multiplied by the number of shares for which the purchase rights hereunder
are being exercised, payable (x) by certified check, corporate check of America
Online, Inc., or wire transfer of immediately available funds payable to the
Company's order or (y) on a net basis, such that, without the exchange of any
funds, the Warrantholder receives that number of shares otherwise issuable (or
other consideration payable) upon exercise of this Warrant less that number of
shares of Warrant Stock having an aggregate fair market value (as defined below)
at the time of exercise (i.e., the date a duly executed Election to Purchase is
delivered to the Company) equal to the aggregate Exercise Price that would
otherwise have been paid by the Warrantholder for the shares of the Warrant
Stock issuable. In connection with such exercise the holder shall, if requested
by the Company, include confirmation of the accuracy of the representations set
forth in Section 12 and otherwise as reasonably requested by the Company to
evidence compliance with any applicable securities laws as of the date of
exercise. For purposes of the foregoing, "FAIR MARKET VALUE" of the Warrant
Stock on any date shall be the average of the Quoted Prices of the Common Stock
of the Company for 20 consecutive trading days ending the trading day prior to
such date (if, during such 20-day period, there is a day in which no trades are
reported, such date shall be discarded and the 20-day period extended). The
"QUOTED PRICE" of the Common Stock as reported by Nasdaq or, if the principal
trading market for the Common Stock is then a securities exchange, the last
reported sales price of the Common Stock on such exchange which shall be
consolidated trading if applicable to such exchange, or if neither so reported
or listed, the last reported bid price of the Common Stock. In the absence of
such quotation or listing, such determination as to the "Quoted Price" shall be
made in good faith by the Board of Directors of the Company after taking into
consideration all factors it deems appropriate, including, without limitation,
recent sale and offer prices of the capital stock of the Company in private
transactions negotiated at arm's length.
1.4. Issuance of Shares. In the event that the purchase rights
evidenced by this Warrant are exercised in whole or in part in accordance with
the terms of this Warrant, a certificate or certificates for the purchased
shares shall be issued to the Warrantholder as soon as practicable. The Warrant
Stock shall be stamped or imprinted with a legend in substantially the following
form:
<PAGE> 42
CONFIDENTIAL
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. NO SALE OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMPANY AND WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE ACT."
In the event the purchase rights evidenced by this Warrant are
exercised in part, the Company will also issue to the Warrantholder a new
warrant within a reasonable time representing the unexercised purchase rights.
1.5 Exercise of Warrants on Termination Date. If as of the Termination
Date the Warrants are in the money based on the cash or other property to be
received, such exercise shall take place automatically with respect to all then
outstanding and exercisable (but not exercised) Warrants (the "TERMINATION DATE
EXERCISE"), on a net exercise basis, immediately prior to the Termination Date;
provided, however, that the Company may condition such exercise on the delivery
by the Warrantholder of a duly completed Election to Purchase and the reasonable
satisfaction of the Company that all applicable securities laws have been
complied with, which the Company shall give notice to the Warrantholder of
within ten (10) days prior to the Termination Date. No such Termination Date
Exercise shall take place if such issuance would not comply with applicable
securities laws, whereupon the Termination Date shall occur as scheduled.
2. CERTAIN ADJUSTMENTS.
2.1 Weighted Average Anti-Dilution. The Exercise Price shall be subject
to adjustment from time to time as follows:
(a) If the Company shall at any time or from time to time
during the Exercise Period, issue any shares of Common Stock (or be
deemed to have issued any shares of Common Stock as provided herein),
other than Excluded Securities (as defined in Section 2.1(c)) without
consideration or for a consideration per share less than the Exercise
Price in effect immediately prior to the issuance of Common Stock, the
Exercise Price in effect immediately prior to such issuance shall
forthwith be lowered to a price equal to the quotient obtained by
dividing: (x) an amount equal to the sum of (1) the total number of
shares of Common Stock outstanding (including any shares of Common
Stock deemed to have been issued pursuant to Section 2.1(b)(iv))
immediately prior to such issuance multiplied by the Exercise Price in
effect immediately prior to such issuance, plus (2) the consideration
received by the Company upon such issuance, by (y) the total number of
shares of Common Stock outstanding (including any shares of Common
Stock deemed to have been issued pursuant to Section 2.1(b)(iv))
immediately after the issuance of such Common Stock. All calculations
under this Section 2 shall be made to the nearest one tenth (1/10) of a
cent or to the nearest one tenth (1/10) of a share, as the case may be.
(b) For the purposes of any adjustment of the Exercise Price
pursuant to Section 2.1(a), the following provisions shall be
applicable:
(i) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting therefrom any
<PAGE> 43
CONFIDENTIAL
discounts, commissions or other expenses allowed, paid or incurred by
the Company for any underwriting or otherwise in connection with the
issuance and sale thereof.
(ii) In the case of the issuance of Common Stock for
a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board
of Directors of the Company, irrespective of any accounting
treatment.
(iii) In the case of the issuance of Common Stock
without consideration, the consideration shall be deemed to be
$0.01 per share.
(iv) In the case of the issuance of (x) options to
purchase or rights to subscribe for Common Stock, (y) securities by
their terms convertible into or exchangeable for Common Stock or (z)
options to purchase rights to subscribe for such convertible or
exchangeable securities:
(A) the aggregate maximum number of shares
of Common Stock deliverable upon exercise of such
options to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued at the time
such options or rights were issued and for a
consideration equal to the consideration (determined
in the manner provided in subdivisions (i), (ii) and
(iii) above), if any, received by the Company upon
the issuance of such options or rights plus the
minimum purchase price provided in such options or
rights for the Common Stock covered thereby;
(B) the aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable
securities or upon the exercise of options to
purchase or rights to subscribe for such convertible
or exchangeable securities and subsequent conversion
or exchange thereof shall be deemed to have been
issued at the time such securities were issued or
such options or rights were issued and for a
consideration equal to the consideration received by
the Company for any such securities and related
options or rights (excluding any cash received on
account of accrued interest or accrued dividends),
plus the additional consideration, if any, to be
received by the Company upon the conversion or
exchange of such securities or the exercise of any
related options or rights (the consideration in each
case to be determined in the manner provided in
subdivisions (i), (ii) and (iii) above);
(C) on any change in the number of shares or
exercise price of Common Stock deliverable upon
exercise of any such options or rights or conversions
of or exchanges for such securities, other than a
change resulting from the antidilution provisions
thereof, the applicable Exercise Price shall
forthwith be readjusted to such Exercise Price as
would have resulted had the adjustment made upon the
issuance of such options, rights or securities not
converted prior to such change (or options or rights
related to such securities not converted prior to
such change) been made upon the basis of such change;
provided, however, that such readjustment shall not
result in a Exercise Price that is greater than the
original Exercise Price; and
<PAGE> 44
CONFIDENTIAL
(D) on the expiration of all such options or
rights, the termination of all such rights to convert
or exchange or the expiration of all options or
rights related to such convertible or exchangeable
securities in each case having been issued by the
Company for the same consideration (as determined
pursuant to subdivision (i), (ii) and (iii) above),
the applicable Exercise Price shall forthwith be
readjusted to such Exercise Price as would have
resulted had the adjustment made upon the issuance of
such options, rights, securities or options or rights
related to such securities not been made; provided,
however, that such readjustment shall not result in a
Exercise Price that is greater that the original
Exercise Price.
(c) For purposes of Section 2(a), the term "Excluded
Securities" shall mean (i) up to 2,000,000 shares of Common Stock
(subject to equitable adjustment for stock splits, dividends,
combinations and like occurrences) issued to officers, employees,
directors or consultants of Company, pursuant to any agreement, plan or
arrangement approved by the Board of Directors of the Company, or
options to purchase or rights to subscribe for such Common Stock, or
securities by their terms convertible into or exchangeable for such
Common Stock, or options to purchase or rights to subscribe for such
convertible or exchangeable securities pursuant to such agreement, plan
or arrangement; (ii) shares of Common Stock issued as a stock dividend
or upon any stock split or other subdivision or combination of shares
of Common Stock; (iii) shares of Common Stock (subject to equitable
adjustment for stock splits, dividends, combinations and like
occurrences) reserved for issuance upon the conversion of presently
issued and outstanding securities which by their terms are convertible
into or exchangeable for such Common Stock; or (iv) securities issued
pursuant to the acquisition of another corporation or other entity by
the Company by merger or purchase of stock or purchase of all or
substantially all of such other corporation's or other entity's assets
whereby the Company owns not less than a majority of the voting power
of such other corporation or other entity following such acquisition or
purchase.
2.2 Stock Dividends. If at any time while this Warrant remains
outstanding and unexpired, the Company pays a dividend or makes a distribution
with respect to the Common Stock payable in shares of Common Stock, then the
Exercise Price shall be adjusted, as of the record date of stockholders
established for such purpose (or if no such record is taken, as at the date of
such payment or distribution), to that price determined by multiplying the
Exercise Price in effect immediately prior to such payment or distribution by a
fraction (A) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution, and
(B) the denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution. The Warrantholder
shall thereafter be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of shares of Common Stock (calculated to the nearest
whole share) obtained by multiplying the Exercise Price in effect immediately
prior to such adjustment by the number of shares of Common Stock issuable upon
the exercise hereof immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment. The
provisions of this Section 2.1 shall not apply under any of the circumstances
for which an adjustment is provided under Sections 2.3, 2.4 or 2.5.
2.3 Mergers, Consolidations or Sale of Assets. If at any time while
this Warrant remains outstanding and unexpired, there shall be a capital
reorganization of the shares of the Company's capital stock (other than a
combination, reclassification, exchange or subdivision otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation in which the Company is not the surviving corporation (collectively,
a "CORPORATE TRANSACTION"), then lawful provision shall be
<PAGE> 45
CONFIDENTIAL
made so that such successor corporation or entity shall assume this Warrant such
that the Warrantholder shall thereafter be entitled to receive, upon
exercise of this Warrant, during the period specified in this Warrant and
upon payment of the Exercise Price then in effect, the number of shares of
stock or other securities or property of the successor corporation
resulting from such Corporate Transaction to which a holder of the
securities deliverable upon exercise of this Warrant would have been entitled
under the provisions of the agreement in such Corporate Transaction if this
Warrant had been exercised immediately prior to such Corporate Transaction.
Appropriate adjustment (as determined in good faith by the Company's Board of
Directors after taking into consideration all factors it deems appropriate,
including, without limitation, recent sale and offer prices of the capital
stock of the Company in private transactions negotiated at arm's length) shall
be made in the application of the provisions of this Warrant with respect to
the rights and interests of the Warrantholder after the Corporate Transaction
to the end that the provisions of this Warrant (including adjustment of the
Exercise Price then in effect and the number of shares of Common Stock issuable
under this Warrant) shall be applicable after the Corporate Transaction, as
near as reasonably may be, in relation to any shares or other property
deliverable after the Corporate Transaction upon exercise of this Warrant. The
provisions of this Section 2.3 shall similarly apply to successive
reorganizations, consolidations or mergers.
2.4 Reclassification. If the Company at any time shall, by subdivision,
combination or reclassification or securities or otherwise, change any of the
securities issuable under this Warrant into the same or a different number of
securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as a result of such change with respect to the securities issuable
under this Warrant immediately prior to such subdivision, combination,
reclassification or other change.
2.5 Subdivision or Combination of Shares. If at any time while this
Warrant remains outstanding and unexpired, the number of shares of Common Stock
outstanding is decreased by a combination of the outstanding shares of Common
Stock, then the Exercise Price shall be proportionately increased in the case of
a combination of such shares, or shall be proportionately decreased in the case
of a subdivision of such shares, and the number of shares of Common Stock
issuable upon exercise of the Warrant shall thereafter be adjusted to equal the
product obtained by multiplying the number of shares of Common Stock issuable
under this Warrant immediately prior to such Exercise Price adjustment by a
fraction (A) the numerator of which shall be the Exercise Price immediately
prior to such adjustment, and (B) the denominator of which shall be the Exercise
Price immediately after such adjustment.
2.6 Liquidating Dividends, Etc. If the Company at any time while the
Warrant remains outstanding and unexpired makes a distribution of its assets to
the holders of its Common Stock as a dividend in liquidation or by way of return
of capital or other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any distribution to such
holders made in respect of the sale of all or substantially all of the Company's
assets (other than under the circumstances provided for in the foregoing
Sections 2.2 through 2.6), the holder of this Warrant shall be entitled to
receive upon the exercise hereof, in addition to the shares of Common Stock
receivable upon such exercise, and without payment of any consideration other
than the Exercise Price, an amount in cash equal to the value of such
distribution per share of Common Stock multiplied by the number of shares of
Common Stock which, on the record date for such distribution, are issuable upon
exercise of this Warrant (with no further adjustment being made following any
event which causes a subsequent adjustment in the number of shares of Common
Stock issuable upon the exercise hereof), and an appropriate provision therefor
should be made a part of any such distribution. The value of a distribution
which is paid in other than cash shall be determined in good faith by the Board
of Directors.
<PAGE> 46
CONFIDENTIAL
2.7 ADJUSTMENT OF WARRANT STOCK. Upon each adjustment of the Exercise
Price as provided in Section 2, the holder hereof shall thereafter be entitled
to subscribe for and purchase, at the Exercise Price resulting from such
adjustment, the number of shares of Warrant Stock equal to the product of (i)
the number of shares of Warrant Stock existing prior to such adjustment and (ii)
the quotient obtained by dividing (A) the Exercise Price existing prior to such
adjustment by (B) the new Exercise Price resulting from such adjustment. No
fractional shares of Common Stock shall be issued as a result of any such
adjustment, and any fractional shares resulting from the computations pursuant
to this paragraph shall be eliminated without consideration.
2.8 Notice of Adjustments. Whenever any of the Exercise Price or the
number of securities purchasable under the terms of this Warrant at that
Exercise Price shall be adjusted pursuant to Section 2 hereof, the Company shall
promptly notify the Warrantholder in writing of such adjustment, setting forth
in reasonable detail the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares of Common Stock or other securities issuable at that
Exercise Price after giving effect to such adjustment. Such notice shall be
mailed (by first class and postage prepaid) to the registered Warrantholder. In
the event of:
(a) The taking by the Company of a record of the holders of
any class of securities of the Company for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares of stock
of any class or any other securities or property, or to receive any other right
for which no adjustment is required by the operation of this Section 2,
(b) Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all of the assets of the Company to any other
person or any consolidation or merger involving the Company for which no
adjustment is required by the operation of this Section 2, or
(c) Any voluntary or involuntary dissolution, liquidation, or
winding-up of the Company,
the Company will mail (by first class and postage prepaid) to the Warrantholder,
at its last address at least ten (10) days prior to the earliest date specified
therein as described below, a notice specifying:
(i) The date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right; and
(ii) The date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding-up is expected to become effective and the
record date for determining shareholders entitled to vote thereon.
Failure to give any notice required under this Section 2.8, or any
defect in such notice, shall not affect the legality or validity of the
underlying corporate action taken or transaction entered into by the Company.
<PAGE> 47
CONFIDENTIAL
3. FRACTIONAL SHARES.
No fractional shares shall be issued in connection with any exercise of
this Warrant. In lieu of the issuance of such fractional share, the Company
shall make a cash payment equal to the then fair market value of such fractional
share as determined under Section 1.3.
4. RESERVATION OF COMMON STOCK.
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the exercise of this Warrant, a sufficient number of shares of Common
Stock to effect the exercise of the entire Warrant and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of the entire Warrant, in addition to such other remedies as
shall be available to the holder of this Warrant, the Company will use its
reasonable efforts to take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
5. PRIVILEGE OF STOCK OWNERSHIP.
Other than as set forth herein, prior to the exercise of this Warrant
and the issuance to the Warrantholder of certificates representing the resulting
shares of Common Stock, and except as otherwise provided herein, the
Warrantholder shall not be entitled, by virtue of holding this Warrant, to any
rights of a Stockholder of the Company, including (without limitation) the right
to vote, receive dividends or other distributions or be notified of Stockholder
meetings, and such holder shall not be entitled to any notice or other
communication concerning the business or affairs of the Company, except as
required by law.
6. LIMITATION OF LIABILITY.
No provision hereof, in the absence of affirmative action by the holder
hereof to purchase the securities issuable under this Warrant, and no mere
enumeration herein of the rights of privileges of the holder hereof, shall give
rise to any liability of such holder for the purchase price or as a Stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. TRANSFERS AND EXCHANGES.
This Warrant may be transferred or assigned in whole or in part at any
time or from time to time, provided such transfer complies with (i) all
applicable federal and state securities laws, (ii) the requirements of any
legend on this Warrant, and (iii) any corresponding lock-up period agreed to by
AOL with underwriters to the Company with respect to an IPO, for a period not to
exceed 180 days (or such lesser period as may be requested by the underwriters
in the offering), provided that all officers and directors of the Company agree
to enter into lock-up agreements no less restrictive than the terms outlined
above.
8. PAYMENT OF TAXES.
The Company shall pay all stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of the securities issuable under
this Warrant. The Company shall not be required, however,
<PAGE> 48
CONFIDENTIAL
to pay any tax or other charge imposed in connection with any transfer involved
in the issue of any certificate for shares of the securities issuable under
this Warrant in any name other than that of the Warrantholder, and in such
case, the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the Company's satisfaction that no such tax or other charge is
due.
9. NO IMPAIRMENT OF RIGHTS.
The Company hereby agrees that it will not, through the amendment of
its Certificate of Incorporation or otherwise, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the Warrantholder against impairment.
10. SUCCESSORS AND ASSIGNS.
The terms and provisions of this Warrant shall be binding upon the
Company and the Warrantholder and their respective successors and assigns.
11. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and in case of
loss, theft or destruction, upon receipt of an indemnity or security reasonably
satisfactory to the Company, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new warrant of
like tenor and dated as of such cancellation, in lieu of this Warrant.
12. SECURITIES LAW MATTERS.
Warrantholder represents to the Company as follows:
(a) the Warrants and Common Stock to be acquired by
Warrantholder pursuant hereto will be acquired for its own account and not with
a view to, or intention of, distribution thereof in violation of the Securities
Act of 1933 (the "SECURITIES ACT") or any applicable state securities laws, and
such securities will not be disposed of in contravention of the Securities Act
or any applicable state securities laws;
(b) the Warrantholder understands that (a) the Warrants and
Common Stock issuable on exercise have not been registered under the Securities
Act, nor qualified under the securities laws of any other jurisdiction, (b) such
securities cannot be resold unless they subsequently are registered under the
Securities Act and qualified under applicable state securities laws, unless the
Company determines that exemptions from such registration and qualification
requirements are available, and (c) this Warrant does not grant the
Warrantholder any right to require such registration or qualification;
(c) Warrantholder is familiar with the term "accredited
investor" as defined in Rule 501 under the Securities Act and investor is an
"accredited investor" within the meaning of such term in Rule 501 under the
Securities Act;
<PAGE> 49
CONFIDENTIAL
(d) Warrantholder is sophisticated in financial matters and
the market for Internet companies and is able to evaluate the risks and benefits
of the investment in the Warrants and Common Stock issuable on exercise;
(e) Warrantholder is able to bear the economic risk of its
investment in the Warrants and the Common Stock issuable on exercise for an
indefinite period of time; and
(f) Warrantholder has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
securities and has had full access to such other information concerning the
Company as investor has requested.
13. SATURDAYS, SUNDAYS, HOLIDAYS.
If the last or appointed day for the taking of any action or the
expiration of any right required or granted herein shall be a Saturday or Sunday
or shall be a legal holiday, then such action may be taken or such right may be
exercised on the next succeeding day not a legal holiday.
14. GOVERNING LAW.
This Warrant shall be construed, interpreted, and the rights of the
Company and the Warrantholder determined in accordance with the internal laws of
the State of Delaware, without regard to the conflict of laws provision thereof.
15. BENEFITS OF THIS WARRANT.
Nothing in this Warrant shall be construed to give any person other
than the Company and the registered Warrantholder any legal or equitable right,
remedy or claim.
16. COUNTERPARTS.
This Warrant may be exercised in counterpart with each constitution; an
original and together constituting but one and the same Warrant.
(signature page follows)
<PAGE> 50
CONFIDENTIAL
IT WITNESS WHEREOF, The Knot, Inc. has caused this Warrant to be duly
executed and delivered to the Warrantholder identified below on the date first
set forth above.
THE KNOT, INC.
By:
Dated: July ___, 1999
Acknowledged and Accepted:
America Online, Inc.
By:____________________________
Name:
Title:
Address for Notice:
22000 AOL Way
Dulles, VA 20166
Attention: General Counsel
<PAGE> 51
CONFIDENTIAL
ELECTION TO PURCHASE
The Knot, Inc.
_____________________
_____________________
Ladies and Gentlemen:
The undersigned hereby elects to purchase, pursuant to the provisions
of the Warrant dated July ___, 1999 held by the undersigned, _________ shares of
the Common Stock of The Knot, Inc., a Delaware corporation.
Payment of the per share purchase price required under such Warrant
[accompanies this Election to Purchase.][shall be made pursuant to the net
exercise provision contained in Section 1.3 of the Warrant.]
The undersigned hereby confirms the representations made in Section 12
of the Warrant are true and correct as of the date of this Election to Purchase.
Dated: ___________________, 200_
___________________________
Print Name of Warrantholder
By_________________________
Address: ___________________________
___________________________
<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 July 30, 1999 (except for paragraphs 4 through 10 of
Note 11, as to which the date is August 18, 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
the Registration Statement (Form S-1) and related Prospectus of The Knot, Inc.
dated September 17, 1999.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
New York, New York
September 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from audited
financial statements as of and for the year ended 12/31/98 and as of and for the
six month ended June 30, 1999 and is qualified in its entirety by reference to
such S-1.
</LEGEND>
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 1,037,589 12,667,522
<SECURITIES> 0 0
<RECEIVABLES> 189,545 398,430
<ALLOWANCES> 0 100,000
<INVENTORY> 28,741 602,054
<CURRENT-ASSETS> 1,287,893 13,691,397
<PP&E> 341,827 1,307,801
<DEPRECIATION> 98,783 192,470
<TOTAL-ASSETS> 1,949,907 15,250,790
<CURRENT-LIABILITIES> 285,205 1,786,916
<BONDS> 0 0
0 0
3,937,920 17,900,920
<COMMON> 30,341 30,786
<OTHER-SE> (2,322,359) (4,486,632)
<TOTAL-LIABILITY-AND-EQUITY> 1,949,907 15,250,790
<SALES> 0 0
<TOTAL-REVENUES> 1,039,584 737,975
<CGS> 131,214 241,445
<TOTAL-COSTS> 2,822,722 4,030,777
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 152,500
<INTEREST-EXPENSE> 14,968 4,669
<INCOME-PRETAX> (1,899,384) (3,529,578)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,899,384) (3,529,578)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 390,111 0
<CHANGES> 0 0
<NET-INCOME> (1,509,273) (3,529,578)
<EPS-BASIC> (.60) (1.15)
<EPS-DILUTED> (.60) (1.15)
</TABLE>
