<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ___________
Commission File No. 000-25469
iVILLAGE INC.
(Exact name of Registrant as Specified in its Charter)
Delaware 13-3845162
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
170 Fifth Avenue, New York, NY 10010
(Address of Principal Executive Offices) (Zip Code)
(212) 604-0963
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No ____
---------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
24,368,582 shares of common stock as of August 10, 1999.
<PAGE>
iVillage Inc.
Form 10-Q
For the Quarter ended June 30, 1999
Index
Part I.
Financial Information
Page(s)
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1998
and June 30, 1999 (Unaudited)..................................................3
Condensed Consolidated Statements of Operations for the three
months and six months ended June 30, 1998 and 1999 (Unaudited).................4
Condensed Consolidated Statements of Cash Flows for the three
months and six months ended June 30, 1998 and 1999 (Unaudited).................5
Notes to Condensed Consolidated Financial Statements...........................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................................13
Part II.
Other Information
Item 6. Exhibits and Reports on Form 8-K ....................................31
Signatures ...................................................................33
Exhibit Index ................................................................34
<PAGE>
PART I
FINANCIAL INFORMATION
iVillage Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
Unaudited
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
--------- ---------
ASSETS:
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................................... $ 30,825 $ 85,279
Accounts receivable, net ...................................................... 2,078 2,843
Other current assets .......................................................... 715 1,162
--------- ---------
Total current assets ........................................................ 33,618 89,284
Fixed assets, net ............................................................... 7,380 6,968
Goodwill and intangible assets, net ............................................. 4,535 61,631
Other assets .................................................................... 188 189
--------- ---------
Total assets ................................................................ $ 45,721 $ 158,072
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses ......................................... $ 11,561 $ 10,398
Capital leases payable ........................................................ 137 73
Deferred revenue .............................................................. 1,838 2,117
Other current liabilities ..................................................... 163 192
--------- ---------
Total liabilities ........................................................... 13,699 12,780
Commitments and contingencies
Stockholders' equity:
Series A, convertible preferred stock - par value $.0005, 1,000,000 and 0
shares authorized, issued and outstanding as of December 31, 1998 and June
30, 1999, respectively ...................................................... 1 --
Series B and B-1, convertible preferred stock - par value $.0005, 5,929,846
and 0 shares authorized, 4,777,746 and 0 issued and outstanding as of
December 31, 1998 and June 30, 1999, respectively ........................... 2 --
Series C, convertible preferred stock - par value $.0005, 13,528,765 and 0
shares authorized, 13,193,445 and 0 issued and outstanding as of December
31, 1998 and June 30, 1999, respectively .................................... 7 --
Series D, convertible preferred stock - par value $.0005, 13,000,000 and 0
shares authorized, issued and outstanding as of December 31, 1998 and June
30, 1999, respectively ...................................................... 6 --
Series E, convertible preferred stock - par value $.0005, 12,280,702 and 0
shares authorized, 11,730,948 and 0 issued and outstanding as of December
31, 1998 and June 30, 1999, respectively .................................... 6 --
Common stock, par value $.01, 35,000,000 and 65,000,000 shares authorized,
2,113,385 and 24,324,218 issued and outstanding at December 31, 1998 and
June 30, 1999, respectively ................................................. 21 243
Additional paid-in capital ...................................................... 112,849 302,430
Accumulated deficit ............................................................. (76,275) (134,549)
Stockholders' notes receivable .................................................. (565) (14,681)
Unearned compensation ........................................................... (4,030) (8,151)
--------- ---------
Total stockholders' equity .................................................. 32,022 145,292
--------- ---------
Total liabilities and stockholders' equity .................................. $ 45,721 $ 158,072
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
iVillage Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Sponsorship, advertising and other ............................... $ 2,118 $ 5,994 $ 4,318 $ 10,684
Commerce ......................................................... 520 2,114 520 3,888
-------- -------- -------- --------
Total revenues ................................................. 2,638 8,108 4,838 14,572
Cost of revenues ................................................... 3,262 4,210 5,437 9,112
Operating margin ............................................... (624) 3,898 (599) 5,460
-------- -------- -------- --------
Operating expenses:
Product development and technology ............................... 504 1,353 986 3,038
Sales and marketing .............................................. 7,184 7,852 12,054 15,634
Sales and marketing - NBC expenses ............................... -- 4,466 -- 7,572
General and administrative ....................................... 2,202 3,847 4,206 7,872
Depreciation and amortization .................................... 1,397 4,665 2,658 7,519
-------- -------- -------- --------
Total operating expenses ....................................... 11,287 22,183 19,904 41,635
-------- -------- -------- --------
Loss from operations ........................................... (11,911) (18,285) (20,503) (36,175)
Interest income, net ............................................... 188 1,182 264 1,513
-------- -------- -------- --------
Other income (expense) ............................................. (27) -- (27) --
-------- -------- -------- --------
Net loss ....................................................... (11,750) (17,103) (20,266) (34,662)
-------- -------- -------- --------
Preferred stock deemed dividend .................................... -- -- (23,612)
Net loss attributable to common stockholders ....................... $(11,750) $(17,103) $(20,266) $(58,274)
======== ======== ======== ========
Basic and diluted net loss per share attributable to common
shareholders ..................................................... $ (1.85) $ (0.72) $ (3.28) $ (3.98)
======== ======== ======== ========
Weighted average shares of common stock outstanding used in
computing basic and diluted net loss per share ................... 6,337 23,728 6,179 14,656
======== ======== ======== ========
Pro forma basic and diluted net loss per share ..................... $ (2.77)
========
Shares of common stock used in computing pro forma
basic and diluted net loss per share ............................. 21,027
========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
iVillage Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
Unaudited
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ........................................ $ (11,750) $ (17,103) $ (20,266) $ (34,662)
Adjustments to reconcile net loss to net
cash used in operating activities:
Expense recognized in connection with issuance
of warrants and stock options ........... 186 1,102 186 2,979
Depreciation and amortization ............. 1,397 4,665 2,658 7,519
Bad debt expense .......................... 255 -- 255 500
Loss on sale .............................. 165 -- 165 --
Minority interest ......................... (138) -- (138) --
Changes in assets and liabilities:
Accounts receivable ................... (1,559) (1,136) (1,175) (1,265)
Prepaid expenses and other assets ..... 253 678 (339) (455)
Accounts payable and accrued expenses . 1,735 (1,760) 146 (1,168)
Deferred revenue ...................... 416 (521) 1,583 278
Other liabilities ..................... (77) -- (77) 36
--------- --------- --------- ---------
Net cash used in operating activities ..... (9,117) (14,075) (17,002) (26,238)
--------- --------- --------- ---------
Cash flows from investing activities:
Purchase of fixed assets ........................ (2,119) (958) (2,828) (1,693)
Acquisitions of Web sites ....................... -- (1,609) (520) (10,831)
Sale of Web sites ............................... 600 -- 600 --
--------- --------- --------- ---------
Net cash used in investing activities ..... (1,519) (2,567) (2,748) (12,524)
--------- --------- --------- ---------
Cash flows from financing activities:
Exercise of stock options ....................... -- 241 -- 505
Stockholder note receivable ..................... (250) 1,382 (250) 1,382
Issuance of common stock, net of fees ........... 1,667 (226) 1,667 91,392
Issuance of preferred stock, net of fees paid ... (630) -- 31,488 --
Principal payments on capitalized leases ........ (86) -- (124) (63)
--------- --------- --------- ---------
Net cash provided by financing
activities............................... 701 1,397 32,781 93,216
--------- --------- --------- ---------
Net increase (decrease) in cash for the period .... (9,935) (15,245) 13,031 54,454
Cash and cash equivalents, beginning of period .. 27,301 100,524 4,335 30,825
--------- --------- --------- ---------
Cash and cash equivalents, end of period .......... $ 17,366 $ 85,279 $ 17,366 $ 85,279
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1 - The Company
Basis of Presentation
iVillage Inc. was incorporated in the State of Delaware on June 8, 1995
and commenced operations on July 1, 1995. iVillage Inc. and its subsidiaries
("iVillage" or the "Company") are engaged in the development of programming
material for distribution through online service providers and the Internet and
are involved in the sale of products through the Company's Web sites.
In March 1999, the Company completed its initial public offering ("IPO")
of 4,197,500 shares of the Company's common stock resulting in net proceeds of
approximately $91.4 million. Upon the closing of the IPO, all classes of
outstanding convertible preferred stock converted into common stock on a three
for one ratio.
These financial statements should be read in conjunction with the
consolidated financial statements and related footnotes included in the
Company's Form S-1 registration statement, as amended, filed with the Securities
and Exchange Commission ("SEC") in connection with the Company's IPO.
The Company has a limited operating history and its prospects are
subject to the risks, expenses and uncertainties frequently encountered by
companies in the new and rapidly evolving markets for Internet products and
services. These risks include the failure to develop and extend the Company's
online service brands, the rejection of the Company's services by Web consumers,
vendors and/or advertisers, the inability of the Company to maintain and
increase the levels of traffic on its online services, as well as other risks
and uncertainties. In the event the Company does not successfully implement its
business plan, certain assets may not be recoverable.
Unaudited Interim Financial Information
The unaudited interim consolidated financial statements of the Company
for the three and six months ended June 30, 1998 and June 30, 1999 included
herein have been prepared in accordance with the instructions for Form 10-Q
under the Securities Exchange Act of 1934, as amended, and Article 10 of
Regulation S-X under the Securities Act of 1933, as amended. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations relating to interim financial
statements.
In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
of the Company at June 30, 1999, and the results of its operations and its cash
flows for the three and six months ended June 30, 1998 and June 30, 1999. The
results for the three and six months ended June 30, 1999 are not necessarily
indicative of the expected results for the full fiscal year or any future
period. Certain prior period balances have been reclassified to conform to the
current period presentation.
6
<PAGE>
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (cont.)
Net Loss Per Share
Basic earnings per share is computed using the weighted-average number
of common shares outstanding during the period. Diluted earnings per share is
computed using the weighted-average number of common and common stock
equivalents outstanding during the period. Common stock equivalent shares have
been excluded from the computation as their effect is anti-dilutive.
The pro forma net loss per share is computed by dividing the net loss by
the sum of the weighted average number of shares of common stock outstanding and
the shares resulting from the assumed conversion, as of January 1, 1999, of all
outstanding shares of convertible preferred stock and the issuance of shares to
holders of Series B Convertible Preferred Stock resulting from anti-dilution
protection.
Note 2 - Related-Party Transactions
NBC
On March 9, 1999, iVillage and NBC amended the November 11, 1998
advertising and promotional agreement and entered into a stock purchase
agreement whereby iVillage issued 4,889,030 shares of Series E Convertible
Preferred Stock ("Series E") and warrants to purchase 970,874 shares of Series E
at $5.15 per share and 813,003 shares of Series E at $6.15 per share during 2000
and 2001, respectively, in exchange for a promissory note of approximately $15.5
million. The note, which bears interest at the rate of 5% per annum, is payable
quarterly in twelve equal installments of approximately $1.4 million beginning
April 1, 1999. In connection with the IPO and the reverse stock split, the
shares of Series E were converted into 1,629,676 shares of common stock and the
Series E warrants were converted into warrants to purchase 323,625 shares of
common stock at $15.45 per share and 271,003 shares of common stock at $18.45
per share. In addition, iVillage has agreed to purchase from NBC, for cash,
$13.5 million, $8.5 million and $8.5 million of advertising and promotional
spots during 1999, 2000 and 2001, respectively. iVillage has also agreed to pay
NBC $1.1 million during 1999 for prominent placement on the NBC.com Web site.
Under the revised NBC advertising and promotional agreement and in
accordance with EITF D-60, "Accounting for the Issuance of Convertible Preferred
Stock and Debt Securities with a Non-detachable Conversion Feature," the $23.6
million difference between the purchase price of the Series E and the fair
market value on the date of issuance was accounted for as a deemed dividend and
amortized using the effective interest method from the date of issuance through
the date the Company completed its IPO (the date of conversion into common
stock). In addition, the fair value of the warrants of approximately $8.4
million was recorded in stockholders' equity as deferred advertising costs and
is being amortized over the three-year advertising agreement. The fair value of
the warrants was determined using the Black-Scholes option pricing model in
accordance with SFAS No. 123.
7
<PAGE>
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (cont.)
Note 3 - Acquisitions
iBaby
As a result of the IPO, the Company purchased all of the outstanding
shares of iBaby held by the minority stockholders pursuant to the Rights
Agreement dated as of April 8, 1998 among the Company, OurBaby LLC, JBM
Ventures, Inc. and iBaby, Inc., as subsequently amended on February 10, 1999.
The aggregate purchase price of $10.8 million consisted of (i) $8.0 million in
cash, of which $1.5 million was paid on February 12, 1999 and $6.5 million was
paid on March 25, 1999 and (ii) 125,448 shares of the Company's common stock.
The difference between the purchase price and the fair value of the acquired
minority interest in iBaby was recorded as goodwill and will be amortized over
the period of expected benefit, which is estimated at three years.
The cost of acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows:
Working Capital $ (452,752)
Fixed assets 399,181
Goodwill 11,064,324
-----------
$11,010,753
===========
Astrology.Net
On February 18, 1999, iVillage acquired all of the outstanding stock of
KnowledgeWeb, Inc. d/b/a Astrology.Net, an Internet content provider, in
exchange for 802,125 shares of iVillage common stock and approximately $1.2
million in cash. The acquisition was accounted for as a purchase with a purchase
price of approximately $21 million based on the $24.00 initial public offering
price of iVillage's common stock and an estimate for the value of Astrology.Net
options assumed by iVillage. The difference between the purchase price and the
fair value of the acquired net assets of Astrology.Net was recorded as goodwill
and is being amortized over the period of expected benefit, which is estimated
at three years.
Of the 802,125 shares of common stock, (i) 326,331 shares were issued at
the closing, (ii) 75,000 shares were issued into escrow for 18 months to cover
possible indemnification claims and (iii) the remaining 400,794 shares were
issued subject to earnout restrictions over five years.
The first 75,000 shares to be released under the earnout will be placed
into the indemnification escrow. The earnout shares will be released as
Astrology.Net meets certain revenue targets during the three years following
closing. Any earnout shares not released during the first three years will be
released five years from closing. In addition, all outstanding options to
purchase Astrology.Net common stock were converted into options to purchase
31,208 shares of iVillage common stock. The Agreement provides for employment,
non-compete and stock option agreements for the founding stockholders of
Astrology.Net.
8
<PAGE>
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (cont.)
Astrology.Net (cont.)
iVillage also issued to the founding stockholders of Astrology.Net
options to purchase 150,000 shares of iVillage common stock at an exercise price
equal to $24.00 per share. These options are contingent on continued employment
with Astrology.Net and vest over a period of seven years, with accelerated
vesting dependent on Astrology.Net meeting certain revenue targets.
The following unaudited pro forma summary presents consolidated results
of operations for the Company as if the acquisition of Astrology.Net had been
consummated on January 1, 1998. The pro forma information does not necessarily
reflect the actual results that would have been achieved, nor is it necessarily
indicative of future consolidated results of the Company.
1998 1999
---- ----
(in thousands, except per share data)
Revenues $ 2,345 $ 6,660
Net loss $(8,607) $(17,543)
Net loss per share, excluding
deemed dividend $ (3.15) $ (2.96)
OnLine Psych and Code Stone
On June 30, 1999, iVillage acquired OnLine Psychological Services, Inc.
("OnLine Psych") and Code Stone Technologies, Inc. ("Code Stone"). As a result
of the acquisition, OnLine Psych and Code Stone became wholly-owned subsidiaries
of iVillage. OnLine Psych operates a Web site focusing on mental health issues
while Code Stone provides much of the interactive technology used on Online
Psych's Web site.
The aggregate purchase price paid to acquire OnLine Psych and Code Stone
consisted of $1.5 million cash and approximately 577,000 shares of iVillage
common stock, valued under the purchase method of accounting at approximately
$30.0 million in the aggregate. The difference between the purchase price and
the fair value of the acquired net assets of OnLine Psych and Code Stone have
been recorded as goodwill and are being amortized over the period of expected
benefit, which is estimated to be three years.
iVillage also issued to certain employees of OnLine Psych options to
purchase shares of iVillage common stock. The options, which are contingent upon
continued employment with OnLine Psych, vest over a period of seven years, with
accelerated vesting dependent on OnLine Psych meeting certain revenue and other
performance targets. iVillage also granted to the founding stockholders of
OnLine Psych, subject to its existing registration rights agreements, piggyback
registration rights in connection with the shares.
9
<PAGE>
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (cont.)
Note 4 - Segment Information
The Company's business is comprised of the development of programming
material by iVillage for distribution through online service providers and the
Internet and the sale of products by iBaby, iMaternity and Astrology.Net through
their Web sites. The Company's management reviews corporate assets and overhead
expenses within its media segment.
10
<PAGE>
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (cont.)
The summarized segment information, as of and for the three months ended
June 30, 1999, is as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
E-
Media Commerce Total
----- -------- -----
<S> <C> <C> <C>
Revenues $ 5,994 $ 2,114 $ 8,108
Cost of revenues 2,572 1,638 4,210
Product development and
technology 957 396 1,353
Sales and marketing 11,428 890 12,318
General and administrative 3,283 564 3,847
Depreciation and amortization 1,460 3,205 4,665
Loss from operations (13,705) (4,580) (18,285)
Total assets 156,326 1,746 158,072
========= ========= =========
</TABLE>
The summarized segment information, as of and for the six months ended June 30,
1999, is as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
E-
Media Commerce Total
----- -------- -----
<S> <C> <C> <C>
Revenues $ 10,684 $ 3,888 $ 14,572
Cost of revenues 6,081 3,031 9,112
Product development and
technology 2,274 764 3,038
Sales and marketing 21,704 1,502 23,206
General and administrative 6,851 1,021 7,872
Depreciation and amortization 3,099 4,420 7,519
Loss from operations (29,324) (6,851) (36,175)
Total assets 156,326 1,746 158,072
========= ========= =========
</TABLE>
11
<PAGE>
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (cont.)
Note 5 - Subsequent Events
On July 13, 1999, iVillage entered into an agreement to acquire all of
the outstanding stock of Lamaze Publishing Company, Inc. ("Lamaze Publishing"),
a multimedia provider of education information to expectant and new mothers. The
total purchase price, valued at approximately $100.0 million under the purchase
method of accounting, consists of approximately 1.7 million shares of iVillage
common stock, subject to certain adjustments, and approximately $5.0 million of
assumed debt. The closing of the transaction is subject to customary closing
conditions and the filing of a registration statement with the Securities and
Exchange Commission covering the resale of the issued shares. Lamaze Publishing
is the exclusive licensee of the LAMAZE mark for use in connection with consumer
publications and other communications, which include print, audio, visual and
other consumer oriented media, that are commercial in nature. Lamaze Publishing
is also the exclusive marketing agent for Lamaze Publishing International, Inc.,
the owner of the Lamaze Publishing family of marks.
On August 4, 1999, iVillage acquired the domain name Astrology.com from
Boulevards New Media, Inc.
On August 6, 1999, iVillage entered into a three-year employment
agreement with Harriet Rubin, an author and publisher on the subjects of
business and money/life issues, to develop content for the iVillage Work
channel. On August 6, 1999, iVillage also entered into an agreement with Ms.
Rubin to license certain assets, including the domain name The Soloist.com, for
one year, with an option to purchase such assets at the end of the one-year
term.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
iVillage Inc. has included in this filing certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 concerning iVillage's business, operations and financial condition. The
words or phrases "can be", "expects", "may affect", "may depend", "believes",
"estimate", "project", and similar words and phrases are intended to identify
such forward-looking statements. Such forward-looking statements are subject to
various known and unknown risks and uncertainties and iVillage cautions you that
any forward-looking information provided by or on behalf of iVillage is not a
guarantee of future performance. iVillage's actual results could differ
materially from those anticipated by such forward-looking statements due to a
number of factors, some of which are beyond iVillage's control, including (i)
the volatile and competitive nature of the Internet industry, (ii) changes in
domestic and foreign economic and market conditions, (iii) the effect of
federal, state and foreign regulation on iVillage's business, (iv) failure of
iVillage, its vendors or other third parties to achieve Year 2000 compliance (v)
the impact of recent and future acquisitions on iVillage's business and
financial condition and (vi) the impact on iVillage of its branding strategy and
the risks described below, as well as those discussed in iVillage's other public
filings. All such forward-looking statements are current only as of the date on
which such statements were made. iVillage does not undertake any obligation to
publicly update any forward-looking statement to reflect events or circumstances
after the date on which any such statement is made or to reflect the occurrence
of unanticipated events.
Overview
The iVillage network, iVillage.com, provides an easy-to-use,
comprehensive online network of sites tailored to the interests and needs of
women using the Internet. iVillage.com consists of 16 channels organized by
subject matter. The channels cover leading topics of interest to women online
such as family, health, work, money, food, computers, relationships, shopping,
travel, pets and astrology. iVillage facilitates channel usage by providing
common features and functionality within each channel, including experts, chats,
message boards and services.
To date, iVillage's revenues have been derived primarily from the sale
of sponsorship and advertising contracts. Sponsorship and advertising revenues
represented 74% and 73% of total revenues for the three and six months ended
June 30, 1999, respectively. This compares to 79% and 89% for the comparable
periods during the prior year.
Sponsorship revenues are derived principally from contracts ranging from
one to three years. Sponsorships are designed to support broad marketing
objectives, including brand promotion, awareness, product introductions, online
research and the interaction of advertising with editorial content. Sponsorship
agreements typically include the delivery of impressions on iVillage's Web sites
and the design and development of customized sites that enhance the promotional
objectives of the sponsor. An impression is the viewing of promotional material
on a Web page, which may include banner advertisements, links, buttons or other
text or images. The portion of sponsorship revenues related to the delivery of
impressions is recognized ratably in the period in which the advertisement is
displayed, provided that none of iVillage's significant obligations remain, at
the lesser of the ratio of impressions delivered over total guaranteed
impressions or the straight-line basis over the term of the contract. To the
extent that minimum guaranteed impressions are not met, iVillage defers
recognition of the corresponding revenues until the guaranteed impressions are
met. The portion of sponsorship revenues related to the up-front
13
<PAGE>
customized design work, as specified in the contract, is recognized in the
period in which the design work is performed, typically within the first three
months of the contract term.
As part of the Company's sponsorship deals, certain sponsors who also
sell products provide iVillage with a commission on sales of their products
generated through iVillage's Web sites. To date, these amounts have been
immaterial.
Advertising revenues are derived principally from short-term advertising
contracts in which iVillage typically guarantees a minimum number of impressions
to be delivered to users over a specified period of time for a fixed fee.
Advertising rates, measured on a cost per thousand impressions basis, or CPMs,
are dependent on whether the impressions are for general rotation throughout
iVillage's Web sites or for targeted audiences and properties within specific
areas of iVillage.com. Advertising revenues are recognized ratably in the period
in which the advertisement is displayed, provided that no significant iVillage
obligations remain, at the lesser of the ratio of impressions delivered over
total guaranteed impressions or the straight line basis over the term of the
contract. To the extent that minimum guaranteed impressions are not met,
iVillage defers recognition of the corresponding revenues until the guaranteed
impressions are achieved.
Sponsorship and advertising revenues also include barter revenues, which
represent exchanges by iVillage of advertising space on iVillage's Web sites for
reciprocal advertising space or traffic on other Web sites. Revenues from these
barter transactions are recorded as advertising revenues at the estimated fair
value of the advertisements delivered, unless the fair value of the goods and
services received is more objectively determinable, and are recognized when the
advertisements are run on iVillage.com. Barter expenses are recognized at the
value of advertisements received when iVillage's advertisements are run on the
reciprocal Web sites, which is typically in the same period as when the
advertisements are run on iVillage.com. Barter expenses are included as part of
sales and marketing expenses. iVillage does not receive cash for the
advertisements delivered, nor does iVillage pay for the advertisements received.
Typically, these barter transactions have no impact on iVillage's cash flows and
results of operations. Barter transactions enable iVillage to continue to build
strong brand recognition as part of its overall business strategy without
expending cash resources.
Commerce revenues are derived principally from sales through iBaby,
iMaternity (a new commerce channel launched during the second quarter of 1999)
and Astrology.Net. Commerce revenues received from iBaby consist of the sale of
baby-related products, including strollers, high chairs, bedding, toys and
accessories. iBaby takes all orders for iBaby products, collects the payment and
ships the items to the customer. Kid's Warehouse, iVillage's former joint
venture partner in iBaby, presently handles inventory and fulfillment for iBaby.
Effective November 1, 1999, the inventory and services agreement between iBaby
and Kid's Warehouse will be terminated and iBaby will become responsible for all
inventory and order fulfillment functions. In order to fulfill these functions,
the Company recently signed a two year lease for approximately 40,000 square
feet of warehouse space for iBaby at a facility located in San Diego,
California. The failure of the Company to assume effectively and in a timely
manner the merchandising, inventory management and order fulfillment functions
currently being performed by Kid's Warehouse could result in the disruption of
the operations of iBaby, including shipment delays.
Commerce revenues received from iMaternity consist of the sale of
maternity clothing and products through its Web site. All orders for iMaternity
products are taken through its channel on the iBaby Web site, and iBaby collects
the payment for product sales. The fulfillment
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of all product orders for iMaternity are handled by Dan Howard, Inc. Revenues
from Astrology.Net consist of the sale of astrological charts and other related
products to visitors to the Astrology.Net Web site. iVillage recognizes revenues
from iBaby, iMaternity and Astrology.Net product sales, net of any discounts,
when products are shipped to customers and the collection of the receivable is
reasonably assured.
Recent Developments
On June 30, 1999, iVillage acquired OnLine Psychological Services, Inc.
("OnLine Psych") and Code Stone Technologies, Inc. ("Code Stone"). As a result
of the acquisition, OnLine Psych and Code Stone became wholly-owned subsidiaries
of iVillage. OnLine Psych operates a Web site focusing on mental health issues,
while Code Stone provides much of the interactive technology used on OnLine
Psych's Web site. The aggregate purchase price paid to acquire OnLine Psych and
Code Stone consisted of $1.5 million cash and approximately 577,000 shares of
iVillage common stock, valued under the purchase method of accounting at
approximately $30.0 million in the aggregate.
On July 13, 1999, iVillage entered into an agreement to acquire all of
the outstanding stock of Lamaze Publishing Company, Inc. ("Lamaze Publishing"),
a multimedia provider of education information to expectant and new mothers. The
total purchase price, valued at approximately $100.0 million under the purchase
method of accounting, consists of approximately 1.7 million shares of iVillage
common stock, subject to certain adjustments, and approximately $5.0 million of
assumed debt. The closing of the transaction is subject to customary closing
conditions and the filing of a registration statement with the Securities and
Exchange Commission covering the resale of the issued shares. Lamaze Publishing
is the exclusive licensee of the LAMAZE mark for use in connection with consumer
publications and other communications, which include print, audio, visual and
other consumer oriented media, that are commercial in nature. Lamaze Publishing
is also the exclusive marketing agent for Lamaze Publishing International, Inc.,
the owner of the Lamaze Publishing family of marks.
On August 4, 1999, iVillage acquired the domain name Astrology.com from
Boulevards New Media, Inc.
On August 6, 1999, iVillage entered into a three-year employment
agreement with Harriet Rubin, an author and publisher on the subjects of
business and money/life issues, to develop content for the iVillage Work
channel. On August 6, 1999, iVillage also entered into an agreement with Ms.
Rubin to license certain assets, including the domain name The Soloist.com, for
one year, with an option to purchase such assets at the end of the one-year
term.
Results of Operations
Revenues
Revenues were $8.1 million and $14.6 million for the three and six
months ended June 30, 1999, respectively, which represent increases of 207% and
201%, respectively, when compared with the corresponding periods in 1998. The
increase in revenues was primarily due to iVillage's ability to generate
significantly higher sponsorship and advertising revenues during the 1999
periods, as well as the development of its commerce strategy through its
investments in iBaby and Astrology.Net. Sponsorship, advertising and other
revenues were $6.0 million and $10.7 million for the three and six months ended
June 30, 1999, respectively, compared to $2.1 million and $4.3 million for the
corresponding periods in 1998. The increase in sponsorship, advertising and
other revenues was primarily due to an increase in the number of impressions
sold and an increase in the
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number of sponsors advertising on iVillage's Web sites during the 1999 periods.
Sponsorship, advertising and other revenues accounted for approximately 74% and
73% of total revenues for the three and six months ended June 30, 1999,
respectively. Commerce revenues accounted for $2.1 million, or 26% of total
revenues, for the three months ended June 30, 1999, and $3.9 million, or 27% of
total revenues, for the six months ended June 30, 1999, compared to $0.5 million
and $0.5 million, or 20% and 11% of total revenues for the comparable three and
six month periods in 1998, respectively.
Although no one advertiser accounted for greater than 10% of total
revenues for the three or six months ended June 30, 1999, iVillage's five
largest advertisers accounted for 27% and 22% of total revenues, respectively.
The five largest customers accounted for 24% and 22% of total revenues for the
three and six months ended June 30, 1998, respectively.
Included in sponsorship and advertising revenues are barter transactions
which accounted for approximately 11% and 12% of total revenues for the three
and six months ended June 30, 1999, respectively, compared to 24% and 25% for
the comparable periods in 1998, respectively.
Cost of Revenues
The principal elements of cost of advertising, sponsorship and other
revenues for the Company's Internet operations are content costs, payroll and
related expenses for the editorial staff, Web site design and production staff
and the cost of communications and related expenses necessary to support the
Company's Web sites. Cost of commerce revenues consist primarily of the cost of
products sold to customers and outbound and inbound shipping and handling costs.
Cost of advertising, sponsorship and other revenues were $2.6 million and $6.1
million, or 43% and 57% of advertising, sponsorship and other revenues, for the
three and six months ended June 30, 1999, respectively. Cost of advertising,
sponsorship and other revenues were $2.8 million and $5.0 million, or 133% and
116% of advertising, sponsorship and other revenues, for the comparable periods
in the prior year. Cost of advertising, sponsorship and other revenues, as a
percentage of these revenues, decreased during the three and six months ended
June 30, 1999 due to the significant growth in advertising and sponsorship
revenues over prior periods. Cost of commerce revenues were $1.6 million and
$3.0 million, or 77% and 78% of commerce revenues, for the three and six months
ended June 30, 1999, respectively, compared to $0.4 million and $0.4 million, or
85% and 85% of commerce revenues, for the corresponding periods in 1998.
Operating Expenses
Product Development and Technology
Product development and technology expenses consist primarily of
salaries, payroll taxes and benefits and related expenditures for support,
technology, software development and operations personnel. Product development
and technology expenses for the three and six months ended June 30, 1999 were
approximately $1.4 million, or 17% of total revenues, and $3.0 million, or 21%
of total revenues, respectively. Product development and technology expenses
were $0.5 million, or 19% of total revenues, and $1.0 million, or 20% of total
revenues for the corresponding periods in 1998. The increase was primarily
attributable to additional personnel costs related to creating and testing new
channel concepts and tools to be used throughout iVillage's network of Web
sites.
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Sales and Marketing
Sales and marketing expenses consist primarily of costs related to
distribution agreements, salaries, payroll taxes and benefits for sales and
marketing personnel, commissions, advertising and other marketing-related
expenses and distribution facility expenses related to the iBaby operations.
Distribution facility expenses consist primarily of payroll and related expenses
for personnel engaged in marketing, customer service and distribution activities
as well as equipment and supplies. Sales and marketing expenses for the three
and six months ended June 30, 1999 were approximately $12.3 million, or 152% of
total revenues, and $23.2 million, or 159% of total revenues, respectively.
Sales and marketing expenses were $7.2 million, or 272% of total revenues, and
$12.1 million, or 249% of total revenues, for the comparable periods in 1998.
The dollar increase in sales and marketing expenses between the 1998 and 1999
periods were primarily attributable to iVillage's advertising campaign on the
Internet and television in accordance with its agreement with the National
Broadcasting Company ("NBC"). Sales and marketing expenses as a percentage of
revenues decreased between the 1998 and 1999 periods as result of the growth in
revenues.
Included in sales and marketing are barter transactions which amounted
to approximately 11% and 12% of total revenues during the three and six months
ended June 30, 1999, respectively, compared to 24% and 25% of total revenues
during the comparable periods in 1998.
General and Administrative
General and administrative expenses consist primarily of salaries,
payroll taxes and benefits and related costs for general corporate overhead,
including executive management, finance, facilities, and legal and other
professional fees. General and administrative expenses for the three and six
months ended June 30, 1999 were $3.8 million, or 47% of total revenues, and $7.9
million, or 54% of total revenues, respectively. For the comparable periods in
1998, general and administrative expenses were $2.1 million, or 78% of total
revenue, and $4.2 million, or 87% of total revenues, respectively. The increase
in general and administrative expenses between the 1998 and 1999 periods was
primarily due to an increase in salaries and benefits, recruiting costs and
facilities expenses resulting from an increase in the number of personnel hired
to support the growth of iVillage's business. General and administrative
expenses decreased as a percentage of total revenues as a result of the growth
in revenues in the three and six months ended June 30, 1999 compared to the
comparable periods in 1998.
Depreciation and Amortization
Depreciation and amortization expenses for the three and six months
ended June 30, 1999 were $4.7 million, or 58% of total revenues, and $7.5
million, or 52% of total revenues, respectively. For the comparable periods in
1998, depreciation and amortization expenses were $1.4 million, or 53% of total
revenues, and $2.7 million, or 55% of total revenues, respectively. The dollar
increase between the 1998 and 1999 periods was primarily attributable to
increased amortization expense resulting from iVillage's acquisitions of iBaby
and Astrology.Net, as well as depreciation on a greater base of fixed assets
owned by the Company during the 1999 periods.
Interest Income, Net
Interest income, net includes interest income from iVillage's cash
balances and interest expenses related to iVillage's financing obligations.
Interest income, net for the three and six
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months ended June 30, 1999 was $1.2 million, or 15% of total revenues, and $1.5
million, or 10% of total revenues, respectively. For the comparable periods in
1998, interest income, net was $0.2 million, or 7% of total revenues, and $0.3
million, or 5% of total revenues, respectively. The increase between the 1998
and 1999 periods was primarily due to higher average net cash and cash
equivalents balances resulting primarily from the cash received from the
Company's initial public offering of common stock in March 1999.
Net Loss
The Company recorded net losses of $17.1 million and $34.7 million, or
$.72 and $3.98 per share, for the three and six months ended June 30, 1999,
respectively. The Company's net loss per share for the six months ended June 30,
1999 includes a deemed dividend of $23.6 million incurred as a result of the
difference between the purchase price of the Series E Convertible Preferred
Stock sold to NBC during the first quarter of 1999, and the fair market value on
the date of issuance. For the comparable periods in 1998, the Company recorded a
net loss of $11.8 and $20.3 million, respectively.
Liquidity and Capital Resources
Until its initial public offering in March 1999, which raised net
proceeds of $91.4 million, iVillage financed its operations primarily through
the private placement of its convertible preferred stock. As of June 30, 1999,
iVillage had approximately $85.3 million in cash and cash equivalents.
Management believes its existing cash balances are sufficient to enable the
company to meet its obligations for at least the next twelve months.
Net cash used in operating activities increased to $14.1 million and
$26.2 million in the three and six months ended June 30, 1999, respectively,
from $9.1 million and $17.0 million for the three and six months ended June 30,
1998, respectively. The increase in net cash used in operating activities
resulted primarily from increased net losses and the payment of accrued
liabilities. The increased net loss was primarily due to the continued
investment in establishing the Company's brand on the Internet through further
investment in content and technology.
Net cash used in investing activities was $2.6 million and $12.5 million
in the three and six months ended June 30, 1999, respectively. This compares to
net cash used in investing activities of $1.5 million and $2.7 million for the
three and six months ended June 30, 1998, respectively. The increase in net cash
used in investing activities resulted primarily from the acquisitions of iBaby
and Astrology.Net in the first quarter of 1999 and the acquisitions of OnLine
Psychological Services, Inc and Code Stone Technologies, Inc. during the second
quarter of 1999.
Net cash provided by financing activities amounted to $1.4 million and
$93.2 million for the three and six months ended June 30, 1999, respectively,
compared to $0.7 million and $32.8 million for the three and six months ended
June 30, 1998, respectively. The increase for the three months ended June 30,
1999 as compared to the comparable period in the prior year was primarily due to
the receipt of a $1.4 million payment on the note receivable from NBC. The
increase for the six months ended June 30, 1999 as compared to the comparable
period in 1998 was primarily due to the receipt of $91.4 million of net proceeds
from the Company's IPO in March 1999.
iVillage's capital requirements depend on numerous factors, including
(i) market acceptance of iVillage's services, (ii) the amount of resources
iVillage devotes to investments in the
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iVillage.com network, including acquisitions of other entities, (iii) the
resources iVillage devotes to marketing, (iv) the resources iVillage devotes to
selling its services and brand promotions, and (v) other factors.
iVillage has experienced a substantial increase in its expenditures
since its inception. The increase in expenditures is consistent with the growth
in iVillage's operations and staffing. The Company anticipates that it will
continue to evaluate possible investments in businesses, products and
technologies, and continue to expand its sales and marketing programs and
conduct more aggressive brand promotions, any of which could reduce its
liquidity.
The Company has recently signed a two year lease for approximately
40,000 sq. ft. of warehouse space for iBaby at a facility located in San Diego,
California. The Company has begun the build-out of the warehouse in anticipation
of the termination of the Company's inventory and fulfillment relationship with
Kid's Warehouse, which is effective November 1, 1999.
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 used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
State of Readiness
iVillage is engaged in an ongoing assessment of the Year 2000 readiness
of its operating, financial and administrative systems, including the hardware
and software that support iVillage's systems. iVillage's assessment plan
consists of: quality assurance testing of its internally developed proprietary
software; contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to the
delivery of iVillage's services to its users; contacting vendors of third-party
systems; assessing repair and replacement requirements; implementing repair or
replacement; and if deemed necessary or appropriate creating contingency plans
in the event of Year 2000 failures. iVillage has engaged Keane, Inc., a
consulting firm with Year 2000 experience, to assist iVillage with its Year 2000
compliance program.
iVillage's Year 2000 task force has conducted an inventory of and
developed testing procedures for all software and other systems that it believes
might be affected by Year 2000 issues. Since third parties developed and
currently support many of the systems that iVillage uses, a significant part of
this effort will be to ensure that these third-party systems are Year 2000
compliant. iVillage plans to confirm this compliance through a combination of
the representation by these third parties of their products' Year 2000
compliance, as well as specific testing of these systems. iVillage plans to
complete this process prior to the end of the third quarter of 1999. Until such
testing is completed and such vendors and providers are contacted, iVillage will
not be able to completely evaluate whether its systems will need to be revised
or replaced.
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Costs
Through June 30, 1999, iVillage has spent approximately $215,000 on Year
2000 compliance issues and expects to incur an additional $85,000 in connection
with identifying, evaluating and addressing Year 2000 compliance issues. Most of
iVillage's expenses 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 Year 2000 compliance matters generally. Such
expenses, if higher than anticipated, could have a material adverse effect on
iVillage's business, results of operations and financial condition.
Risks
iVillage is not currently aware of any Year 2000 compliance problems
relating to its systems that would have a material adverse effect on iVillage's
business, results of operations and financial condition, without taking into
account iVillage's efforts to avoid or fix such problems. There can be no
assurance that iVillage will not discover Year 2000 compliance problems in its
systems that will require substantial revision. In addition, there can be no
assurance that third-party software, hardware or services incorporated into
iVillage's material systems will not need to be revised or replaced, all of
which could be time-consuming and expensive. The failure of iVillage to fix or
replace its internally developed proprietary software or 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 iVillage's business, results of
operations and financial condition. Moreover, the failure to adequately address
Year 2000 compliance issues in its internally developed proprietary software
could result in claims of mismanagement, misrepresentation, or breach of
contract and related litigation, which could be costly and time-consuming to
defend.
iVillage is heavily dependent on a significant 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 iVillage could cause iVillage's members and visitors to
consider seeking alternate providers or cause an unmanageable burden on its
technical support, which in turn could materially and adversely affect
iVillage's business, financial condition and results of operations.
In addition, there can be no assurance that governmental agencies,
utility companies, Internet access companies, third-party service providers and
others outside of iVillage's control will be Year 2000 compliant. The failure by
such entities to be Year 2000 compliant could result in a systemic failure
beyond the control of iVillage, such as a prolonged Internet, telecommunications
or electrical failure, which could also prevent iVillage from delivering its
services to its customers, decrease the use of the Internet or prevent users
from accessing its Web sites which could have a material adverse effect on
iVillage's business, results of operations and financial condition.
Contingency Plan
As discussed above, iVillage is engaged in an ongoing Year 2000
assessment and has not yet developed any contingency plans. The results of
iVillage's Year 2000 simulation testing and the responses received from
third-party vendors and service providers will be taken into account in
determining the nature and extent of any contingency plans.
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Risk Factors That May Affect Results of Operations and Financial Condition
The Company has a limited operating history and may face difficulties
encountered by early stage companies in new and rapidly evolving
markets.
The Company has a limited operating history and faces many of the risks
and difficulties frequently encountered by early stage companies in new and
rapidly evolving markets, including the Internet advertising market. These risks
include the Company's ability to: (i) attract a larger audience to the Company's
online network; (ii) increase awareness of the Company's brand; (iii) strengthen
user-loyalty; (iv) offer compelling content; (v) maintain the Company's current,
and develop new, strategic relationships; (vi) attract a large number of
advertisers from a variety of industries; (vii) respond effectively to
competitive pressures; (viii) continue to develop and upgrade the Company's
technology; and (ix) attract, retain and motivate qualified personnel.
iVillage lacks significant revenues and has recent and anticipated
continuing losses.
The Company has not achieved profitability and expects to continue to
incur operating losses for the foreseeable future. iVillage incurred net losses
of $11.3 million for the period from July 1995 (inception) through December 31,
1996, $21.3 million for the year ended December 31, 1997, $43.7 million for the
year ended December 31, 1998 and $34.7 million for the six months ended June 30,
1999. As of June 30, 1999 and December 31, 1998, the Company's accumulated
deficit was $134.5 million and $76.3 million, respectively. The Company expects
to continue to incur significant operating and capital expenditures and, as a
result, the Company will need to generate significant revenues to achieve and
maintain profitability.
Although the Company's revenues have grown in recent quarters, the
Company cannot guarantee that it will achieve sufficient revenues for
profitability. Even if the Company does achieve profitability, the Company
cannot guarantee that it can sustain or increase profitability on a quarterly or
annual basis in the future. If revenues grow slower than the Company
anticipates, or if operating expenses exceed the Company's expectations or
cannot be adjusted accordingly, the Company's business, results of operations
and financial condition will be materially and adversely affected. Because the
Company's strategy includes acquisitions of other businesses, acquisition
expenses and any cash used to make these acquisitions will reduce the Company's
available cash.
iVillage is dependent on barter transactions which do not generate cash
revenue.
Revenues from barter transactions represented approximately 20% and 12%
of total revenues for the year ended December 31, 1998 and the six months ended
June 30, 1999, respectively. Barter revenues may continue to represent a
significant portion of the Company's total revenues in future periods. Barter
transactions do not generate any cash revenues and are entered into by the
Company to promote its brand and generate traffic to its Web sites, without any
expenditure of its cash resources.
The Company may not be able to integrate the operations from its recent
and future acquisitions.
As part of the Company's business strategy, the Company has completed
and expects to enter into additional business combinations and acquisitions,
such as the Company's February 1999 acquisition of Astrology.Net and June 1999
acquisitions of Online Psychological Services, Inc. and
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Code Stone Technologies, Inc., as well as its proposed acquisition of Lamaze
Publishing. Acquisition transactions are accompanied by a number of risks,
including, among other things: (i) the difficulty of assimilating the operations
and personnel of the acquired companies; (ii) the potential disruption of the
Company's ongoing business; (iii) the inability of management to maximize the
financial and strategic position of the Company through the successful
incorporation of acquired technology, content and rights into the Company's
products and media properties; (iv) expenses associated with the transactions;
(v) additional expenses associated with amortization of acquired intangible
assets; (vi) the maintenance of uniform standards, controls, procedures and
policies; (vii) the impairment of relationships with employees and customers as
a result of any integration of new management personnel; and (viii) the
potential unknown liabilities associated with acquired businesses. The Company's
failure to adequately address these issues could have a material adverse effect
on its business, results of operations and financial condition.
The Company's proposed acquisition of Lamaze Publishing poses a number
of risks that could materially adversely affect its business strategy.
The proposed acquisition of Lamaze Publishing is the Company's first
acquisition of a non-Internet company. There are a number of risks in operating
Lamaze Publishing, including (i) competitiveness of the media and publishing
industry; (ii) the Company's inexperience in operating a multi-media publishing
company; (iii) its ability to sell advertising and sponsorships on its Web sites
and in Lamaze Publishing's magazines, videos and the Newborn Channel; (iv) the
Company's ability to commercialize and protect the Lamaze Publishing mark; and
(v) the Company's ability to build and market Lamaze Publishing.com.
iVillage's quarterly revenues and operating results are not indicative
of future performance and are difficult to forecast.
As a result of the Company's limited operating history, the Company does
not have historical financial data for a significant number of periods upon
which to forecast quarterly revenues and results of operations. The Company does
not believe that period-to-period comparisons of its operating results are
necessarily meaningful nor should they be relied upon as reliable indicators of
future performance. In one or more future quarters the Company's results of
operations may fall below the expectations of securities analysts and investors.
In such event, the trading price of the Company's common stock would likely be
materially adversely affected.
The Company's revenues for the foreseeable future will remain dependent
on user traffic levels and advertising activity on the Company's web sites. Such
future revenues are difficult to forecast. In addition, the Company plans to
increase its sales and marketing operations and to expand and develop content.
The Company also plans to upgrade and enhance its technology and infrastructure
development in order to support its growth. The Company may be unable to adjust
spending quickly enough to offset any unexpected revenue shortfall.
If the Company has a shortfall in revenues in relation to its expenses,
or if its expenses precede increased revenues, then the Company's business,
results of operations and financial condition would be materially and adversely
affected. This would likely affect the market price of the Company's common
stock in a manner which may be unrelated to its long-term operating performance.
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Seasonal and cyclical patterns may affect the Company's business.
The Company believes that advertising sales in traditional media, such
as television and radio, generally are lower in the first and third calendar
quarters of each year. If the Company's market makes the transition from an
emerging to a more developed market, seasonal and cyclical patterns may develop
in the future. As a result, if the Company's industry follows the same seasonal
patterns as those in traditional media, the Company may experience lower
advertising revenues in the first and third calendar quarter of each year.
Seasonal and cyclical patterns in Internet advertising may also affect the
Company's revenues. In addition, traffic levels on the Company's Web sites
typically fluctuate during the summer and year-end vacation and holiday periods
and the Company anticipates that sales from iBaby, and any other future consumer
goods the Company may sell, will typically increase during the fourth quarter as
a result of the holiday season and may decline during other periods.
The market for Internet advertising is uncertain.
The Company expects to derive a substantial portion of its revenues from
sponsorships and advertising for the foreseeable future, and demand and market
acceptance for Internet advertising solutions are uncertain.
There are currently no standards for the measurement of the
effectiveness of Internet advertising and the industry may need to develop
standard measurements to support and promote Internet advertising as a
significant advertising medium. If such standards do not develop, existing
advertisers may not continue their levels of Internet advertising. Furthermore,
advertisers that have traditionally relied upon other advertising media may be
reluctant to advertise on the Internet. The Company's business would be
adversely affected if the market for Internet advertising fails to develop or
develops more slowly than expected.
Different pricing models are used to sell advertising on the Internet
and it is difficult to predict which, if any, of such models will emerge as the
industry standard. This makes it difficult to project it future advertising
rates and revenues. The Company's advertising revenues could be adversely
affected if the Company is unable to adapt to new forms of Internet advertising.
Moreover, software programs that limit or prevent advertising from being
delivered to an Internet user's computer are available. Widespread adoption of
this software could adversely affect the commercial viability of Internet
advertising.
The Company may be unable to adequately measure the demographics of its
user base and delivery of advertisements on its Web sites.
It is important to the Company's advertisers that the Company accurately
measure the demographics of its user base and the delivery of advertisements on
its Web sites. The Company depends on third parties to provide certain of these
measurement services. If they are unable to provide these services in the
future, the Company would need to perform them or obtain them from another
provider. This could cause the Company to incur additional costs or cause
interruptions in its business until such services are replaced. The Company is
currently implementing additional systems designed to record demographic data
related to its users. If these systems are not implemented successfully, the
Company may not be able to accurately evaluate the demographic characteristics
of its users. Companies may choose not to advertise on the Company's Web sites
or
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may pay less for advertising if they perceive that the Company's demographics
measurements are not reliable.
The Company is currently experiencing a period of significant growth
which is placing a significant strain on its resources.
If the Company is unable to manage its growth effectively, its business
could be adversely affected. The Company has experienced and is continues to
experience significant growth, both internally and through acquisitions. This
growth has placed, and the Company's anticipated future growth in its operations
will continue to place, a significant strain on its resources. As part of this
growth, the Company will have to implement new operational and financial
systems, procedures and controls.
Several members of senior management have only recently joined the
Company.
Several members of the Company's senior management joined the Company in
1998 and 1999 and have not previously worked together. As a result, the
Company's senior managers are becoming integrated as a management team and may
not work together effectively as a team to successfully manage the Company's
growth.
The Company may not attract a sufficient amount of traffic and
advertising without its channels being carried on America Online, Inc.
("AOL").
AOL has accounted for a significant portion of the Company's traffic
based on the delivery to the Company of a guaranteed number of impressions. A
significant portion of the Company's visitors and members reach the Company's
Web sites through AOL. The Company's agreement with AOL does not prohibit AOL
from carrying online sites or developing and providing content that competes
with the Company's sites, and AOL currently carries additional competing Web
sites. The Company's agreement with AOL expires on December 31, 2000 and, even
though either party may extend it for an additional year, AOL does not have any
obligation to renew the agreement. If the carrying of the Company's channels on
AOL is discontinued, the Company's business, results of operations and financial
condition would be materially adversely affected.
AOL investments may result in conflicts of interest for AOL that are
adverse to the Company.
AOL has invested in Oxygen Media, Inc., a new Internet and television
company that is developing cable and interactive content for women and children.
In addition, Oxygen Media has acquired from AOL the assets of electra.com, an
online women's network, and Thrive Partners LLC, the operator of
thriveonline.com, a health site. In addition, AOL has invested in Excite, Inc.
and, in November 1998, acquired Netscape Communications Corp. The relationship
between AOL and Oxygen Media and AOL and other internet companies may result in
potential conflicts of interest for AOL, which may not be resolved in the
Company's favor.
The Company has a small number of customers and the loss of a number of
these customers could adversely affect its financial condition and
results of operations.
The Company depends on a limited number of customers for a significant
portion of its revenues. Consequently, the loss of even a small number of these
customers at any one time may
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<PAGE>
adversely affect the Company's business, financial condition and results of
operations. Although no advertiser accounted for more than 10% of total revenues
for the year ended December 31, 1998 or the six months ended June 30, 1999, the
Company's five largest advertisers accounted for 17% and 22% of total revenues,
respectively. At December 31, 1998, one advertiser accounted for 11% of net
accounts receivable.
The Company anticipates that its results of operations in any given
period will continue to depend to a significant extent upon revenues from a
small number of customers. In addition, the Company anticipates that such
customers will continue to vary over time, so that the achievement of the
Company's long-term goals will require the Company to obtain additional
significant customers on an ongoing basis. The Company's failure to enter into a
sufficient number of large contracts during a particular period could have a
material adverse effect on its business, financial condition and results of
operations.
The Company may be sued for information retrieved from the Web.
The Company may be subject to claims for defamation, negligence,
copyright or trademark infringement, personal injury or other legal theories
relating to the information the Company publishes on its Web sites. These types
of claims have been brought, sometimes successfully, against online services as
well as other print publications in the past. The Company could also be
subjected to claims based upon the content that is accessible from its Web sites
through links to other Web sites or through content and materials that may be
posted by members in chat rooms or bulletin boards. The Company also offers
e-mail services, which may subject it to potential risks, such as liabilities or
claims resulting from unsolicited e-mail, lost or misdirected messages, illegal
or fraudulent use of e-mail or interruptions or delays in e-mail service. The
Company's insurance, which covers commercial general liability, may not
adequately protect the Company against these types of claims.
The Company may incur potential product liability for products sold over
the Internet.
Consumers may sue the Company if any of the products that the if it
sells online are defective, fail to perform properly or injure the user. To
date, the Company has had very limited experience in the sale of products online
and the development of relationships with manufacturers or suppliers of such
products. The Company plans to develop a range of products targeted specifically
at women through the Company's iBaby and iMaternity sites, Astrology.Net and
other e-commerce sites that the Company may acquire in the future. The Company
also may foster relationships with manufacturers or companies to offer such
products directly on iVillage.com. Such a strategy involves numerous risks and
uncertainties. Although the Company's agreements with manufacturers typically
contain provisions intended to limit the Company's exposure to liability claims,
these limitations may not prevent all potential claims. Liability claims could
require the Company 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 the Company's reputation and business.
There is intense competition amongst Internet-based businesses and
publishing companies focused on women.
The number of Web sites competing for the attention and spending of
members, users and advertisers has increased and the Company expects it to
continue to increase.
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The Company's Web sites compete for members, users and advertisers with
the following types of companies: (i) online services or Web sites targeted at
women, such as Women.com Networks, Oxygen Media's Web sites, and Time Warner's
and Advance Publication's proposed Web site for women; (ii) Web search and
retrieval and other online service companies, commonly referred to as portals,
such as Excite, Inc., Infoseek Corporation, Lycos, Inc. and Yahoo! Inc.; (iii)
e-commerce companies such as eToys, Inc. and its wholly-owned subsidiary,
BabyCenter, Inc.; and (iv) publishers and distributors of traditional media,
such as television, radio and print.
Increased competition could result in price reductions, reduced margins
or loss of market share, any of which could adversely affect the Company's
business, results of operations and financial condition.
Lamaze Publishing's magazines are in direct competition with publishers
of pre and postnatal publications such as Gruner and Jahr, Primedia and Time
Warner. These publishers have substantially greater marketing, research and
financial resources than Lamaze Publishing. Increased competition may result in
less advertising in Lamaze Publishing's magazines and a decline in Lamaze
Publishing's advertising rates, which could adversely affect its business,
results of operations and financial condition.
The Company's uncertain sales cycles could adversely affect its
business.
The time between the date of initial contact with a potential advertiser
or sponsor and the execution of a contract with such advertiser or sponsor is
often lengthy, typically ranging from six weeks for smaller agreements to nine
months for larger agreements, and is subject to delays over which the Company
has little or no control, including (i) advertisers' and sponsors' budgetary
constraints; (ii) advertisers' and sponsors' internal acceptance reviews; (iii)
the success and continued internal support of advertisers' and sponsors' own
development efforts; and (iv) the possibility of cancellation or delay of
projects by advertisers or sponsors.
During the sales cycle, the Company may expend substantial funds and
management resources and yet not obtain sponsorship or advertising revenues.
Accordingly, the Company's results of operations for a particular period may be
adversely affected if sales to advertisers or sponsors forecasted in a
particular period are delayed or do not otherwise occur.
The Company's business is dependent on its Chief Executive Officer and
Editor-in-Chief.
The Company's future success depends to a significant extent on the
continued services of its senior management and other key personnel,
particularly Candice Carpenter, Chief Executive Officer, and Nancy Evans,
Editor-in-Chief. The Company has no employment agreements with either of these
executives and does not maintain "key person" life insurance for any of its
personnel, other than Ms. Carpenter. The loss of the services of Mdmes.
Carpenter or Evans, or other key employees, would likely have a significantly
detrimental effect on the Company's business.
Competition for personnel in the Internet industry is intense.
The Company may be unable to retain its key employees or attract,
assimilate or retain other highly qualified employees in the future. The Company
has from time to time in the past
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experienced, and expects to continue to experience in the future, difficulty in
hiring and retaining highly skilled employees with appropriate qualifications as
a result of the Company's rapid growth and expansion. In addition, there is
significant competition for qualified employees in the Internet industry. As a
result, the Company incurred increased salaries, benefits and recruiting
expenses during 1998 and 1999. If the Company does not succeed in attracting new
personnel or retaining and motivating the Company's current personnel, its
business will be adversely affected.
The Company is dependent on continued growth in use of the Internet.
The Company's market is new and rapidly evolving. The Company's business
would be adversely affected if Internet usage does not continue to grow,
particularly usage by women. A number of factors may inhibit Internet usage,
including (i) inadequate network infrastructure, (ii) security concerns, (iii)
inconsistent quality of service, (iv) lack of availability of cost-effective,
high-speed service, and (v) consumers returning to traditional or alternative
sources for information, shopping and services.
If Internet usage continues to grow significantly, the Internet
infrastructure may not be able to support the demands placed on it by this
growth and its performance and reliability may decline. In addition, Web sites
have experienced interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure. If these
outages or delays frequently occur in the future, Internet usage, as well as the
usage of the Company's Web sites, could grow more slowly or decline.
The Company may be unable to respond to the rapid technological change
in its industry.
The Company's market is characterized by rapidly changing technologies,
frequent new product and service introductions and evolving industry standards.
The recent growth of the Internet and intense competition in the Company's
industry exacerbate these market characteristics. To achieve the Company's
goals, the Company needs to effectively integrate the various software programs
and tools required to enhance and improve its product offerings and manage its
business. The Company's future success will depend on its ability to adapt to
rapidly changing technologies by continually improving the performance features
and reliability of its services. The Company may experience difficulties that
could delay or prevent the successful development, introduction or marketing of
new products and services. In addition, the Company's new enhancements must meet
the requirements of its current and prospective users and must achieve
significant market acceptance. The Company could also incur substantial costs if
it needs to modify its service or infrastructures to adapt to these changes.
Government regulation and legal uncertainties could add additional costs
to doing business on the Internet.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted in the future that address issues such as user privacy, pricing,
content, copyrights, distribution, antitrust matters and the characteristics and
quality of products and services. For example, the Telecommunications Act sought
to prohibit transmitting various types of information and content over the
Internet. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on those companies. This could increase the cost of
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<PAGE>
transmitting data over the Internet. Moreover, it may take years to determine
the extent to which existing laws relating to issues such as property ownership,
obscenity, libel and personal privacy are applicable to the Internet or the
application of laws and regulations from jurisdictions whose laws do not
currently apply to the Company's business. Any new laws or regulations relating
to the Internet could adversely affect the Company's business.
In addition, it has been reported that the Labor Department has recently
begun an investigation of the use of volunteers on Web sites. The Company
utilizes volunteers as Web site community leaders and there can be no assurance
that new government regulations will not require the Company to cease using
volunteers or, alternatively, treat them as employees.
Due to the global nature of the Internet, it is possible that, although
the Company's transmissions over the Internet originate primarily in New York,
the governments of other states and foreign countries might attempt to regulate
the Company's business activities. In addition, because the Company's service is
available over the Internet in multiple states and foreign countries, these
jurisdictions may require the Company to qualify to do business as a foreign
corporation in each of these states or foreign countries, which could subject
the Company to taxes and other regulations.
The Company's systems may fail or experience a slow down and its users
depend on others for access to the Company's Web sites.
Substantially all of the Company's communications hardware and some of
the Company's other computer hardware operations are located at Exodus
Communications, Inc.'s facilities in Jersey City, New Jersey and Verio's, Inc.'s
and AT&T CERFnet's facilities in California. 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 the Company's Web sites. The
Company's business could be adversely affected if its systems were affected by
any of these occurrences. The Company's insurance policies may not adequately
compensate the Company for any losses that may occur due to any failures or
interruptions in its systems. The Company does not presently have any secondary
"off-site" systems or a formal disaster recovery plan.
The Company's Web sites must accommodate a high volume of traffic and
deliver frequently updated information. The Company's Web sites have in the past
experienced slower response times or decreased traffic for a variety of reasons.
These occurrences have not had a material impact on the Company's business.
These types of occurrences in the future could cause users to perceive the
Company's Web sites as not functioning properly and therefore cause them to use
another Web site or other methods to obtain information.
In addition, the Company's users depend on Internet service providers,
online service providers and other Web site operators for access to the
Company's Web 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 the Company's systems.
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The Company may not be able to deliver various services if third parties
fail to provide reliable software, systems and related services to the
Company.
The Company is dependent on various third parties for software, systems
and related services. For example, the Company relies on Doubleclick Inc.'s
software for the placement of advertisements and WhoWhere? Inc. for personal
home pages and e-mail. Several of the third parties that provide software and
services to the Company have a limited operating history, have relatively
immature technology and are themselves dependent on reliable delivery of
services from others. As a result, the Company's ability to deliver various
services to its users may be adversely affected by the failure of these third
parties to provide reliable software, systems and related services to the
Company.
The Company may be liable if third parties misappropriate its users'
personal information.
If third parties were able to penetrate the Company's network security
or otherwise misappropriate its users' personal information or credit card
information, the Company could be subject to liability arising from claims
related to, among other things, (i) unauthorized purchases with credit card
information, impersonation or other similar fraud claims or (ii) other misuse of
personal information, such as for unauthorized marketing purposes. In addition,
the Federal Trade Commission and state agencies have been investigating various
Internet companies regarding their use of personal information. The Company
could incur additional expenses if new regulations regarding the use of personal
information are introduced or if the Company's privacy practices are
investigated.
Internet security concerns could hinder e-commerce.
The need to securely transmit confidential information over the Internet
has been a significant barrier to electronic commerce and communications over
the Internet. Any well-publicized compromise of security could deter people from
using the Internet or using it to conduct transactions that involve transmitting
confidential information. The Company may incur significant costs to protect
against the threat of security breaches or to alleviate problems caused by such
breaches.
Satellite transmissions over the Newborn Channel may be interrupted.
Lamaze Publishing is the operator of the Newborn Channel, a satellite
television network broadcast in over 800 hospitals in the United States. There
is a risk that the satellite from which the transmission is sent may
malfunction, interrupting Lamaze Publishing's broadcasts. In the event this
occurs, there may be a period of time before Lamaze Publishing can transmit to
and from another satellite. Any interruption in Lamaze Publishing's ability to
transmit the Newborn Channel could have an adverse impact on its business. In
addition, extreme adverse weather could damage receivers and transmitters on the
ground, thereby hindering transmissions.
Consumer protection privacy regulations could impair the Company's
ability to obtain information about its users.
The Company's network captures information regarding its members in
order to tailor content to them and assist advertisers in targeting their
advertising campaigns to particular demographic groups. However, privacy
concerns may cause users to resist providing the personal
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data necessary to support this tailoring capability. Even the perception of
security and privacy concerns, whether or not valid, may indirectly inhibit
market acceptance of the Company's network. In addition, legislative or
regulatory requirements may heighten these concerns if businesses must notify
Internet users that the data may be used by marketing entities to direct product
promotion and advertising to the user. Other countries and political entities,
such as the European Economic Community, have adopted such legislation or
regulatory requirements. If consumer privacy concerns are not adequately
addressed, the Company's business, financial condition and results of operations
could be materially harmed.
The Company's network currently uses cookies to track demographic
information and user preferences. A cookie is information keyed to a specific
server, file pathway or directory location that is stored on a user's hard
drive, possibly without the user's knowledge, but is generally removable by the
user. Germany has imposed laws limiting the use of cookies, and a number of
Internet commentators, advocates and governmental bodies in the United States
and other countries have urged the passage of laws limiting or abolishing the
use of cookies. If such laws are passed, the Company's business, financial
condition and results of operations could be materially harmed.
Possible infringement of intellectual property rights could harm the
Company's business.
The Company cannot be certain that the steps it has taken to protect its
intellectual property rights will be adequate or that third parties will not
infringe or misappropriate its proprietary rights. Any such infringement or
misappropriation could have a material adverse effect on the Company's future
financial results. In addition, the Company may from time to time become
involved in intellectual property disputes with third parties which may not
result in a favorable outcome for the Company.
The Company could be subject to possible infringement actions based upon
its use of domain names, its content and content licensed from others.
The Company has invested resources in acquiring domain names for
existing and potential future use. The Company cannot guarantee that it will be
entitled to use such names under applicable trademark and similar laws or that
other desired domain names will be available. Furthermore, enforcing the
Company's intellectual property rights could entail significant expense and
could prove difficult or impossible. In addition, third parties could assert
claims of patent, trademark or copyright infringement or misappropriation of
creative ideas or formats against the Company with respect to its use of domain
names, content, web page formats, web business methods or any third-party
content carried by the Company. The Company expects that participants in its
markets increasingly will be subject to infringement claims as the number of
services and competitors in its industry segment grows. Any such claims, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management attention, require the Company to enter into costly royalty or
licensing arrangements or prevent it from using important technologies, ideas or
formats, any of which could materially harm the Company's business, financial
condition or results of operations.
The Company is involved in litigation with a former employee which may
be costly and divert the efforts and attention of its management
On January 8, 1999, a complaint was filed in the Chancery Court for
Williamson County, Tennessee by a former employee against the Company and three
of its officers. The complaint was
30
<PAGE>
subsequently amended to withdraw all claims against two of those officers. The
complaint alleges breach of an alleged employment agreement and fraudulent
inducement to accept a job in New York and to move from Tennessee to New Jersey.
In addition to unspecified damages, the complaint seeks an award of options to
purchase 100,000 shares of common stock. In addition, there is pending a motion
by the plaintiff for leave to add as new plaintiffs two former executives who
allege that the Company breached certain obligations to them and seek an award
of 560,000 stock options in the aggregate. The Company believes that the suit
and the proposed new claims are without merit and it is vigorously defending
against these claims. This litigation, whether or not determined in the
Company's favor or settled by the Company, may be costly and may divert the
efforts and attention of its management from normal business operations.
Failure of computer systems and software products to be year 2000
compliant could negatively impact the Company's business.
Many currently installed computer systems and software products only
accept two digits to identify the year in any date. Thus, the year 2000 will
appear as "00", which the system might consider to be the year 1900 rather than
the year 2000. This could result in system failures, delays or miscalculations
causing disruptions to the Company's operations. The failure of systems
maintained by third parties to be Year 2000 compliant could cause the Company to
incur significant expense to remedy any problems, reduce its revenues from such
third parties or otherwise seriously damage the Company's business. A
significant Year 2000-related disruption of the network services or equipment
that third-party vendors provide to the Company could also cause the Company's
members or visitors to consider seeking alternate providers or cause an
unmanageable burden on the Company's technical support.
The Company's failure to correct a material Year 2000 problem could
result in an interruption in, or a failure of, some of its normal business
activities or operations.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Reorganization, dated as of June 30, 1999,
by and among the Company, OnlinePsych Acquisition Corporation,
Online Psychological Services, Inc. ("Online Psych") and the
stockholders of Online Psych. (incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K filed
on July 14, 1999)
2.2 Agreement and Plan of Reorganization, dated as of June 30, 1999,
by and among the Company, Code Stone Acquisition Corporation,
Code Stone Technologies, Inc. ("Code Stone") and the sole
stockholder of Code Stone (incorporated by reference to Exhibit
2.2 to the Company's Current Report on Form 8-K filed on July
14, 1999)
2.3 Agreement and Plan of Reorganization, dated as of July 13, 1999,
by and among iVillage Inc., LPC Acquisition Corporation, Lamaze
Publishing Company, Inc. ("LPC"), and the shareholders of LPC
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11 Statement re: computation of earnings per share
27 Financial Data Schedule
(b) A Form 8-K Report was filed on May 4, 1999, reporting under Item
7 and including financial statements for the two years ended
December 31, 1998 for KnowledgeWeb, Inc., a subsidiary of the
Company.
32
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
iVILLAGE INC.
(Registrant)
Dated: August 13, 1999 By: /s/ Candice Carpenter
---------------------------------
Candice Carpenter
Chief Executive Officer
Dated: August 13, 1999 By: /s/ Craig T. Monaghan
---------------------------------
Craig T. Monaghan
Chief Financial Officer
Dated: August 13, 1999 By: /s/ Scott Levine
---------------------------------
Scott Levine
VP Controller
and Chief Accounting Officer
33
<PAGE>
EXHIBIT INDEX
Exhibits
--------
2.1 Agreement and Plan of Reorganization, dated as of June 30, 1999,
by and among the Company, OnlinePsych Acquisition Corporation,
Online Psychological Services, Inc. ("Online Psych") and the
stockholders of Online Psych. (incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K filed
on July 14, 1999)
2.2 Agreement and Plan of Reorganization, dated as of June 30, 1999,
by and among the Company, Code Stone Acquisition Corporation,
Code Stone Technologies, Inc. ("Code Stone") and the sole
stockholder of Code Stone (incorporated by reference to Exhibit
2.2 to the Company's Current Report on Form 8-K filed on July
14, 1999)
2.3 Agreement and Plan of Reorganization, dated as of July 13, 1999,
by and among iVillage Inc., LPC Acquisition Corporation, Lamaze
Publishing Company, Inc., ("LPC"), and the shareholders of LPC
11 Statement re: computation of earnings per share
27 Financial Data Schedule
34
<PAGE>
EXECUTION VERSION
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
iVILLAGE INC.,
LPC ACQUISITION CORPORATION,
LAMAZE PUBLISHING COMPANY, INC.
AND
THE SHAREHOLDERS AND STOCK APPRECIATION UNIT HOLDERS OF
LAMAZE PUBLISHING COMPANY, INC.
July 13, 1999
<PAGE>
TABLE OF CONTENTS
Page
1. The Merger................................................................ 1
1.1. The Merger....................................................... 1
1.2. Closing; Effective Time.......................................... 1
1.3. Effect of the Merger............................................. 2
1.4. Certificate of Incorporation; Bylaws............................. 2
1.5. Directors and Officers........................................... 2
1.6. Effect on Capital Stock.......................................... 2
1.7. Surrender of Certificates........................................ 7
1.8. No Further Ownership Rights in LPC Capital Stock................. 8
1.9. Lost, Stolen or Destroyed Certificates........................... 8
1.10. Tax Consequences................................................. 9
1.11. Taking of Necessary Action; Further Action....................... 9
2. Conditions to the Merger.................................................. 9
2.1. Conditions to Obligations of Each Party to Effect the Merger..... 9
2.2. Additional Conditions to Obligations of LPC..................... 10
2.3. Additional Conditions to the Obligations of Parent and
Merger Sub...................................................... 11
3. Representations and Warranties of LPC and the LPC Holders................ 13
3.1. Organization, Standing and Power................................ 13
3.2. Authority....................................................... 14
3.3. Governmental Authorization...................................... 14
3.4. Title to Property............................................... 15
3.5. Environmental Matters........................................... 15
3.6. Taxes........................................................... 16
3.7. Employee Benefit Plans.......................................... 17
3.8. Employee Matters................................................ 19
3.9. Insurance....................................................... 20
3.10. Compliance with Laws............................................ 20
3.11. Brokers' and Finders' Fees...................................... 20
3.12. Capital Structure; Title to Shares.............................. 20
3.13. Financial Statements............................................ 21
3.14. Absence of Certain Changes...................................... 21
3.15. Absence of Undisclosed Liabilities.............................. 21
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TABLE OF CONTENTS
(continued)
Page
3.16. Litigation...................................................... 21
3.17. Restrictions on Business Activities............................. 22
3.18. Intellectual Property........................................... 22
3.19. Interested Party Transactions................................... 24
3.20. Books and Records............................................... 24
3.21. Complete Copies of Materials.................................... 24
3.22. Material Contracts.............................................. 24
3.23. Inventory....................................................... 24
3.24. Accounts Receivable............................................. 25
3.25. Customers and Suppliers......................................... 25
3.26. Employees and Consultants....................................... 25
3.27. Condition and Sufficiency of Assets............................. 25
3.28. Representations Complete........................................ 26
4. Representations and Warrantees of Parent and Merger Sub.................. 26
4.1. Organization, Standing and Power................................ 26
4.2. Capital Structure............................................... 26
4.3. Authority....................................................... 27
4.4. SEC Documents; Financial Statements............................. 27
4.5. Absence of Certain Changes...................................... 28
4.6. Absence of Undisclosed Liabilities.............................. 28
4.7. Brokers' and Finders' Fees...................................... 28
4.8. Tax-Free Reorganization......................................... 28
5. Conduct Prior To The Effective Time...................................... 29
5.1. Conduct of Business............................................. 29
5.2. No Solicitation................................................. 31
6. Additional Agreements.................................................... 32
6.1. Approval of Shareholders; Waiver of Dissenter's Rights.......... 32
6.2. Access to Information........................................... 32
6.3. Confidentiality................................................. 32
6.4. Public Disclosure............................................... 32
6.5. Consents; Cooperation........................................... 33
6.7. Legal Requirements.............................................. 33
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TABLE OF CONTENTS
(continued)
Page
6.8. Indemnification Escrow Agreement................................ 34
6.9. Listing of Additional Shares.................................... 34
6.10. Employees....................................................... 34
6.11. Reorganization.................................................. 34
6.12. Expenses........................................................ 34
6.13. Registration of Shares Issued in the Merger..................... 34
6.14. Reasonable Commercial Efforts and Further Assurances............ 37
7. Termination, Amendment and Waiver........................................ 37
7.1. Termination..................................................... 37
7.2. Effect of Termination........................................... 38
7.3. Amendment....................................................... 38
7.4. Extension; Waiver............................................... 38
8. Indemnification and Indemnification Escrow............................... 38
8.1. Indemnification................................................. 38
8.2. General Indemnification Provisions.............................. 40
8.3. Right of Set-Off................................................ 42
8.4. Indemnification Escrow Fund..................................... 43
8.5. Indemnification Escrow Period; Release From
Indemnification Escrow.......................................... 43
8.6. Claims Upon Indemnification Escrow Fund......................... 44
8.7. Objections to Claims............................................ 45
8.8. Resolution of Conflicts and Arbitration......................... 45
8.9. LPC Holders' Agent.............................................. 46
8.10. Actions of the LPC Holders' Agent............................... 47
9. Tax and Employee Covenants............................................... 47
9.1. Tax Returns..................................................... 47
9.2. Employee Benefit Plans.......................................... 47
10.General Provisions....................................................... 48
10.1. Notices......................................................... 48
10.2. Definitions..................................................... 49
10.3. Counterparts.................................................... 49
10.4. Entire Agreement; Nonassignability; Parties in Interest......... 49
10.5. Severability.................................................... 50
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TABLE OF CONTENTS
(continued)
Page
10.6. Remedies Cumulative............................................. 50
10.7. Governing Law; Jurisdiction..................................... 50
10.8. Rules of Construction........................................... 50
LIST OF EXHIBITS
Exhibit A Certificate of Merger and Plan of Merger
Exhibit B Legal Opinions
Exhibit C Tax Opinion
Exhibit D Tax Certificates
Exhibit E Indemnification Escrow Agreement
Exhibit F Investor Representation Statement
Exhibit G Non-Competition and Non-Solicitation Statement
Exhibit H LII Release and LII Consent
Exhibit I LPC Holders Release
Exhibit J Certain Registration Provisions
Exhibit K SAU Letters, as Amended
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered
into as of July 13, 1999, by and among iVillage Inc., a Delaware corporation
("Parent"), LPC Acquisition Corporation, a Connecticut corporation and wholly
owned subsidiary of Parent ("Merger Sub"), Lamaze Publishing Company, Inc., a
Connecticut corporation ("LPC"), the shareholders of LPC set forth on the
signature pages hereof (the "Shareholders") and the holders of LPC stock
appreciation units ("Stock Appreciation Units") set forth on the signature pages
hereof (the "SAU Holders"). The Shareholders and the SAU Holders are referred to
collectively herein as the "LPC Holders."
RECITALS
A. The Boards of Directors of LPC, Parent and Merger Sub believe it is in the
best interests of their respective companies and the shareholders of their
respective companies that LPC and Merger Sub combine into a single company
through the statutory merger of Merger Sub with and into LPC (the "Merger") and,
in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, each outstanding share of LPC
Common Stock ("LPC Common Stock") shall be converted into the right to receive
the Merger Consideration (as defined in Section 1.6(a)) upon the terms and
subject to the conditions set forth herein.
C. LPC, the LPC Holders, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the covenants and representations set forth
herein, and for other good and valuable consideration, the parties agree as
follows:
1. The Merger.
1.1. The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the Certificate
of Merger and Plan of Merger attached hereto as Exhibit A (collectively, the
"Plan of Merger") and the applicable provisions of the Connecticut Business
Corporation Act ("Connecticut Law"), Merger Sub shall be merged with and into
LPC, the separate corporate existence of Merger Sub shall cease and LPC shall
continue as the surviving corporation. LPC as the surviving corporation after
the Merger is hereinafter sometimes referred to as the "Surviving Corporation."
1.2. Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in Section
2 hereof, but no later than ten business days following such
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satisfaction or waiver unless the only condition to Closing which has not been
satisfied or waived is the termination of the waiting period pursuant to HSR (as
defined in Section 3.2), in which case such date shall be automatically extended
until the expiration of such waiting period, or at such other time as the
parties hereto agree (the "Closing Date"). The Closing shall take place at the
offices of Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New
York, or at such other location as the parties hereto agree. At the Closing, the
parties hereto shall cause the Merger to be consummated by filing the Plan of
Merger with the Secretary of State of the State of Connecticut, in accordance
with the relevant provisions of Connecticut Law (the time of such filing being
the "Effective Time").
1.3. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Plan of Merger and the
applicable provisions of Connecticut Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of LPC and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of LPC and Merger
Sub shall become the debts, liabilities and duties of the Surviving Corporation.
1.4. Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of
LPC, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Connecticut Law and such Certificate of Incorporation;
provided, however, that the Certificate of Incorporation of the Surviving
Corporation shall be amended and restated as set forth in the Plan of Merger
attached hereto as Exhibit A.
(b) The Bylaws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5. Directors and Officers. At the Effective Time, the directors and
officers of Merger Sub immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation, until their respective
successors are duly elected or appointed and qualified.
1.6. Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, LPC or the holders of
any of the following securities:
(a) Conversion of LPC Capital Stock. Each share of LPC Common
Stock issued and outstanding immediately prior to the Effective Time (the
"Outstanding LPC Shares") shall be converted and exchanged, without any action
on the part of the holders thereof, into the right to receive the merger
consideration (the "Merger Consideration"). The Merger Consideration shall
consist of that number of validly issued, fully paid and nonassessable shares of
the Common Stock, $.01 par value per share, of Parent ("Parent Common Stock")
equal to (i) the quotient of $86,700,000 (less the sum of: (u) subject to
Section 1.6(c)(ii), an amount equal to the product obtained by multiplying the
shares isssuable to Lamaze International, Inc. ("LII") under Section 1.6(c)(ii)
by the Parent Share Price (defined below); (v) the outstanding debt of
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LPC to the Bank of New York at the Closing pursuant to the agreements between
LPC and the Bank of New York set forth on Schedule 3.22 hereof; (w) the
outstanding debts of LPC to Norton Garfinkle and Bruce F. Failing, Jr.
(collectively, the "Shareholder Lenders") set forth on Schedule 3.22 hereof; (x)
the aggregate Redemption Price of the LPC stock appreciation units described on
Schedule 1.6(a) (the "Stock Appreciation Units"); (y) the amount of the BBHC Fee
(as defined in Section 3.11); and (z) $22,500) divided by $46.7313 (the "Parent
Share Price"), divided by (ii) the number of shares of LPC Common Stock
outstanding at the Closing.
(b) Redemption of Stock Appreciation Units.
(i) Pursuant to the letter agreements in the forms attached
as Exhibit K and the terms of this Agreement, immediately prior to the
effectiveness of the Registration Statement, Parent shall issue to the
SAU Holders in redemption of the Stock Appreciation Units set forth on
Schedule 1.6(b), that number of validly issued, fully-paid and
non-assessable shares of Parent Common Stock (rounded to the nearest
whole share) equal to the number obtained by dividing the aggregate
Redemption Price for such Stock Appreciation Units set forth on
Schedule 1.6(b) by the Parent Share Price (the "SAU Shares").
(ii) Upon issuance thereof, Parent shall cause to be
distributed to an escrow agent reasonably satisfactory to Parent and
the SAU Holders (the "SAU Escrow Agent"), pursuant to an escrow
agreement reasonably satisfactory to Parent and the SAU Holders, that
number of SAU Shares (the "SAU Escrow Shares") with a fair market value
on the date of such distribution (average of the high and low market
trading prices) equal to the income tax withholding and the SAU
Holders' portion of the federal, state and local employment taxes that
LPC (or the employer) is required to withhold and/or pay to the
appropriate governmental authorities ("Withholding Tax Amount") as a
result of such issuance of the SAU Shares to the SAU Holders. In the
event that an SAU Holder does not pay his or her portion of the
Withholding Tax Amount within one (1) business day after the issuance
of the SAU Shares, then LPC (or the employer) may direct the SAU Escrow
Agent to sell an amount of such SAU Holder's SAU Escrow Shares, on
behalf of the respective SAU Holder, pursuant to the terms of an escrow
agreement sufficient to pay such SAU Holder's portion of the
Withholding Tax Amount. Powers of attorney, the escrow agreement and
related documents, as shall be reasonably satisfactory to Parent and
the SAU Holders, shall be entered into by the SAU Holders prior to the
filing of the Registration Statement. Proceeds of such sales shall be
paid to LPC (or the employer) until the respective SAU Holder's share
of the Withholding Tax Amount has been paid in full. LPC (or the
employer) shall pay the Withholding Tax Amount on behalf of SAU Holders
with respect to the SAU Shares in compliance with applicable Tax laws.
The SAU Holders shall pay to LPC (or the employer) any additional
amount necessary to assure that LPC (or the employer) has been fully
reimbursed for the Withholding Tax Amount, without interest.
(iii) Notwithstanding any other provisions of this Agreement,
including the obligations of Parent set forth in Section 6.13(a), the
obligation to file the Registration Statement shall be subject to the
execution and delivery of the escrow agreement, powers of attorney and
related documents described in the preceding clause.
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(iv) In the event that the Closing has occurred and the
Registration Statement is not effective within 12 months thereafter,
any SAU Holder may require Parent to issue such SAU Holder in
redemption of the Stock Appreciation Units: (a) cash in an amount
sufficient to pay the Withholding Tax Amount due as a result of such
redemption by the SAU Holder, subject to a maximum amount equal to such
SAU Holder's pro rata share of One Million Five Hundred Thousand
Dollars ($1,500,000), which shall be withheld by Parent on behalf of
LPC (or the employer) and used to pay the Withholding Tax Amount with
the applicable governmental authorities, and (b) that number of validly
issued, fully-paid and non-assessable unregistered shares of Parent
Common Stock (rounded to the nearest whole share) equal to the number
obtained by dividing the aggregate Redemption Price for the Stock
Appreciation Units by the Parent Share Price and then multiplying by
66.05%. In the event that the amount of cash paid by Parent pursuant to
the preceding clause (i) is insufficient to pay the Withholding Tax
Amount, then such SAU Holder shall make arrangements satisfactory to
Parent to pay the Withholding Tax Amount shortfall, and the Parent
Common Stock to be delivered to the SAU Holder pursuant to the
preceding clause (ii) shall not be delivered to the SAU Holder until
such arrangements have been made.
(c) Other Issuances.
(i) At the Effective Time, Parent shall issue to BBHC (as
defined in Section 3.11) the number of validly issued, fully paid and
non-assessable shares of Parent Common Stock (rounded to the nearest
whole share) equal to the quotient obtained by dividing the BBHC Fee by
the Parent Share Price.
(ii) At the Effective Time, subject to the written direction
of the LPC Holders' Agent (as defined in Section 8.9) prior to the
filing of the Registration Statement, Parent shall issue to LII the
number of validly issued, fully paid and non-assessable shares of
Parent Common Stock (rounded to the nearest whole share) as shall be
directed by the LPC Holders' Agent, provided that the maximum number of
shares to be issued to LII shall not exceed 27,273 shares of the shares
otherwise issuable to the Shareholders hereunder. In the event the LPC
Agent does not direct Parent to issue such shares, no deduction shall
be made pursuant to Section 1.6(a)(u) above. In the absence of any
direction by the LPC Holders' Agent, no shares shall be issued to LII.
(iii) At the Effective Time, at the option of the respective
Shareholder Lenders exercisable in writing prior to the filing of the
Registration Statement, Parent shall issue to each Shareholder Lender
cash in the amount of LPC's debt to such Shareholder Lender set forth
on Schedule 3.22 hereof (the "Holder Debt") or the number of validly
issued, fully paid and non-assessable shares of Parent Common Stock
(rounded to the nearest whole share) equal to the quotient obtained by
dividing the Holder Debt to such Shareholder Lender by the Parent Share
Price. In the absence of any such written election by a Shareholder
Lender prior to the filing of the Registration Statement, the Parent
shall provide cash to such Shareholder Lender in satisfaction of the
Holder Debt.
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(iv) Notwithstanding anything in this Agreement to the
contrary, no shares of Parent Common Stock issued pursuant to Section
1.6(c)(i) or (ii), respectively, shall be registered pursuant to the
Registration Statement unless BBHC, in the case of Section 1.6(c)(i) or
LII, in the case of Section 1.6(c)(ii), shall have agreed to comply in
writing prior to the filing of the Registration Statement and have
complied with the provisions of Section 6.13 and Exhibit J hereof as if
such parties were LPC Holders hereunder. In the event of such
agreement, each of BBHC and LPC shall be considered an "LPC Holder"
solely for the purposes of said section and Exhibit.
(v) Notwithstanding anything in this Agreement to the
contrary, it shall be solely the obligation of the LPC Holders to
fulfill the obligations to LII with respect to any fee or other
compensation due to LII in connection with the transactions
contemplated by this Agreement.
(d) Cancellation of LPC Common Stock Owned by Parent. At the
Effective Time, each share of LPC Common Stock, if any, owned by Parent or any
direct or indirect wholly owned subsidiary of Parent immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(e) Capital Stock of Merger Sub. At the Effective Time, each
share of Common Stock of Merger Sub ("Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of Common
Stock of the Surviving Corporation. Each stock certificate of Merger Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the Surviving Corporation.
(f) Adjustments to Consideration.
(i) The Merger Consideration, the Parent Share Price, and
the number of shares issuable hereunder to the SAU Holders, to BBHC and
to LII shall be adjusted to reflect fully the effect of any stock
split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Parent Common Stock or LPC
Common Stock), reorganization, recapitalization or other like change
with respect to Parent Common Stock or LPC Common Stock, or any merger
or consolidation of Parent with any other entity, occurring prior to
the Effective Time, or, with respect to the SAU Holders, the issuance
of the SAU Shares.
(ii) (a) The aggregate number of shares issuable hereunder
to the LPC Holders, BBHC and LII shall be decreased by the quotient
obtained by dividing (x) the amount by which at Closing (A) the sum of
cash and accounts receivable (less doubtful accounts and cash or
accounts receivable relating to deferred revenue) of LPC is less than
(B) the sum of accounts payable and accrued expenses (less accounts
payable or accrued expenses related to prepaid expenses) of LPC
(provided however, that all expenses related to this Agreement and the
transactions contemplated hereby (including without limitation, legal,
accounting, financial advisor and other fees of LPC and the
Shareholders) shall be the obligation of, and (except as explicitly set
forth herein) be paid directly by, the LPC Holders and shall not be
obligations of LPC); by (y)
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$46.7313 (the "Adjustment Amount"). Notwithstanding the foregoing, any
adjustment shall exclude the effect of reserves for Taxes within those
categories which are the subject of a reserve in the proposed
Registration Financial Statements (defined below) previously delivered
to the parties hereto; provided however such Taxes shall be subject to
indemnification pursuant to Section 8.1(c). Such adjustment shall be
determined based on a balance sheet as of the Closing (the "Closing
Balance Sheet"). The LPC Holders acknowledge and agree that the Closing
Balance Sheet shall be prepared by Parent according to generally
accepted accounting principles and in a manner consistent with the LPC
audited financial statements prepared in compliance with SEC rules and
regulations which have been prepared by Parent's accountants for
inclusion in the Registration Statement (as defined in Section 6.13(a))
(the "Registration Statement Financials"), and that such Closing
Balance Sheet will reflect adjustments to the Financial Statements (as
defined in Section 3.13) consistent with those in the Registration
Statement Financial Statements. The Closing Balance Sheet shall be
prepared as soon as practicable after the Closing and delivered within
sixty (60) days after the Closing to the LPC Holders' Agent, together
with appropriate backup information as shall be reasonably requested by
the LPC Holders' Agent. If the LPC Holders' Agent does not dispute the
Closing Balance Sheet within five (5) business days of delivery of the
Closing Balance Sheet, by written notice (such notice must contain a
statement of the basis of the LPC Holders' objection), then the Closing
Balance Sheet will be used in computing the Adjustment Amount. If the
LPC Holders' Agent gives such notice of objection, then the issues in
dispute will be submitted to an independent nationally recognized
accounting firm (the "Accountants") for resolution. If issues in
dispute are submitted to the Accountants for resolution, (i) each party
will furnish to the Accountants such workpapers and other documents and
information relating to the disputed issues as the Accountants may
request and are available to that party (or its accountants), and will
be afforded the opportunity to present to the Accountants any material
relating to the determination and to discuss the determination with the
Accountants; (ii) the determination by the Accountants, as set forth in
a notice delivered to both parties by the Accountants, will be binding
and conclusive on the parties; and (iii) each of Parent and the LPC
Holders will bear 50% of the fees of the Accountants for such
determination.
(b) On the third business day following the final
determination of the Adjustment Amount, LPC Holders shall pay the Adjustment
Amount by offset against the Indemnification Escrow Fund to the extent
available, and the remainder, if any, in cash; provided however, that after the
Registration Statement becomes effective, the LPC Holders shall satisfy such
obligations by payment in the amount of shares equal to the Adjustment Amount
divided by $46.7313, which shares shall, at the option of Parent, be sold by the
LPC Holders. The proceeds of such sale net of transaction expenses approved by
Parent shall be paid to Parent and deemed to satisfy such Adjustment Amount in
full.
(g) Fractional Shares. No fraction of a share of Parent Common
Stock will be issued, but in lieu thereof each person to which Parent Common
Stock is to be issued hereunder who would otherwise be entitled to a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock to be received by such person) shall receive from Parent an
amount of cash (rounded to the nearest whole cent) equal to the
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product of (i) such fraction, multiplied by (ii) the Parent Share Price. The
fractional share interests of each person shall be aggregated, so that no person
shall receive cash in respect of fractional share interests in an amount greater
than the value of one full share of Parent Common Stock.
(h) Certificate Legends. The shares of Parent Common Stock to be
issued pursuant to this Section 1 shall bear the following legends and any other
legends required by state securities laws:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES OR "BLUE-SKY"
LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM. ADDITIONALLY, THE TRANSFER OF THESE
SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE AGREEMENT AND
PLAN OF REORGANIZATION DATED AS OF JULY 13, 1999 AMONG iVILLAGE INC.,
LPC, ACQUISITION CORPORATION, LAMAZE PUBLISHING COMPANY AND THE OTHER
SIGNATORIES THERETO AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID
OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF iVILLAGE INC."
; provided however, that any shares of LPC Common Stock issued hereunder which
are not deposited into the Escrow Fund shall not be legended with the last two
sentences thereof.
1.7. Surrender of Certificates.
(a) Notwithstanding any other provision of this Section 1.7, each
holder of a certificate theretofore evidencing shares of LPC Common Stock, each
holder of a Stock Appreciation Unit submitted for redemption, BBHC and LII shall
have the right at the Effective Time, in person or by its designated
representative, to receive from Parent, at the offices of Orrick, Herrington &
Sutcliffe LLP as aforesaid (or at such other location as the parties hereto
agree), a certificate representing the shares of Parent Common Stock to be
issued to it hereunder (less the number of shares of Parent Common Stock to be
deposited into an indemnification escrow fund (the "Indemnification Escrow
Fund") on such holder's behalf pursuant to an Indemnification Escrow Agreement
in the form attached as Exhibit E (the "Indemnification Escrow Agreement") and
Sections 1.7(c) and 8 hereof), registered in its name, together with a check in
an amount sufficient to permit payment of cash in lieu of any fractional shares
pursuant to Section 1.6(f).
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(b) Transfers of Ownership. At the Effective Time, the stock
transfer books of LPC shall be closed and there shall be no further registration
of transfers of LPC Common Stock thereafter on the records of LPC. If any
certificate for shares of Parent Common Stock is to be issued in a name other
than that in which the Certificate surrendered in exchange therefor is
registered, it will be a condition of the issuance thereof that the Certificate
so surrendered will be properly endorsed and will otherwise be in proper form
for transfer and that the person requesting such exchange will have paid to
Parent or any agent designated by it any transfer or other taxes required by
reason of the issuance of a certificate for shares of Parent Common Stock in any
name other than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.
(c) Indemnification Escrow.
(i) As soon as practicable after the Effective Time, and
subject to and in accordance with the provisions of Section 8 hereof,
Parent shall cause to be distributed to the Indemnification Escrow
Agent (as defined in Section 8.4 hereof) and held in escrow a
certificate or certificates representing fifteen percent (15%) of the
sum of (A) the number of shares obtained by dividing: (I) the aggregate
Merger Consideration plus all debt to the Shareholder Lenders by (II)
the Parent Share Price and (B) shares issued to BBHC and LII (which
shall be registered in the name of the Indemnification Escrow Agent as
nominee for the holders of Certificates canceled pursuant to this
Section 1.7 or of Stock Appreciation Units, as the case may be). Such
shares shall be beneficially owned by such holders pro rata on the
basis of their respective proportions of the aggregate Merger
Consideration plus cash and shares issued to the Shareholder Lenders.
(ii) As soon as practicable after the effectiveness of the
Registration Statement, and subject to and in accordance with the
provisions of Section 8 hereof, Parent shall cause to be distributed to
the Indemnification Escrow and held in escrow a certificate or
certificates representing fifteen percent (15%) of the shares issued in
redemption of the Stock Appreciation Units which are not SAU Escrow
Shares. Such shares shall be registered in the name of the
Indemnification Escrow Agent as nominee for the SAU Holders. Such
shares shall be beneficially owned by such holders.
1.8. No Further Ownership Rights in LPC Capital Stock. The Merger
Consideration delivered upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any dividends, distributions or cash
paid in lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to the shares of LPC Common Stock
represented by such Certificates, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of LPC Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Section 1.
1.9. Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof such
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Merger Consideration (and dividends, distributions and cash in lieu of
fractional shares) as may be required pursuant to Section 1.6; provided,
however, that Parent may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost stolen or destroyed.
1.10. Tax Consequences. For Federal income tax purposes, the parties
intend that the Merger be treated as a tax-free reorganization within the
meaning of Section 368(a)(1)(A) of the Code, by reason of Section 368(a)(2)(E)
of the Code, and that this Agreement shall be, and is hereby, adopted as a plan
of reorganization for purposes of Section 368 of the Code. No party shall take a
position on any tax return or reports inconsistent with this Section 1.10, and
each party shall use its reasonable efforts to maintain such reporting in the
context of an audit. Each party shall give the other parties prompt notice of
any challenges or investigations undertaken by any taxing agency in connection
with such reporting, and shall keep such other parties fully informed of all
aspects of such ongoing challenge or investigation. The parties shall not take
any action, except as expressly provided in this Agreement, that would be
inconsistent with the treatment of the Merger as a reorganization within the
meaning of Section 368(a) of the Code, and shall each use its best efforts to
cause the business combination to be effected by the Merger to be qualified as a
reorganization within the meaning of Section 368(a) of the Code.
1.11. Taking of Necessary Action; Further Action. Each of the LPC
Holders, Parent, Merger Sub and LPC will take all such reasonable and lawful
action as may be necessary or desirable in order to effectuate the Merger in
accordance with this Agreement as promptly as possible. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of LPC and Merger Sub, the officers and directors of LPC and
Merger Sub are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action, so long
as such action is not inconsistent with this Agreement.
2. Conditions to the Merger.
2.1. Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be and remain in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending, which could have a Material
Adverse Effect (as defined in Section 9.2) on either Parent, Surviving
Corporation, or on Parent combined with the
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Surviving Corporation or on any Shareholder after the Effective Time, nor shall
there be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger, which makes the
consummation of the Merger illegal. In the event an injunction or other order
shall have been issued, each party agrees to use its reasonable diligent efforts
to have such injunction or other order lifted.
(b) Governmental Approval. Parent, LPC and Merger Sub and their
respective subsidiaries and each Shareholder shall have timely obtained from
each Governmental Entity (as defined in Section 3.2) all approvals, waivers and
consents, if any, necessary for consummation of or in connection with the Merger
and the several transactions contemplated hereby, including such approvals,
waivers and consents as may be required under the Securities Act of 1933, as
amended (the "Securities Act"), under state securities laws, and under HSR other
than any filing and approval relating to the Merger or affecting Parent's
ownership of LPC or any of its properties if failure to obtain such approval,
waiver or consent would not have a Material Adverse Effect on Parent or on
Parent combined with the Surviving Corporation or on any Shareholder after the
Effective Time.
2.2. Additional Conditions to Obligations of LPC. The obligations of
LPC to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by
LPC:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of Parent and Merger Sub in this Agreement shall
be true and correct in all material respects (except for such representations
and warranties that are qualified by their terms by a reference to materiality
which representations and warranties as so qualified shall be true in all
respects and except for representations and warranties which are as of a
specific date or which relate to a specific period other than or not including
the Closing Date (which shall be true and correct in all material respects as of
such date or period), and except for changes therein contemplated or permitted
by this Agreement) on and as of the date of this Agreement and on and as of the
Closing as though such representations and warranties were made on and as of
such time and Parent and Merger Sub shall have performed and complied in all
material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by them as of the Closing.
(b) Certificate of Parent. LPC shall have been provided with a
certificate executed on behalf of Parent by its President and its Chief
Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Parent and
Merger Sub under this Agreement are true and complete in all material
respects as set forth in Section 2.2(a) (except for such
representations and warranties that are qualified by their terms by a
reference to materiality, which representations and warranties as so
qualified shall be true in all respects as of the date of this
Agreement and as of the date of Closing); and
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(ii) all covenants, obligations and conditions of this
Agreement to be performed by Parent and Merger Sub on or before such
date have been so performed in all material respects.
(c) Legal Opinion. LPC shall have received a legal opinion from
Parent's legal counsel substantially in the form of Exhibit B-l hereto.
(d) Tax Opinion. The Shareholders shall have received a tax
opinion of Krugman & Kailes LLP, substantially in the form of Exhibit C hereto,
such opinion to be supported by tax certificates supplied by the Parent and LPC
substantially identical to those included in Exhibit D.
(e) Nasdaq Listing. The Parent Common Stock to be issued in the
merger shall have been authorized for listing on the Nasdaq/National Market
System upon official notice of issuance.
(f) Registration Statement. The Registration Statement shall have
been filed with the SEC in accordance with the Securities Act of 1933; and LPC
and the LPC Holders shall have received Parent's certificate to the effect that
it has obtained the approval of the majority of the holders of rights of
registration described in Section 6.13 hereof.
(g) Bank of New York Obligations. The personal guaranties of
Bruce P. Failing and Norton Garfinkle to the Bank of New York described on
Schedule I to the letter agreement dated May 18, 1999 between Parent, the
Shareholders and LPC (the "Letter Agreement"), the Hypothecation Agreements
listed on Schedule 3.22 hereto and the pledge of the Outstanding LPC Shares
pursuant to the Security Agreement listed on Schedule 3.22 hereto shall have
been released; and the Bank of New York shall have approved the satisfaction of
the LPC debts to the Shareholder Lenders.
2.3. Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate and effect this Agreement
and the transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Parent:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of LPC and the LPC Holders in this Agreement
shall be true and correct in all material respects (except for such
representations and warranties that are qualified by their terms by a reference
to materiality which representations and warranties as so qualified shall be
true and correct in all respects and except for representations and warranties
which are as of a specific date or which relate to a specific period other than
or not including the Closing Date (which shall be true and correct in all
material respects as of such date or period), and except for changes therein
contemplated or permitted by this Agreement) on and as of the date of this
Agreement and on and as of the Closing as though such representations and
warranties were made on and as of such time and (ii) LPC and the LPC Holders
shall have performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by them as of the Closing.
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(b) Certificate of LPC. Parent shall have been provided with a
certificate executed on behalf of LPC by its President and Chief Financial
Officer and each of the LPC Holders to the effect that:
(i) all representations and warranties made by LPC and the
LPC Holders under this Agreement were true and correct in all material
respects as set forth in Section 2.3(a) (except for such
representations and warranties that are qualified by their terms by a
reference to materiality, which representations and warranties as so
qualified shall be true in all respects) as of the date of this
Agreement and on and as of the Closing; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by LPC and/or the LPC Holders on or before
the Closing Date have been so performed in all material respects.
(c) Third Party Consents. Parent shall have been furnished with
evidence reasonably satisfactory to it of the consent or approval of those
persons whose consent or approval is required in connection with the Merger. The
parties agree that the consent of LII in the form included in Exhibit H hereto
is satisfactory to Parent.
(d) Legal Opinion. Parent shall have received a legal opinion
from the LPC Holder's and LPC's legal counsel in substantially the form of
Exhibit B-2.
(e) Indemnification Escrow Agreement. Parent, Merger Sub, LPC,
Indemnification Escrow Agent and the LPC Holders' Agent (as defined in Section
8.9 hereof) shall have entered into an Indemnification Escrow Agreement in the
form attached hereto as Exhibit E.
(f) No Material Adverse Changes. There shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
prospects, operations or results of operations of LPC taken as a whole since
December 31, 1998.
(g) Investor Representation Statement. Each of the LPC Holders
shall have delivered to Parent a signed Investor Representation Statement in
substantially the form attached hereto as Exhibit F and each such Statement
shall be in full force and effect.
(h) Employment Agreements and Non-Competition and
Non-Solicitation Agreements. Virginia Cargill and Douglas Bivona shall have
accepted employment with the Surviving Corporation pursuant to the terms of the
employment agreements with LPC reasonably satisfactory to Parent, LPC and such
employees and shall have entered into Non-Competition, Non-Disclosure and
Assignment of Inventions Agreements substantially in the form attached hereto as
Exhibit G.
(i) Dissenters' Rights. None of the holders of the LPC Common
Stock outstanding immediately prior to the Effective Time shall be eligible for
dissenters' rights.
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(j) LII Release and LII Consent. Parent shall have received from
Lamaze International, Inc. ("LII") an executed release and an executed consent
in substantially the forms attached hereto as Exhibit H which shall continue in
full force and effect as of the Closing.
(k) Shareholder Approval. This Agreement and the Merger shall be
approved and adopted by the shareholders of LPC by the requisite vote or written
consent under applicable law and LPC's Certificate of Incorporation.
(l) Release. Parent shall have received from each of the LPC
Holders an executed release in substantially the form of Exhibit H hereto.
(m) Title to Shares. The Outstanding LPC Shares shall be free
from liens and other encumbrances, including without limitation, hypothecation
pursuant to the agreements described on Schedule I of the Letter Agreement.
(n) Employee Plans. LPC shall have terminated the Lifetime
Institute 401(k) Profit-Sharing Plan. LPC shall have terminated the Lamaze
Publishing Company, Inc. Group Health Plan effective immediately prior to the
Closing such that no claims accruing from and after the Closing will be payable
pursuant to the Lamaze Publishing Company, Inc. Group Health Plan. LPC shall
have terminated its Severance Policy prior to the Closing.
(o) Shareholder Agreement. The Shareholder Agreement dated as of
August 9, 1990, among the Shareholders shall have been terminated.
(p) Obligations to Shareholders. All of the debts and other
obligations of LPC to Bruce Failing, Jr. and to Norton Garfinkle shall have been
satisfied.
(q) LPC Holder Certificate. Prior to the Closing, each LPC
Shareholder shall deliver to Parent an affidavit required by Section 1445(b) of
the Code in the form included in Exhibit D hereto.
3. Representations and Warranties of LPC and the LPC Holders. Except as
disclosed in a document of even date herewith and delivered by LPC to Parent
prior to the execution and delivery of this Agreement referencing the particular
Section of this Agreement to which exception is being taken (the "LPC Disclosure
Schedule"), LPC and the LPC Holders jointly and severally represent and warrant
to Parent and Merger Sub as follows:
3.1. Organization, Standing and Power. LPC is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. LPC has the corporate power to own its properties
and to carry on its business as now being conducted and as proposed to be
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing would
have a Material Adverse Effect on LPC. LPC has delivered a true and correct copy
of the Certificate of Incorporation and Bylaws or other charter documents, as
applicable, of LPC each as amended to date, to Parent. LPC is not in violation
of any of the provisions of its Certificate of Incorporation or Bylaws. LPC has
no subsidiaries and does not directly or indirectly own any equity or similar
interest in, or any interest convertible or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, joint venture or
other business association or entity.
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3.2. Authority.
(a) LPC Authority. LPC has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of LPC. The affirmative vote of
the holders of the shares of LPC's Common Stock outstanding on the record date
for the written consent of Shareholders relating to this Agreement is the only
vote of the holders of any of LPC's capital stock necessary under Connecticut
Law to approve this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by LPC and constitutes the valid
and binding obligation of LPC enforceable against LPC in accordance with its
terms, except that such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to creditors' rights
generally, and is subject to general principles of equity. The execution and
delivery of this Agreement by LPC does not, and the consummation of the
transactions contemplated hereby will not conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any material obligation or loss of any material benefit under (i) any provision
of the Certificate of Incorporation or Bylaws of LPC, as amended, or (ii) any
material mortgage, indenture, lease, credit agreement, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to LPC or
any of its properties or assets. No consent, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other governmental authority or instrumentality
("Governmental Entity") is required by or with respect to LPC in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the Plan of
Merger, together with the required officers' certificates, as provided in
Section 1.2, (ii) filings required under the Securities Act and Connecticut Law,
(iii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable state securities
laws and the securities laws of any foreign country; (iv) such filings as may be
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended ("HSR"); and (v) such other consents, authorizations, filings, approvals
and registrations which, if not obtained or made, would not have a Material
Adverse Effect on LPC and would not prevent, or materially alter or delay any of
the transactions contemplated by this Agreement.
(b) LPC Holder's Authority. Each LPC Holder has full right, power
and authority to enter into, perform and consummate the transactions
contemplated by this Agreement. This Agreement has been duly executed and
delivered by each LPC Holder and is a legal, valid and binding obligation of
each LPC Holder, enforceable against each LPC Holder in accordance with its
terms except that such enforceability may be limited by bankruptcy, insolvency,
moratorium or similar laws affecting or relating to creditors' rights generally,
and is subject to general principles of equity.
3.3. Governmental Authorization. LPC has obtained each federal, state,
county, local or foreign governmental consent, license, permit, grant, or other
authorization of a Governmental Entity (i) pursuant to which LPC currently
operates or holds any interest in any of its properties or (ii) that is required
for the operation of LPC's business or the holding of any
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such interest and all of such authorizations are in full force and effect except
where the failure to obtain or have any such authorizations could not reasonably
be expected to have a Material Adverse Effect on LPC.
3.4. Title to Property. LPC has good and marketable title to all of its
properties, interests in properties and assets, real and personal of the nature
to be reflected on a balance sheet under generally accepted accounting
principles, reflected on the LPC balance sheet dated as at December 31, 1998
(the "LPC Balance Sheet") or acquired after December 31, 1998 (the "LPC Balance
Sheet Date") (except properties, interests in properties and assets sold or
otherwise disposed of since the LPC Balance Sheet Date in the ordinary course of
business), or with respect to leased properties and assets, valid leasehold
interests therein, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) the lien of current taxes not
yet due and payable, (ii) such imperfections of title, liens and easements as do
not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties and (iii) liens securing debt
which is reflected on the LPC Balance Sheet. Each reference to an LPC Balance
Sheet in this Agreement shall be a reference to a balance sheet delivered by LPC
to Parent hereunder and included in the Financial Statements (defined in Section
3.13). The plants, property and equipment of LPC that are used in the operations
of their businesses are in all material respects in good operating condition and
repair, subject to normal wear and tear. All properties used in the operations
of LPC are reflected in the LPC Balance Sheet to the extent generally accepted
accounting principles require the same to be reflected. All leases to which LPC
is a party are in full force and effect and are valid, binding and enforceable
in accordance with their respective terms, except as such enforceability may be
limited by (i) bankruptcy laws and other similar laws affecting creditors'
rights generally and (ii) general principles of equity, regardless of whether
asserted in a proceeding in equity or at law. True and correct copies of all
such leases have been provided to Parent. LPC owns no real property. The LPC
Disclosure Schedule sets forth a true and complete list of all real property
leased by LPC. Assuming the due execution and delivery thereof by the other
parties thereto, all such real property leases are in full force and effect and
are valid, binding and enforceable in accordance with their respective terms,
except as such enforceability may be limited by (i) bankruptcy laws and other
similar laws affecting creditors' rights generally and (ii) general principles
of equity, regardless of whether asserted in a proceeding in equity or at law.
True and correct copies all such of real property leases have been provided to
Parent.
3.5. Environmental Matters.
(a) The following terms shall be defined as follows:
(i) "Environmental Laws" shall mean any federal, state or
local laws, ordinances, codes, regulations, rules, policies and orders
that are intended to assure the protection of the environment, or that
classify, regulate, call for the remediation of, require reporting with
respect to, or list or define air, water, groundwater, solid waste,
hazardous or toxic substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees,
workers or other persons, including the public.
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(ii) "Hazardous Materials" shall mean any toxic or hazardous
substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without
limitation, those substances, materials and wastes defined in or
regulated under any Environmental Laws.
(b) LPC is not and has not been in violation of any
Environmental Law relating to the properties or facilities of LPC at which any
part of LPC's business is or has been conducted. LPC has not used, generated,
manufactured or stored on or under any part of its properties or facilities at
which any part of LPC's business is or has been conducted, or transported to or
from any part thereof, any Hazardous Materials in violation of any applicable
Environmental Laws. There has not been any presence, disposal, or release of
any Hazardous Materials on, from or under any part of LPC's properties or
facilities at which any part of LPC's business is or has been conducted. No
civil, criminal or administrative action, proceeding or investigation is
pending against LPC, or to LPC's knowledge, threatened against LPC, and LPC is
not aware of any facts or circumstances which could form the basis for
assertion of a claim or liability, regarding non-compliance with Environmental
Laws relating to LPC's business.
3.6. Taxes. LPC and each other corporation (if any) included in any
consolidated or combined Tax return in which LPC has been included (i) have
filed and will file, in a timely and proper manner, consistent with applicable
laws, all Federal, state and local Tax returns and Tax reports required to be
filed by them through the Closing Date (the "LPC Returns") with the appropriate
governmental agencies in all jurisdictions in which LPC Returns are required to
be filed and have timely paid or will timely pay all amounts shown thereon to be
due; (ii) have paid and shall timely pay all Taxes of LPC (or such other
corporation) required to have been paid by LPC (or such other corporation) on or
before the Closing Date; and (iii) currently are not the beneficiary of an
extension of time within which to file any Tax return or Tax report. All such
LPC Returns were and will be correct and complete at the time of filing. All
Taxes of LPC attributable to all taxable periods ending on or before the Closing
Date, to the extent not required to have been previously paid, have been
adequately provided for on the LPC Balance Sheet as of December 31, 1998 and the
LPC Balance Sheet as of March 31, 1999 (as appropriate) and LPC will not accrue
a Tax liability for December 31, 1998 up to and including the Closing Date,
other than a Tax liability accrued in the ordinary course of business. LPC has
not been notified by the Internal Revenue Service (the "IRS") or any state,
local or foreign taxing authority that any issues have been raised (and are
currently pending) in connection with any LPC Return, and no waivers of statutes
of limitations have been given with respect to LPC that are still in effect.
Except as contested in good faith and disclosed in Section 3.6 of the LPC
Disclosure Schedule, any deficiencies asserted or assessments (including
interest and penalties) made as a result of any examination by the IRS or by any
other taxing authorities of any LPC Return have been fully paid or are
adequately provided for on the LPC Balance Sheet as of December 31, 1998 and the
LPC Balance Sheet as of March 31, 1999 (as appropriate) and LPC has received no
notification that any proposed additional Taxes have been asserted. LPC is, has
always been, and immediately prior to the Closing will be, an S corporation
within the meaning of Section 1361 of the Code. LPC has not made an election to
be treated as a "consenting corporation" under Section 341(f) of the Code. LPC
has not agreed to, nor is it required to, make any adjustment under Section
481(a) of the Code by reason of a change in accounting method or otherwise. LPC
will not incur a Tax liability resulting from LPC ceasing to be a member of a
consolidated or
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combined group that had previously filed consolidated, combined or unitary Tax
returns. LPC is not a party to any agreement or contract with any "disqualified
individual" (as defined in Section 280G(c) of the Code) that, by reason of the
transactions contemplated hereby and occurring on or prior to the Closing Date
or taking into account any other agreements or contracts currently in effect
between LPC and such disqualified individual, will result in the disallowance of
any deduction for any payment under such agreement or contract as an "excess
parachute payment" (as defined in Section 280G(b)(1) of the Code). The Company
is not, and has not been during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code, a United States real property holding corporation
within the meaning of Section 897(c) of the Code. Each LPC Holder who is a
natural person, and the beneficiaries of each trust which is a LPC Holder, is a
citizen of the United States. Each trust which is a Shareholder is and at all
relevant times has been a permissible shareholder of an S corporation as set
forth in Section 1361(c)(2) LPC has complied with all applicable laws relating
to the payment and withholding of Taxes (including, without limitation,
withholding of Taxes pursuant to Sections 1441, 1442 and 3406 of the Code or
similar provisions under any state or foreign laws) and has, within the time and
in the manner required by law, withheld from employee wages and paid over to
proper governmental authorities all amounts required to be so withheld and paid
over under all applicable laws.
As used in this Agreement: "Tax" means any of the Taxes and
"Taxes" means, with respect to any entity, (A) all income taxes (including any
tax on or based upon net income, gross income, income as specially defined,
earnings, profits or selected items of income, earnings or profits) and all
gross receipts, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, exercise, severance, stamp, occupation,
premium, property or windfall profits taxes, alternative or add-on minimum
taxes, customs duties and other taxes, fees, assessments or charges of any kind
whatsoever, together with all interest and penalties, additions to tax and other
additional amounts imposed by any taxing authority (domestic or foreign) on such
entity and (B) any liability for the payment of any amount of the type described
in the immediately preceding clause (A) as a result of being a "transferee"
(within the meaning of Section 6901 of the Code or any other applicable law) of
another entity or a member of an affiliated or combined group.
3.7. Employee Benefit Plans.
(a) Schedule 3.7 lists, with respect to LPC and any trade or
business (whether or not incorporated) which is treated as a single employer
with LPC (an "ERISA Affiliate") within the meaning of Section 414(b), (c), (m)
or (o) of the Code, (i) all employee benefit plans (as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
(ii) all loans to a non-officer employee in excess of $10,000 in the aggregate
to each such employee, all loans to officers and directors and any stock option,
stock purchase, phantom stock, stock appreciation right, supplemental
retirement, severance, sabbatical, medical, dental, vision care, disability,
employee relocation, cafeteria benefit (Code Section 125) or dependent care
(Code Section 129), life insurance or accident insurance plans, programs or
arrangements, (iii) all bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements, (iv) other fringe or
employee benefit plans, programs or arrangements that apply to senior management
of LPC and that do not generally apply to all employees, and (v) any current or
former employment or executive compensation or severance agreements, written or
otherwise, as to which unsatisfied obligations
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of LPC of greater than $10,000 in the aggregate remain for the benefit of or
relating to, any present or former employee, consultant or director of LPC
(together, the "LPC Employee Plans").
(b) LPC has furnished to Parent a copy of each of the LPC
Employee Plans and related plan documents (including trust documents, insurance
policies or contracts, employee booklets, summary plan descriptions and other
authorizing documents, and, to the extent still in its possession, any material
employee communications relating thereto) and has, with respect to each LPC
Employee Plan which is subject to ERISA reporting requirements, provided copies
of the Form 5500 reports filed for the last three plan years. Any LPC Employee
Plan intended to be qualified under Section 401(a) of the Code has either
obtained from the IRS a favorable determination letter as to its qualified
status under the Code, including all amendments to the Code effected by the Tax
Reform Act of 1986 and subsequent legislation, or has applied to the IRS for
such a determination letter prior to the expiration of the requisite period
under applicable Treasury Regulations or IRS pronouncements in which to apply
for such determination letter and to make any amendments necessary to obtain a
favorable determination, or has been established under a standardized prototype
plan for which an IRS opinion letter has been obtained by the plan sponsor and
is valid as to the adopting employer. LPC has also furnished Parent with the
most recent IRS determination or opinion letter issued with respect to each such
LPC Employee Plan, and nothing has occurred since the issuance of each such
letter which could reasonably be expected to cause the loss of the tax-qualified
status of any LPC Employee Plan subject to Code Section 401(a).
(c) (i) None of the LPC Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) to the
knowledge of LPC, there has been no "prohibited transaction," as such term is
defined in Section 406 of ERISA and Section 4975 of the Code, with respect to
any LPC Employee Plan, which could reasonably be expected to have, in the
aggregate, a Material Adverse Effect on LPC; (iii) to the knowledge of LPC, each
LPC Employee Plan has been administered in accordance with its terms and in
compliance with the requirements prescribed by any and all statutes, rules and
regulations (including ERISA and the Code), except as would not have, in the
aggregate, a Material Adverse Effect on LPC, and LPC and each subsidiary or
ERISA Affiliate have performed all material obligations required to be performed
by them under, are not in any material respect in default under or violation of
and have no knowledge of any material default or violation by any other party
to, any of the LPC Employee Plans; (iv) to the knowledge of LPC, neither LPC nor
any subsidiary or ERISA Affiliate is subject to any liability or penalty under
Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any
of the LPC Employee Plans; (v) all material contributions required to be made by
LPC or any subsidiary or ERISA Affiliate to any LPC Employee Plan have been made
on or before their due dates and a reasonable amount has been accrued for
contributions to each LPC Employee Plan for the current plan years; (vi) with
respect to each LPC Employee Plan, no "reportable event" within the meaning of
Section 4043 of ERISA (excluding any such event for which the thirty (30) day
notice requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063 or 4041 or ERISA has
occurred; and (vii) no LPC Employee Plan is covered by, and neither LPC nor any
subsidiary or ERISA Affiliate has incurred or expects to incur any liability
under Title IV of ERISA or Section 412 of the Code. With respect to each LPC
Employee Plan subject to ERISA as either an employee pension plan within the
meaning of Section 3(2) of ERISA or an
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employee welfare benefit plan within the meaning of Section 3(1) of ERISA, LPC
has prepared in good faith and timely filed all requisite governmental reports
(which were true and correct as of the date filed) and has properly and timely
filed and distributed or posted all notices and reports to employees required to
be filed, distributed or posted with respect to each such LPC Employee Plan. No
suit, administrative proceeding, action or other litigation has been brought, or
to the knowledge of LPC is threatened, against or with respect to any such LPC
Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor. Neither LPC nor any ERISA Affiliate is a party to, or has
made any contribution to or otherwise incurred any obligation under, any
"multiemployer plan" as defined in Section 3(37) of ERISA.
(d) With respect to each LPC Employee Plan, LPC has complied
with (i) the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
proposed regulations thereunder and (ii) the applicable requirements of the
Family Leave Act of 1993 and the regulations thereunder, except to the extent
that such failure to comply would not in the aggregate, have a Material Adverse
Effect on LPC.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of LPC, any LPC subsidiary or any other ERISA Affiliate to severance
benefits or any other payment (including, without limitation, unemployment
compensation, golden parachute or bonus), except as expressly provided in this
Agreement or (ii) accelerate the time of payment or vesting of any such
benefits, or increase the amount of compensation due any such employee or
service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by LPC, or other ERISA Affiliate relating
to, or change in participation or coverage under, any LPC Employee Plan which
would materially increase the expense of maintaining such Plan above the level
of expense incurred with respect to that Plan for the most recent fiscal year
included in LPC's financial statements.
3.8. Employee Matters. LPC is in compliance with all currently
applicable laws and regulations respecting discrimination in employment, terms
and conditions of employment, wages, hours and occupational safety and health
and employment practices, except for such noncompliance as has not and would not
reasonably be expected to have had a Material Adverse Effect on LPC, and is not
engaged in any unfair labor practice. There are no pending claims against LPC
under any workers' compensation plan or policy or for long term disability. LPC
has no material obligations under COBRA with respect to any former employees or
beneficiaries thereunder. There are no proceedings pending or, to the knowledge
of LPC, threatened, between LPC and its employees, which proceedings have or
could reasonably be expected to have a Material Adverse Effect on LPC. LPC is
not a party to any collective bargaining agreement or other labor union contract
nor does LPC know of any activities or proceedings of any labor union to
organize its employees. There has been no claim against LPC based on actual or
alleged race, age, sex, disability or other harassment or discrimination, or
similar tortuous conduct, nor, to LPC's knowledge, is there any basis for such
claim. In addition, LPC has provided all employees with all relocation benefits,
stock options, bonuses and incentives, and all other compensation earned up
through the date of this Agreement.
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3.9. Insurance. LPC has policies of insurance and bonds of the type and
in amounts customarily carried by persons conducting businesses or owning assets
similar to those of LPC. There is no material claim pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies and bonds have been paid and LPC is otherwise in
compliance with the terms of such policies and bonds. LPC has no knowledge of
any threatened termination of, or material premium increase with respect to, any
of such policies.
3.10. Compliance with Laws. LPC has complied with, is not in violation
of and has not received any notices of violation with respect to, any federal
state, local or foreign statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for such
violations or failures to comply as could not be reasonably expected to have a
Material Adverse Effect on LPC.
3.11. Brokers' and Finders' Fees. LPC has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby, except
for fees and expenses incurred (the "BBHC Fee") to Brown Brothers Harriman & Co.
("BBHC").
3.12. Capital Structure; Title to Shares.
(a) Capital Structure. The authorized capital stock of LPC
consists of 40,000 shares of LPC Common Stock, of which 36,478 shares were
issued and outstanding as of the close of business on July 11, 1999. All
outstanding shares of LPC Common Stock are duly authorized, validly issued,
fully paid and non-assessable and are free of any liens or encumbrances other
than any liens or encumbrances created by or imposed upon the holders thereof,
and are not subject to preemptive rights or rights of first refusal created by
statute, the Certificate of Incorporation or Bylaws of LPC or any agreement to
which LPC is a party or by which it is bound. Except for the rights created
pursuant to this Agreement, there are no other options, warrants, calls, rights,
commitments or agreements of any character to which LPC is a party or by which
it is bound obligating LPC to issue, deliver, sell, repurchase or redeem or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of LPC
capital stock or obligating LPC to grant, extend, accelerate the vesting of,
change the price of, or otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement. There are no other contracts, commitments
or agreements relating to voting, purchase or sale of LPC's capital stock (i)
between or among LPC and any of its shareholders and (ii) to LPC's knowledge,
between or among any of LPC's shareholders. All shares of outstanding LPC Common
Stock were issued in compliance with all applicable federal and state securities
laws.
(b) Title to Shares. Each Shareholder has good and valid title to
the shares of LPC Common Stock held by such Shareholder, free and clear of any
lien, pledge, charge, security interest, encumbrance, title retention agreement,
hypothecation, adverse claim, option, or equity. The shares of LPC Common Stock
owned by the Shareholders constitute all of the issued and outstanding capital
stock of LPC. At the Effective Time, good and valid title to all of the then
outstanding shares of LPC Common Stock will have been acquired by Parent, free
and clear of all liens, pledges, charges, security interests, encumbrances,
title retention agreements,
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hypothecations, adverse claims, options, or equities whatsoever, other than any
created by Parent or Merger Sub.
3.13. Financial Statements. LPC has delivered to Parent its audited
financial statements (balance sheet, statements of changes in shareholders'
equity (deficiency), statements of operations, and statements of cash flows) for
each of its fiscal years ended December 31, 1996, December 31, 1997 and December
31, 1998 respectively, and its unaudited financial statements (balance sheet,
statement of operations and statement of cash flows) as at and for the three (3)
month period ended March 31, 1999 (collectively, the "Financial Statements").
The Financial Statements are complete and correct in all material respects and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated and with each
other. The Financial Statements fairly present the consolidated financial
condition and operating results of LPC as of the dates, and for the periods,
indicated therein, subject to normal year-end audit adjustments which, in the
aggregate, are not material. LPC maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
generally accepted accounting principles.
3.14. Absence of Certain Changes. Since the LPC Balance Sheet Date, LPC
has conducted its business in the ordinary course consistent with past practice
and there has not occurred: (i) any change, event or condition (whether or not
covered by insurance) that has resulted in, or might reasonably be expected to
result in, a Material Adverse Effect to LPC; (ii) any acquisition, sale or
transfer of any material asset of LPC other than in the ordinary course of
business and consistent with past practice; (iii) any change in accounting
methods or practices (including any change in depreciation or amortization
policies or rates) by LPC or any revaluation by LPC of any of its assets; (iv)
any declaration, setting aside, or payment of a dividend or other distribution
with respect to the shares of LPC or any direct or indirect redemption, purchase
or other acquisition by LPC of any of its shares of capital stock; (v) any
material contract entered into by LPC, other than in the ordinary course of
business and as provided to Parent, or any material amendment or termination of,
any material contract to which LPC is a party or by which it is bound; (vi) any
amendment or change to the Certificate of Incorporation or Bylaws of LPC; (vii)
any increase in or modification of the compensation or benefits payable or to
become payable by LPC to any of its directors or employees or (viii) any
negotiation or agreement by LPC to do any of the things described in the
preceding clauses (i) through (vii) (other than negotiations with Parent and its
representatives regarding the transactions contemplated by this Agreement and
negotiations which have concluded without resulting in any agreement). At the
Effective Time, there will be no accrued but unpaid dividends on shares of LPC's
capital stock.
3.15. Absence of Undisclosed Liabilities. LPC has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the LPC
Balance Sheet, and (ii) those incurred in the ordinary course of business since
December 31, 1998 and not required to be set forth on the face of the LPC
Balance Sheet under generally accepted accounting principles.
3.16. Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of LPC, threatened
against LPC or any of its properties or any of
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its officers or directors (in their capacities as such) that, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect on
LPC. There is no judgment, decree or order against LPC, or, to the knowledge of
LPC, any of its directors or officers (in their capacities as such), that could
prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to have a
Material Adverse Effect on LPC. All litigation to which LPC is a party (or, to
the knowledge of LPC, threatened to become a party) is disclosed in the LPC
Disclosure Schedule.
3.17. Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon LPC which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current or proposed business practice of LPC, any acquisition of property by
LPC or the conduct of business by LPC as currently conducted or as proposed to
be conducted by LPC.
3.18. Intellectual Property.
(a) LPC owns and has good and marketable title to, or is licensed
or otherwise possesses legally enforceable rights to use, all patents, patent
applications, trademarks, trade names, service marks, copyrights (whether
registered or unregistered), and any applications therefor, maskworks, maskwork
applications, net lists, schematics, technology, know-how, trade secrets,
inventory, ideas, algorithms, processes, computer software programs or
applications (in both source code and object code form), client lists and
tangible or intangible proprietary information or material ("Intellectual
Property") that are used or currently proposed to be used in the business of LPC
as currently conducted or as proposed to be conducted by LPC, except to the
extent that the failure to have such rights has not had and would not reasonably
be expected to have a Material Adverse Effect on LPC. LPC is the exclusive owner
or exclusive licensee of all Intellectual Property, and in particular, without
limitation, LPC holds the exclusive and perpetual license to use the "Lamaze"
name on commercial consumer oriented publications and other communications in
all forms of media as set forth in the agreements listed on Schedule 3.18. LPC
has not granted any licenses to others with regard to any of the Intellectual
Property.
(b) Schedule 3.18 lists (i) all patents and patent applications
and all registered and unregistered trademarks, trade names and service marks,
registered and unregistered copyrights, and maskworks, included in the
Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all
licenses, sublicenses and other agreements as to which LPC is a party and
pursuant to which any person is authorized to use any Intellectual Property and
(iii) all licenses, sublicenses and other agreements as to which LPC is a party
and pursuant to which LPC is authorized to use any third party patents,
trademarks or copyrights, know-how or other Intellectual Property, including
software ("Third Party Intellectual Property Rights") which are incorporated in,
are, or form a part of any LPC product or which are used in connection with any
services offered by or performed by LPC.
(c) There is no unauthorized use, disclosure, infringement or
misappropriation of any Intellectual Property rights of LPC, any trade secret
material of LPC, or any Intellectual Property right of any third party to the
extent licensed by or through LPC, by any third party, including any employee or
former employee of LPC. LPC has not entered into any
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agreement to indemnify any other person against any charge of infringement of
any Intellectual Property, other than indemnification provisions contained in
sales agreements arising in the ordinary course of business. There are no
royalties, fees or other payments payable by or to LPC by or to any Person by
reason of the ownership, use, sale or disposition of Intellectual Property.
(d) LPC is not and will not be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement relating to
the Intellectual Property or Third Party Intellectual Property Rights, the
breach of which would have a Material Adverse Effect on LPC.
(e) All patents, registered trademarks, service marks and
copyrights held or exclusively licensed by LPC are valid and subsisting. LPC is
not infringing, misappropriating or making unlawful use of, and has not received
any notice or other communication (in writing or otherwise) of any actual,
alleged, possible or potential infringement, misappropriation or unlawful use of
any proprietary asset owned or used by any third party. LPC has not (i) been
sued in any suit, action or proceeding which involves a claim of infringement of
any patents, trademarks, tradenames, service marks, copyrights or violation of
any trade secret or other proprietary right of any third party or (ii) brought
any action, suit or proceeding for infringement of Intellectual Property or
breach of any license or agreement involving Intellectual Property against any
third party.
(f) To LPC's knowledge, no employee or independent contractor of
LPC is in violation of any term of any patent disclosure agreement or employment
contract or any other contract or agreement relating to the relationship of any
such employee or independent contractor with LPC.
(g) LPC has taken all commercially reasonable and customary
measures and precautions necessary to protect and maintain the confidentiality
of all Intellectual Property (except such Intellectual Property whose value
would be unimpaired by public disclosure) and otherwise to maintain and protect
the full value of all proprietary assets. All use, disclosure or appropriation
of material Intellectual Property not otherwise protected by patents, patent
applications or copyright ("Confidential Information") owned by LPC by or to a
third party has been pursuant to the terms of a written agreement between LPC
and such third party, or is so identified on Schedule 3.18. All use, disclosure
or appropriation of material Confidential Information not owned by LPC has been
pursuant to the terms of a written agreement between LPC and the owner of such
Confidential Information, or is otherwise lawful.
(h) To LPC's knowledge, no product liability claims have been
communicated in writing to or threatened against LPC.
(i) A complete list of LPC's proprietary software ("LPC
Software"), together with a brief description, is set forth in Schedule 3.18.
The LPC Software conforms in all material respects with any specification,
documentation, performance standard, representation or statement provided with
respect thereto by or on behalf of LPC.
(j) All of LPC's material computer-based systems are able to
operate and effectively process data including dates on or after January 1, 2000
and to the best knowledge of
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LPC and the LPC Holders, all of LPC's computer-based systems which are not
material are able to operate and effectively process data including dates on or
after January 1, 2000, and none of the products and services sold, licensed,
rendered, or otherwise provided by LPC will malfunction or will cease to
function as a result of the Year 2000.
3.19. Interested Party Transactions. LPC is not indebted to any
director, officer, employee or agent of LPC (except for amounts due as normal
salaries and bonuses and in reimbursement of ordinary expenses), and no such
person is indebted to LPC. There have been no transactions during the two year
period ending July 11, 1999 which would require disclosure under Item 404 of
Regulation S-K under the Securities Act.
3.20. Books and Records. The books of account, minute books, stock
record books, and other records of LPC, all of which have been made available to
Parent, are complete and correct in all material respects and have been
maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. The minute books of LPC
contain accurate and complete records of all meetings held of, and corporate
action taken by, the stockholders, the Board of Directors, and committees of the
Board of Directors of LPC, and no meeting of any such stockholders, Board of
Directors, or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At the Closing, all of those books
and records will be in the possession of LPC.
3.21. Complete Copies of Materials. LPC has delivered or made available
copies of each material document which has been requested by Parent or its
counsel in connection with their legal and accounting review of LPC which are
true and complete in all material respects.
3.22. Material Contracts. All the material contracts and agreements to
which LPC is a party are listed in Schedule 3.22 hereto. With respect to each
agreement so listed: (i) the agreement is legal, valid, binding and enforceable
and in full force and effect with respect to LPC, and to LPC's knowledge is
legal, valid, binding, enforceable and in full force and effect with respect to
each other party thereto, in either case subject to the effect of bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and except as the availability of equitable remedies
may be limited by general principles of equity; (ii) the agreement will continue
to be legal, valid, binding and enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect prior to the Closing, subject to the effect of bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and except as the availability of equitable remedies may be limited by
general principles of equity; and (iii) neither LPC nor, to LPC's knowledge, any
other party, is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default by LPC or, to LPC's
knowledge, by any such other party, or permit termination, modification or
acceleration, under the agreement. LPC is not a party to any material oral
contract, agreement or other arrangement.
3.23. Inventory. The inventories shown on the Financial Statements or
thereafter acquired by LPC, were acquired and maintained in the ordinary course
of business, are of good and merchantable quality, and consist of items of a
quantity and quality usable or salable
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in the ordinary course of business. Since December 31, 1998, LPC has continued
to replenish inventories in a normal and customary manner consistent with past
practices. LPC has not received notice that it will experience in the
foreseeable future any difficulty in obtaining, in the desired quantity and
quality and at a reasonable price and upon reasonable terms and conditions, the
raw materials, supplies or component products required for the manufacture,
assembly or production of its products. The values at which inventories are
carried reflect the inventory valuation policy of LPC, which is consistent with
its past practice and in accordance with generally accepted accounting
principles applied on a consistent basis. LPC is not under any liability or
obligation with respect to the return of any item of inventory in the possession
of wholesalers, retailers or other customers. Since December 31, 1998, adequate
provision has been made on the books of LPC in the ordinary course of business
consistent with past practices to provide for all slow-moving, obsolete or
unusable inventories to their estimated useful or scrap values and such
inventory reserves are adequate to provide for such slow-moving, obsolete or
unusable inventory and inventory shrinkage.
3.24. Accounts Receivable. Subject to any reserves set forth in the
Financial Statements, the accounts receivable shown on the Financial Statements
are valid and genuine, have arisen solely out of bona fide sales and deliveries
of goods, performance of services and other business transactions in the
ordinary course of business consistent with past practices in each case with
persons other than affiliates, are not subject to any prior assignment, lien or
security interest and are not subject to valid defenses, set-offs or counter
claims. LPC has no reason to believe that the accounts receivable will not be
collected in accordance with their terms at their recorded amounts, subject only
to the reserve for doubtful accounts on the Financial Statements.
3.25. Customers and Suppliers. As of the date hereof, no customer which
individually accounted for more than 5% of LPC's gross revenues during the 12
month period preceding the date hereof and no supplier of LPC, has canceled or
otherwise terminated, or made any written threat to LPC to cancel or otherwise
terminate its relationship with LPC or has at any time on or after December 31,
1998, decreased materially its services or supplies to LPC in the case of any
such supplier, or its usage of the services or products of LPC in the case of
such customer, and to LPC's knowledge, no such supplier or customer has
indicated either orally or in writing that it will cancel or otherwise terminate
its relationship with LPC or to decrease materially its services or supplies to
LPC or its usage of the services or products of LPC, as the case may be. LPC has
not knowingly breached, so as to provide a benefit to LPC that was not intended
by the parties, any agreement with, or engaged in any fraudulent conduct with
respect to, any customer or supplier of LPC.
3.26. Employees and Consultants. The LPC Disclosure Schedule or a
letter delivered to Parent by LPC prior to the execution and delivery of this
Agreement contains a list of the names of all employees and consultants of LPC,
their respective salaries or wages, other compensation and dates of employment
and positions.
3.27. Condition and Sufficiency of Assets. The buildings, plants,
structures, and equipment of LPC are structurally sound, are in good operating
condition and repair, and are adequate for the uses to which they are being put,
and none of such buildings, plants, structures, or equipment is in need of
maintenance or repairs except for ordinary, routine maintenance and
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repairs that are not material in nature or cost. The building, plants,
structures, and equipment of LPC are sufficient for the continued conduct of
LPC's businesses after the Closing in substantially the same manner as conducted
prior to the Closing.
3.28. Representations Complete. None of the representations or
warranties made by LPC or the LPC Holders herein or in any Schedule or Exhibit
hereto, including the LPC Disclosure Schedule, or in any certificate furnished
at Closing, when all such documents are read together in their entirety,
contain, or will contain at the Effective Time any untrue statement of a
material fact, or omits or will omit at the Effective Time to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading; provided,
however, that for purposes of this representation, any document attached hereto
and any document specifically referenced in the LPC Disclosure Schedule as a
"Superseding Document" (even if not attached hereto) that provides information
inconsistent with or in addition to any other written statement furnished to
Parent in connection with the transaction contemplated hereby, shall be deemed
to supersede any other document or written statement furnished to Parent with
respect to such inconsistent or additional information.
4. Representations and Warrantees of Parent and Merger Sub. Except as
disclosed in a document of even date herewith and delivered by Parent to LPC
prior to the execution and delivery of this Agreement and referring to the
representations and warranties in this Agreement (the "Parent Disclosure
Schedule"), Parent and Merger Sub represent and warrant to LPC and the LPC
Holders as follows:
4.1. Organization, Standing and Power. Each of Parent and Merger Sub
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of Parent and Merger Sub has the
corporate power to own its properties and to carry on its business as now being
conducted. Parent has delivered a true and correct copy of the Certificate of
Incorporation and Bylaws or other charter documents, as applicable, of Parent
and Merger Sub, each as amended to date, to LPC.
4.2. Capital Structure. The authorized capital stock of Parent consists
of 65,000,000 shares of Common Stock, $.01 par value, and 5,000,000 shares of
Preferred Stock, par value $.01 of which there were issued and outstanding as of
the close of business on July 12, 1999, 24,331,236 shares of Common Stock, and
no shares of Preferred Stock. There are no other outstanding shares of capital
stock or voting securities of Parent other than shares of Parent Common Stock
issued after July 12, 1999 upon the exercise of options issued under the Parent
1999 Employee Stock Option Plan, the Parent 1999 Acquisition Stock Option Plan,
the Parent 1997 Amended and Restated Acquisition Stock Option Plan, the Parent
1995 Amended and Restated Employee Stock Option Plan, the Parent 1999 Directors
Option Plan, (collectively, the "Parent Stock Option Plans"), or shares of
Parent Common Stock issued under the Parent 1999 Employee Stock Purchase Plan
(the "Parent Employee Stock Purchase Plan"). The authorized capital stock of
Merger Sub consists of 100 shares of Common Stock all of which are issued and
outstanding and are held by Parent. All outstanding shares of Parent and Merger
Sub have been duly authorized, validly issued, fully paid and are nonassessable.
As of the close of business on July 12, 1999 Parent has reserved 3,945,136
shares of Parent Common Stock for issuance to employees, directors and
independent contractors pursuant to the Parent Stock Option Plans, of which
3,375,839 shares are subject to outstanding, unexercised options, and 83,333
shares of
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Parent Common Stock for issuance pursuant to the Parent Employee Stock Purchase
Plan, of which 83,333 shares are available for issuance. The shares of Parent
Common Stock to be issued pursuant to this Agreement will be duly authorized,
validly issued, fully paid, and nonassessable and free and clear of any liens,
pledges, charges, security interests, encumbrances, title retention agreements,
hypothecations, adverse claims, options, or equities other than as created by
the LPC Holders, BBHC or LII.
4.3. Authority. Parent and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Merger
Sub. This Agreement has been duly executed and delivered by Parent and Merger
Sub and constitutes the valid and binding obligations of Parent and Merger Sub.
The execution and delivery of this Agreement do not and the consummation of the
transactions contemplated hereby will not conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any material obligation or loss of a material benefit under (i) any provision of
the Certificate of Incorporation or Bylaws of Parent or any of its subsidiaries,
as amended, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Parent or any
of its subsidiaries or their properties or assets. No consent, approval, order
or authorization of or registration, declaration or filing with, any
Governmental Entity, is required by or with respect to Parent or any of its
subsidiaries in connection with the execution and delivery of this Agreement by
Parent and Merger Sub or the consummation by Parent and Merger Sub of the
transactions contemplated hereby, except for (i) the filing of the Plan of
Merger, together with the required officers' certificates, as provided in
Section 1.2, (ii) the filing of the Registration Statement with the SEC, (iii)
any filings as may be required under applicable state securities laws and the
securities laws of any foreign country, (iv) such filings as may be required
under HSR, (v) the filing with the NASDAQ/National Market System of a
Notification Form for Listing of Additional Shares with respect to the shares of
Parent Common Stock issuable upon conversion of the LPC Common Stock in the
Merger, and (vi) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Parent and would not prevent, materially alter or delay any of the
transactions contemplated by this Agreement.
4.4. SEC Documents; Financial Statements. Parent has furnished to LPC
a true and complete copy of each statement, report, registration statement (with
the prospectus in the form filed pursuant to Rule 424(b) of the Securities Act),
definitive proxy statement, and other filing filed with the SEC by Parent since
March 18, 1999, and, prior to the Effective Time, Parent will have furnished LPC
with true and complete copies of any additional documents filed with the SEC by
Parent prior to the Effective Time (collectively, the "Parent SEC Documents").
In addition, Parent has made available to LPC all exhibits to the Parent SEC
Documents filed prior to the date hereof and will promptly make available to LPC
all exhibits to any additional Parent SEC Documents filed prior to the Effective
Time. All documents required to be filed as exhibits to the SEC Documents have
been so filed, and all material contracts so filed as exhibits are in full force
and effect except those which have expired in accordance with their terms, and
neither Parent nor any of its subsidiaries is in default thereunder. As of their
respective filing
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dates, the Parent SEC Documents complied in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the Securities Act, and none of the Parent SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances in which they were made, not misleading, except to the
extent corrected by a subsequently filed Parent SEC Document prior to the date
hereof. The financial statements of Parent, including the notes thereto,
included in the Parent SEC Documents (the "Parent Financial Statements"),
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Qs, as permitted by Form
10-Q of the SEC). The Parent Financial Statements fairly present the
consolidated financial condition and operating results of Parent and its
subsidiaries at the dates and during the periods indicated therein (subject, in
the case of unaudited statements, to normal, recurring year-end adjustments).
There has been no change in Parent accounting policies except as described in
the notes to the Parent Financial Statements.
4.5. Absence of Certain Changes. Since March 31, 1999 (the "Parent
Balance Sheet Date"), Parent has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect to Parent;
(ii) any amendment or change to Parent's Certificate of Incorporation or Bylaws;
or (iii) any negotiation or agreement by Parent or any of its subsidiaries to do
any of the things described in the preceding clauses (i) and (ii) (other than
negotiations with LPC and its representatives regarding the transactions
contemplated by this Agreement).
4.6. Absence of Undisclosed Liabilities. Parent has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
balance sheet included in Parent's Quarterly Report on Form 10-Q for the period
ended March 31, 1999 (the "Parent Balance Sheet"), (ii) those incurred in the
ordinary course of business and not required to be set forth in the Parent
Balance Sheet under generally accepted accounting principles, and (iii) those
incurred in the ordinary course of business since the Parent Balance Sheet Date
and consistent with past practice.
4.7. Brokers' and Finders' Fees. Parent has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
4.8. Tax-Free Reorganization.
(a) Prior to the Merger, Parent will be in control of Merger Sub.
As used in this Section 4.8, "Control" shall have the meaning found in Section
368(c) of the Code ("Control").
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(b) Parent has no plan or intention to cause the Surviving
Corporation to issue additional shares of its stock, or to take any other
action, that would result in Parent ceasing to Control the Surviving
Corporation.
(c) Parent has no plan or intention to reacquire any of the
Merger Consideration issued pursuant to the Merger (other than to the extent
contemplated by the provisions of Article 8 hereof).
(d) Neither Parent nor Merger Sub is or will be at the Effective
Time an investment company within the meaning of Section 368(a)(2)(F)(iii) and
(iv) of the Code.
(e) Neither Parent nor Merger Sub is or will be at the Effective
Time, under the jurisdiction of a court in Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
(f) Parent formed Merger Sub solely for the purpose of effecting
the Merger, and, at all times prior to the Effective Time, Merger Sub has not
conducted any business or investment activities and will have no liabilities
other than in the ordinary course of business (other than as related to the
consummation of the transactions contemplated hereby).
(g) Parent has no plan or intention to (i) liquidate the
Surviving Corporation, to merge the Surviving Corporation with or into another
corporation, including the Parent or its affiliates, to sell, distribute, or
otherwise dispose of the capital stock of the Surviving Corporation, except for
transfers of stock described in Treasury Regulation Section 1.368-2(k), or (ii)
cause the Surviving Corporation to sell or otherwise dispose of any of its
assets or of any of the assets acquired from Merger Sub in the Merger, except
for dispositions made in the ordinary course of business and transfers of assets
described in Treasury Regulation Section 1.368-2(k).
(h) Parent will cause LPC to continue the historic business of
LPC or use a significant portion of its historic business assets in a business,
in accordance with Treasury Regulations Section 1.368-1(d).
5. Conduct Prior To The Effective Time.
5.1. Conduct of Business. Except as set forth on Schedule 5.1, during
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, except as expressly
contemplated by this Agreement, LPC shall not do, cause or permit any of the
following, without the prior written consent of Parent:
(a) Material Contracts. Enter into any material contract or
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its material contracts, other than in the ordinary course of business
consistent with past practice;
(b) Issuance of Securities. Issue, deliver or sell or authorize
or propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
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convertible securities, other than shares to be issued to Bruce F. Failing, Jr.
and Norton Garfinkle in satisfaction of debts of LPC to such individuals;
(c) Intellectual Property. Transfer to any person or entity any
rights to its Intellectual Property;
(d) Exclusive Rights. Enter into or amend any agreements pursuant
to which any other party is granted exclusive marketing or other exclusive
rights of any type or scope with respect to any of its products or technology;
(e) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material individually or in
the aggregate, to its business, taken as a whole, except in the ordinary course
of business consistent with past practice;
(f) Indebtedness. Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(g) Agreements. Enter into, terminate or amend, in a manner which
will adversely affect the business of LPC (i) any agreement involving an
obligation to pay or the right to receive $10,000 or more, (ii) any agreement
relating to the license, transfer or other disposition or acquisition of
Intellectual Property rights or rights to market or sell LPC products, or (iii)
any other agreement which is material to the business or prospects of LPC.
(h) Payment of Obligations. Pay, discharge or satisfy in an
amount in excess of $10,000 in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of business, other than the payment,
discharge or satisfaction of liabilities reflected or reserved against in the
LPC Financial Statements.
(i) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements except in the ordinary course of business and
consistent with past practice;
(j) Insurance. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
(k) Termination or Waiver. Terminate or waive any right of
substantial value;
(l) Employee Benefit Plans; New Hires; Pay Increases. Adopt or
amend any employee benefit or stock purchase or option plan, or hire any new
officer level employee, pay any special bonus or special remuneration (except
payments made pursuant to written agreements outstanding on the date hereof), or
increase the salaries or wage rates of its employees except in the ordinary
course of business in accordance with its standard past practice;
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(m) Severance Arrangements. Grant any severance or termination
pay (i) to any director or officer or (ii) to any other employee except payments
made pursuant to written agreements outstanding on the date hereof;
(n) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith determines that
failure to commence suit would be adverse to its business, provided that it
consults with Parent prior to the filing of such a suit, or (iii) for a breach
of this Agreement;
(o) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof or otherwise acquire or agree
to acquire any assets which are material individually or in the aggregate, to
its business, taken as a whole;
(p) Taxes. Other than in the ordinary course of business, make or
change any material election in respect of Taxes, adopt or change any accounting
method in respect of Taxes, file any material amendment to a material Tax
return, enter into any closing agreement, settle any material claim or
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any material claim or assessment in respect of
Taxes;
(q) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business;
(r) Dividends. Declare or pay any dividends on its capital stock;
or
(s) Other. Take or agree in writing or otherwise to take, any of
the actions described in Sections 5.1(a) through (r) above, or any action which
would cause a material breach of its representations or warranties contained in
this Agreement or prevent it from materially performing or cause it not to
materially perform its covenants hereunder.
5.2. No Solicitation.
(a) From and after the date of this Agreement until the Effective
Time, LPC shall not, directly or indirectly through any officer, director,
employee, representative or agent of LPC or otherwise, (i) solicit, initiate, or
encourage any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for a merger, consolidation, share
exchange, business combination, sale of all or substantially all assets, sale of
shares of capital stock or similar transactions involving LPC other than the
transactions contemplated by this Agreement (any of the foregoing inquiries or
proposals being referred to in this Agreement as an "Acquisition Proposal"),
(ii) engage or participate in negotiations or discussions concerning, or provide
any non-public information to any person or entity relating to, any Acquisition
Proposal, or (iii) agree to, enter into, accept, approve or recommend any
Acquisition Proposal.
(b) LPC shall notify Parent immediately (and no later than two
hours) after receipt by LPC (or its advisors) of any Acquisition Proposal or any
request for nonpublic
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information in connection with an Acquisition Proposal or for access to the
properties, books or records of LPC by any person or entity that informs LPC
that it is considering making, or has made, an Acquisition Proposal. Such notice
shall be made orally and in writing and shall indicate in reasonable detail the
identity of the offeror and the terms and conditions of such proposal, inquiry
or contact.
6. Additional Agreements.
6.1. Approval of Shareholders; Waiver of Dissenter's Rights. By
signing this Agreement below, the Shareholders consent to the Merger, the Plan
of Merger, and the other transactions contemplated hereby and waive any
dissenter's rights they may otherwise have pursuant to applicable law.
6.2. Access to Information.
(a) LPC shall afford Parent and its accountants, counsel and
other representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of LPC's properties, books,
contracts, commitments and records, and (ii) all other information concerning
the business, properties and personnel of LPC and its subsidiaries as Parent may
reasonably request. LPC agrees to provide to Parent and its accountants, counsel
and other representatives copies of internal financial statements promptly upon
request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Parent and LPC shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 6.2 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
6.3. Confidentiality. The parties acknowledge that Parent and LPC have
previously executed a letter agreement dated April 16, 1999 and the
confidentiality agreement contained in Paragraph 10 of the letter of intent
dated May 18, 1999, (collectively, the "Confidentiality Agreement"), which
Confidentiality Agreement is hereby incorporated herein by reference and shall
continue in full force and effect in accordance with its terms.
6.4. Public Disclosure. Unless otherwise permitted by this Agreement,
Parent and LPC shall consult with each other before issuing any press release or
otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the National Association of Securities Dealers.
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6.5. Consents; Cooperation.
(a) Each of Parent and LPC shall promptly apply for or otherwise
seek, and use reasonable best efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the Merger, including
those required under HSR, and shall use reasonable best efforts to obtain all
necessary consents, waivers and approvals under any of its material contracts in
connection with the Merger. The parties hereto will consult and cooperate with
one another, and consider in good faith the views of one another, in connection
with any analyses, appearances, presentations, memoranda, briefs, arguments,
opinions and proposals made or submitted by or on behalf of any party hereto in
connection with proceedings under or relating to HSR or any other federal or
state antitrust or fair trade law.
(b) Each of Parent and LPC shall use all reasonable best efforts
to resolve such objections, if any, as may be asserted by any Governmental
Entity with respect to the transactions contemplated by this Agreement under the
HSR, the Sherman Act as amended, the Clayton Act, as amended, the Federal Trade
Commission Act, as amended, and any other federal, state or foreign statutes,
rules, regulations, orders or decrees that are designed to prohibit, restrict or
regulate actions having the purpose or effect of monopolization or restraint of
trade (collectively, "Antitrust Laws"). In connection therewith, if any
administrative or judicial action or proceeding is instituted (or threatened to
be instituted) challenging any transaction contemplated by this Agreement as
violative of any Antitrust Law, each of Parent and LPC shall cooperate and use
all reasonable best efforts vigorously to contest and resist any such action or
proceeding and to have vacated, lifted, reversed, or overturned any decree,
judgment, injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents, or restricts
consummation of the Merger or any such other transactions, unless by mutual
agreement Parent and LPC decide that litigation is not in their respective best
interests. Each of Parent and LPC shall use all reasonable best efforts to take
such action as may be required to cause the expiration of the notice periods
under the HSR or other Antitrust Laws with respect to such transactions as
promptly as possible after the execution of this Agreement.
(c) Notwithstanding anything contrary in Section 6.5(a) or (b),
neither Parent nor any of it subsidiaries shall be required to divest any of
their respective businesses, product lines or assets, or to take or agree to
take any other action or agree to any limitation that could reasonably be
expected to have a Material Adverse Effect on Parent or of Parent combined with
the Surviving Corporation after the Effective Time.
6.6. Section Intentionally Omitted.
6.7. Legal Requirements. Each of Parent, Merger Sub and LPC will, and
will cause their respective subsidiaries to, take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed on
them with respect to the consummation of the transactions contemplated by this
Agreement and will promptly cooperate with and furnish information to any party
hereto necessary in connection with any such requirements imposed upon such
other party in connection with the consummation of the transactions contemplated
by this Agreement and will take all reasonable actions necessary to obtain (and
will cooperate with the other parties hereto in obtaining) any consent,
approval, order or authorization of or any
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registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
6.8. Indemnification Escrow Agreement. On or before the Effective Time,
the Parent, Merger Sub, Indemnification Escrow Agent and the LPC Holders' Agent
will execute the Indemnification Escrow Agreement contemplated by Section 8 in
the form attached hereto as Exhibit E ("Indemnification Escrow Agreement").
6.9. Listing of Additional Shares. Prior to the Effective Time, Parent
shall file with the Nasdaq/National Market System a Notification Form for
Listing of Additional Shares with respect to the shares of Parent Common Stock
issuable upon conversion of the LPC Common Stock in the Merger and to the
holders of Stock Appreciation Rights, BBHC and LII with respect to the shares of
Parent Common Stock issuable under the terms of this Agreement.
6.10. Employees. LPC shall use its best efforts (i) to cause each of
the employees set forth in Section 2.3(h) to execute an employment agreement in
a form reasonably agreeable to Parent, the Surviving Corporation and such
employees and a Non-Competition and Non-Solicitation Statement in the form set
forth as Exhibit G and (ii) to cause each other LPC employee to execute and
deliver to Merger Sub a Non-Competition and Non-Solicitation Statement in the
form attached as Exhibit G hereto.
6.11. Reorganization. Parent and LPC shall each use its best efforts
to cause the business combination to be effected by the Merger to be qualified
as a "reorganization" described in Section 368(a) of the Code.
6.12. Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense; provided
however, that: (i) the Shareholders shall pay the expenses of LPC, including
without limitation, the fee and commissions owed to Brown Brothers Harriman &
Co. (as provided in Section 1.6(c)(iv) or otherwise), (ii) Parent shall pay the
filing fees required in connection with any filings required pursuant to HSR and
(iii) the Parent shall pay all expenses connected with the preparation and
filing of the Registration Statement, the related prospectus and any amendments
thereto, including without limitation, printing expenses, legal fees and
disbursements of counsel to Parent, blue sky expenses, accounting fees and
filing fees, but not including underwriting commissions or similar charges, or
legal fees and disbursements of counsel for the LPC Holders (all of which shall
be borne by the LPC Holders).
6.13. Registration of Shares Issued in the Merger.
(a) Parent shall use its best efforts to have a registration
statement covering the resale of the Parent Common Stock (the "Registration
Statement") to be issued hereunder submitted to the SEC as soon as practicable
after the date hereof and to have the Registration Statement declared effective
by the SEC as soon as practicable following the Closing, provided however, that
Parent's obligations under this Section 6.13(a) shall be subject to the receipt
by Parent of the approval of the holders of rights to have shares of Parent
Common Stock included in any registration statement on Form S-1 filed by Parent
of the elimination of
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such rights with respect to registration statements on Form S-1 used to register
securities issued in connection with a merger or acquisition, including the
resale of such shares, and the compliance of the SAU Holders with the provisions
of Section 1.6(b). The effectiveness of the Registration Statement shall be
maintained by the Parent until the earlier of (i) the resale of such shares by
the Shareholders or (ii) one year after the effective date thereof. The
Registration Statement, and the maintenance thereof shall be subject to the
further terms and provisions contained in Exhibit J hereto.
(b) To the fullest extent permitted by law, the Parent will
indemnify and hold harmless each LPC Holder against all actions, claims, losses,
damages, liabilities and expenses to which they or any of them become subject
under the Securities Act, the Exchange Act or under any other statute or at
common law or otherwise and, except as hereinafter provided, will promptly
reimburse each such LPC Holder, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of material fact in the
Registration Statement and prospectus filed pursuant to Section 6.13(a) or any
post-effective amendment or supplement thereto or arise out of or are based upon
any omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or any violation by
the Parent of any rule or regulation promulgated under the Securities Act or the
Exchange Act or state securities laws applicable to the Parent and relating to
action or inaction required of the Parent in connection with such registration
or qualification under state securities laws; provided, however, that the Parent
shall not be liable to such LPC Holder in respect of any claims, losses,
damages, liabilities and expenses resulting from any untrue statement or alleged
untrue statement, or omission or alleged omission made in reliance upon and in
conformity with information furnished in writing to the Parent by such LPC
Holder specifically for use in connection with such Registration Statement and
prospectus or post-effective amendment.
(c) To the fullest extent permitted by law, each LPC Holder
will indemnify the Parent, each person, if any, who controls the Parent within
the meaning of the Securities Act or the Exchange Act, each director of the
Parent and each officer of the Parent who signs the Registration Statement
against any actions, claims, losses, damages, liabilities and expenses to which
they or any of them may become subject under the Securities Act, the Exchange
Act or under any other statute or at common law or otherwise, and, except as
hereinafter provided, will promptly reimburse the Parent and each such director,
officer, underwriter or controlling person for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions whether or not resulting in any liability, insofar as such
losses, claims, damages, expenses, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
in the Registration Statement and prospectus filed pursuant to Section 6.13(a)
or any post-effective amendment thereto, or any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, which untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with information
furnished in writing to the Parent by such LPC Holder specifically for use in
connection with
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such Registration Statement, prospectus or post-effective amendment; provided,
however, that the obligation to indemnify under this paragraph (c) will be
several, not joint and several, and the maximum amount of liability in respect
of such indemnification shall be in proportion to and limited to, in the case of
such LPC Holder, an amount equal to the net proceeds actually received by such
LPC Holder from the sale of shares of Parent Common Stock effected pursuant to
such registration.
(d) Each person entitled to indemnification under this Section
6.13 (an "Indemnified Person") shall give notice to the party required to
provide indemnification (the "Indemnifying Person") promptly after such
Indemnified Person has actual knowledge of any claim as to which indemnity may
be sought and shall permit the Indemnifying Person to assume the defense of any
such claim and any litigation resulting therefrom, provided that counsel for the
Indemnifying Person who conducts the defense of such claim or any litigation
resulting therefrom shall be approved by the Indemnified Person (whose approval
shall not unreasonably be withheld), and the Indemnified Person may participate
in such defense at such party's expense (unless the Indemnified Person has
reasonably concluded that there may be a conflict of interest between the
Indemnifying Person and the Indemnified Person in such action, in which case the
fees and expenses of counsel for the Indemnified Person shall be at the expense
of the Indemnifying Person), and provided further that the failure of any
Indemnified Person to give notice as provided herein shall not relieve the
Indemnifying Person of its obligations under this Section 6.13 except to the
extent the Indemnifying Person is materially prejudiced thereby. No Indemnifying
Person, in the defense of any such claim or litigation, shall (except with the
consent of each Indemnified Person) consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Person of a release from
all liability in respect to such claim or litigation. Each Indemnified Person
shall furnish such information regarding itself or the claim in question as an
Indemnifying Person may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
(e) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which the Parent or any
LPC Holder makes a claim for indemnification pursuant to this Section 6.13 but
it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding that this Section 6.13 provides for
indemnification, in such case, then the Parent and such LPC Holder will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion as is
appropriate to reflect the relative fault of the Parent on the one hand and of
the LPC Holder on the other in connection with the statements or omission which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations or, if the allocation provided herein is not
permitted by applicable law, in such proportion as shall be appropriate to
reflect the relative benefits received by the Parent and any LPC Holder from the
offering of the securities covered by the Registration Statement. The relative
fault of the Parent on the one hand and of the LPC Holder on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Parent on the one hand or
by the LPC
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Holder on the other, and each party's relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
provided, however, that, in any such case (A) no LPC Holder will be required to
contribute any amount in excess of the proceeds received by such LPC Holder from
the sale of shares pursuant to the Registration Statement; and (B) no person or
entity guilty of fraudulent misrepresentation within the meaning of Section
11(f) of the Securities Act will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
(f) The indemnification provided for under this Section 6.13
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Indemnified Person, or any officer, director or controlling
person of such Indemnified Person and will survive the transfer of securities.
(g) Notwithstanding the foregoing provisions, the LPC Holders who
are employed by the Surviving Corporation (the "Employee Holders") shall sell
shares under any registration effected pursuant to this Section 6.13 only during
the periods when the "trading window" for Parent corporate insiders is open,
which is generally a period commencing two (2) trading days after the public
release by Parent of its financial results for the prior period and ending on
the last day of the next succeeding calendar month. The Employee Holders shall
not sell any shares under the Registration Statement when such Employee Holders
have been advised by Parent that Parent's "trading window" for corporate
insiders has been closed. Parent agrees to (i) advise the Employee Holders of
the exact period comprising, and of any changes to, its "trading window" for
corporate insiders, and (ii) administer its "trading window" policy in a
consistent manner vis-a-vis its corporate insiders and the Employee Holders.
Notwithstanding this Section 6.13(g), the "trading window" shall not apply
during the ten days commencing with the date of the effectiveness of the
Registration Statement unless the Employee Holder is then in possession of
material non-public information.
6.14. Reasonable Commercial Efforts and Further Assurances. Each of the
parties to this Agreement shall use reasonable commercial efforts to effectuate
the transactions contemplated hereby and to fulfill and cause to be fulfilled
the conditions to Closing under this Agreement. Each party hereto, at the
reasonable request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
7. Termination, Amendment and Waiver.
7.1. Termination. This Agreement may be terminated at any time prior
to the Effective Time (with respect to Section 7.1(b) through Section 7.1(d), by
written notice by the terminating party to the other party):
(a) by the mutual written consent of Parent and LPC;
(b) by either Parent or LPC if the Merger shall not have been
consummated by November 30, 1999, provided, however, that the right to terminate
this Agreement under this Section 7.1(b) shall not be available to any party
whose failure to fulfill
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any obligation under this Agreement has been the cause of or resulted in the
failure of the Merger to occur on or before such date and provided further, that
such date shall automatically be extended for thirty (30) days if the only
condition to Closing which has not been waived or satisfied is the termination
of the waiting period pursuant to HSR;
(c) by either Parent or LPC if a court of competent jurisdiction
or other Governmental Entity shall have issued a nonappealable final order,
decree or ruling or taken any other action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger, except,
if the party relying on such order, decree or ruling or other action not
complied with its obligations under this Agreement;
(d) by Parent or LPC, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach (i) causes the conditions set forth in
Section 2.2(a) or (b) (in the case of termination by Parent) or Section 2.3(a)
or (b) (in the case of termination by LPC) not to be satisfied and (ii) shall
not have been cured within thirty (30) business days following receipt by the
breaching party of written notice of such breach from the other party.
7.2. Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, there shall be no liability or obligation
on the part of Parent, LPC, the LPC Holders, Merger Sub or their respective
officers, directors, or stockholders, except to the extent that such termination
results from the willful breach by a party of any of its representations,
warranties or covenants set forth in this Agreement; provided that the
provisions of Sections 6.3, 6.12 and 9.7 shall remain in full force and effect
and survive any termination of this Agreement.
7.3. Amendment. This Agreement may be amended by the parties hereto,
by action taken or authorized by their respective Boards of Directors. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
7.4. Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
8. Indemnification and Indemnification Escrow.
8.1. Indemnification.
(a) Survival of Representations and Warranties. All
representations and warranties made by LPC, the LPC Holders, Parent, or Merger
Sub herein, or in any certificate, Schedule or Exhibit delivered pursuant
hereto, shall survive the Closing and continue in full force and effect until
eighteen (18) months after the Closing Date (such date is sometimes referred to
herein as the "Termination Date"); provided however, that (i) the
representations and
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warranties contained in Section 3.6 shall survive until thirty (30) days after
the expiration of all applicable statute of limitations periods, including any
waivers or extensions, (ii) the representations and warranties contained in
Sections 3.2 and 3.12 shall survive indefinitely, and (iii) any representation
and warranty shall survive indefinitely which is inaccurate as a result of the
fraud of, or an intentional misrepresentation made by, the party making such
representation and warranty. If written notice of a claim has been given prior
to the expiration of the applicable representations and warranties by a party in
whose favor such representations and warranties have been made to the party that
made such representations and warranties, then the relevant representations and
warranties shall survive as to such claim, until the claim has been finally
resolved. Neither the period of survival nor the liability of any party with
respect to the parties' representations and warranties shall be reduced by any
investigation made at any time by or on behalf of any party or by facts
disclosed subsequent to the date of this Agreement.
(b) Indemnification by the LPC Holders. The LPC Holders, jointly
and severally, will indemnify and hold harmless on an after-tax basis Parent and
the Surviving Corporation and their respective officers, directors, agents,
attorneys, employees, stockholders, successors and assigns, and each person, if
any, who controls or may control Parent or the Surviving Corporation within the
meaning of the Securities Act (hereinafter referred to individually as an
"Indemnitee" and collectively as "Indemnitee") from and against any and all
losses, costs, damages, diminution of value, liabilities and expenses, including
without limitation, investigation, reasonable legal and accounting expenses
(collectively, "Damages") arising out of: (i) any misrepresentation or breach of
or default in connection with any of the representations, warranties, covenants
and agreements given or made by LPC prior to the Closing or the LPC Holders in
this Agreement, the LPC Disclosure Schedule or any other Exhibit or Schedule to
this Agreement or certificate delivered at Closing under this Agreement by LPC
or any of the LPC Holders; or (ii) any breach or violation of this Agreement by
the LPC Holders or (prior to the Closing) LPC; or (iii) Furlong v Lamaze
Publishing Company, Inc. et al (including without limitation any disposition or
settlement of the claims thereunder including legal fees and expenses), or (iv)
the LPC self-funded medical plan (including without limitation, claims relating
to periods prior to Closing), or (v) any liabilities of LPC arising at or before
the Closing (including those relating to or arising out of the ownership or
operation of LPC at or before the Closing) or relating to actions, omissions to
act, events or circumstances occurring at or before the Closing (including
without limitation, any pending litigation, any failure to qualify to do
business in any jurisdiction, and any product shipped or manufactured by, or any
services provided by, LPC at or before the Closing), other than those reflected
on LPC's December 31, 1998 Balance Sheet to the extent so reflected, and
accounts payable and accrued expenses incurred in the ordinary course of
business subject to adjustment in Section 1.6(f)(ii), those amounts set forth in
clauses (u), (v), (w), (x), (y) and (z) of Section 1.6(a), and changes in
deferred revenue that do not result in an elimination of deferred revenue, in
each case under this clause (v) except those liabilities which would not be
reflected on a balance sheet pursuant to generally accepted accounting
principles. Parent, the Surviving Corporation, and their affiliates shall act in
good faith and in a commercially reasonable manner to mitigate any Damages they
may suffer.
(c) Tax Indemnification. The LPC Holders, jointly and severally,
will indemnify and hold harmless on an after-tax basis each Indemnitee from and
against any and all liability for Taxes (including, without limitation, any
matters that are set forth in Schedule 3.6
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hereto) (i) for any period prior to or including the date of the Closing, to the
extent such Taxes are not reflected in the reserve for Tax liability shown on
the face of the LPC Balance Sheet and the LPC Balance Sheet as of March 31,
1999, as such reserve is adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of LPC, (ii) with respect
to income reportable for a period ending after the date of the Closing but
attributable to a transaction occurring in, or a change in accounting method
made for, a period on or before the date of the Closing, to the extent such
Taxes are not reflected in the reserve for Tax liability shown on the face of
the LPC Balance Sheet and the LPC Balance Sheet as of March 31, 1999, as such
reserve is adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of LPC, or (iii) as a result of any
breach of a warranty or representation under Section 3.6.
(d) Indemnification by the Parent and the Surviving Corporation.
Parent and the Surviving Corporation will indemnify and hold harmless the LPC
Holders (each, an "Indemnitee") from and against any and all Damages arising out
of: (i) any misrepresentation or breach of or default in connection with any of
the representations, warranties, covenants and agreements given or made by
Parent or Merger Sub in this Agreement, or any Exhibit or Schedule to this
Agreement or certificate or other document delivered in connection with this
Agreement; or (ii) any breach or violation of this Agreement by Parent or Merger
Sub; or (iii) any liabilities of the Surviving Corporation after the Closing
with respect to the ownership, use or operation of the Surviving Corporation.
Parent and the Surviving Corporation will indemnify and hold harmless BBHC and
LII from and against any and all Damages arising out of the failure of the
Parent Common Stock to be so issued and to be issued to BBHC hereunder to be
duly authorized, validly issued, fully paid and non-assessable or free from
encumbrances, other than as created by BBHC and to be registered as required
hereunder, subject to Section 1.6(c)(iv).
8.2. General Indemnification Provisions
(a) For the purposes of this Section 8.2, the term "Indemnitee"
shall refer to the person or persons indemnified, or entitled, or claiming to be
entitled, to be indemnified, pursuant to the provisions of Section 8.1(b),(c) or
(d), as the case may be; the term "Indemnitor" shall refer to the person or
persons having the obligation to indemnify pursuant to such provisions; and
"Damages" shall refer to Damages referred to in Section 8.1(b), (c) or (d), as
the case may be.
(b) Within a reasonable time following such determination, an
Indemnitee shall give the Indemnitor notice of any matter which an Indemnitee
has determined has given or could give rise to a right of indemnification under
this Agreement, stating the amount of the Damages, if known, and method of
computation thereof, all with reasonable particularity and containing a
reference to the provisions of this Agreement, in respect of which such right of
indemnification is claimed or arises. The obligations and liabilities of an
Indemnitor under this Section 8 with respect to Damages arising from claims of
any third party that are subject to the indemnification provided for in this
Section 8 ("Third Party Claims") shall be governed by and contingent upon the
following additional terms and conditions: if an Indemnitee shall receive notice
of any Third Party Claim, the Indemnitee shall give the Indemnitor notice of
such Third Party Claim within 30 calendar days and shall permit the Indemnitor,
at its option, to participate
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in the defense of such Third Party Claim by counsel of its own choice and at its
expense. If the Indemnitor acknowledges in writing its obligation to indemnify
the Indemnitee hereunder against any Damages that may result from such Third
Party Claims (subject to the limitations set forth herein), then the Indemnitor
shall be entitled, at its option, to assume and control the defense of such
Third Party Claim at its expense and through counsel of its reasonable choice if
it gives notice to the Indemnitee within 20 calendar days of the receipt of
notice of such Third Party Claim from the Indemnitee of its intention to do so.
In the event the Indemnitor exercises its right to undertake the defense against
any such Third Party Claim as provided above, the Indemnitee shall cooperate
with the Indemnitor in such defense and make available to the Indemnitor, at the
Indemnitor's expense, all witnesses, pertinent records, materials and
information in its possession or under its control relating thereto as is
reasonably required by the Indemnitor. Similarly, in the event the Indemnitee
is, directly or indirectly, conducting the defense against any such Third Party
Claim, the Indemnitor shall cooperate with the Indemnitee in such defense and
make available to it all such witnesses, records, materials and information in
its possession or under its control relating thereto as is reasonably required
by the Indemnitee. No such Third Party Claim, except the settlement thereof
which involves the payment of money only (by a party or parties other than the
Indemnitee) and for which the Indemnitee is released by the third party claimant
and is totally indemnified by the Indemnitor, may be settled by the Indemnitor
without the written consent of the Indemnitee. Similarly, no Third Party Claim
which is being defended in good faith by the Indemnitor shall be settled by the
Indemnitee without the written consent of the Indemnitor.
(c) Limitations.
(i) No Indemnitor shall be liable hereunder for any Damages
in excess of the sum of (x) the difference between the Fair Market
Value of the Shares issued to the LPC Holders and BBHC hereunder on the
date that payment is made to an Indemnitee for Damages, minus the Fair
Market Value of any Shares previously sold by the LPC Holders, plus (y)
the amount of the aggregate cash consideration (or the fair market
value of such consideration at the time received by the Indemnitor if
such consideration was property) received for such sold Shares;
provided however, that prior to the issuance of any shares to the LPC
Holders or the other parties to be issued shares hereunder and without
limiting any provision of Section 7.2, the maximum liability for
Damages hereunder shall be equal to the Fair Market Value of the shares
to be issued hereunder as if such shares had been issued on the payment
date of the Damages.
(ii) No Indemnitee shall be entitled to seek indemnification
hereunder for Damages pursuant to Section 8.1(b)(i), Section
8.1(b)(ii), 8.1(d)(i), 8.1(d)(ii) or any Damages related to items not
required to be on a balance sheet pursuant to generally accepted
accounting principles, until the aggregate of all Damages under this
Agreement exceeds $500,000. At such time as such Damages exceed
$500,000, the Indemnitee shall have the right to seek indemnification
from the first dollar.
(iii) Notwithstanding Section 8.2(c)(ii), no Indemnitee shall
be entitled to seek indemnification hereunder for Damages pursuant to
Section 8.1(b)(iii), (iv) or (v) until such time as the aggregate of
all Damages under this Agreement exceed $100,000, except for Damages
relating to Taxes, including without limitation as set forth
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in Section 8.1(c), for which there shall be no such limitation and for
which Indemnitees shall be entitled to seek indemnification hereunder
for Damages from the LPC Holders from the first dollar. At such time as
such Damages exceed $100,000, the Indemnitees shall have the right to
seek indemnification from the first dollar for the matters set forth in
this Section 8.1(b)(iii), (iv) and (v).
(iv) Each Indemnitor's liability for any Damages shall be
limited to the amount of such Damages net of the difference between any
insurance proceeds received by the Indemnitee in respect thereof minus
the amount of premiums paid for such insurance by the Indemnitee.
(v) Notwithstanding any other provision of this Agreement,
except for matters covered in Section 6.13, Damages related to the
matters set forth in Section 3.12, and Damages attributable to fraud,
the indemnities set forth in this Section 8 shall be the exclusive
remedies of the Indemnitees for any misrepresentation or breach of any
representation or warranty or covenant or agreement contained in this
Agreement.
(vi) Notwithstanding any other provision of this Agreement,
no SAU Holder shall be liable for any Damages in excess of an amount
thereof proportionate to the ratio that the shares of Parent Common
Stock issuable to him or her hereunder bears to the total number of
shares issued hereunder to all LPC Holders.
8.3. Right of Set-Off.
(a) To the extent the Escrow Fund has not been or would not be
exhausted, unless in Parent's reasonable discretion it would be deemed to limit
or prejudice Parent's rights (other than the right to seek satisfaction of
Damages other than from the Escrow Fund), Parent shall first seek satisfaction
of Damages claims from the Escrow Fund.
(b) Subject to Section 8.3(a), (i) at its sole discretion and
without limiting any other rights of Parent under this Agreement or at law or
equity, Parent may satisfy any Damages for which it is to be indemnified by the
LPC Holders in this Agreement in whole or in part by offset against any funds,
securities, or other property payable by Parent to the LPC Holder and/or by
giving a notice of claim pursuant to the Indemnification Escrow Agreement; and
(ii) neither the exercise of nor the failure to exercise such right of set-off
or to give a notice of claim pursuant to the Indemnification Escrow Agreement
will constitute an election of remedies or limit Parent or Surviving Corporation
in any manner in the enforcement of any other remedies that may be available to
them.
(c) The LPC Holders shall satisfy indemnification obligations by
payment, at their election, in either cash or shares of Parent Common Stock
issued hereunder with a Fair Market Value equal to the Damages for which the
indemnification is claimed. After the Registration Statement becomes effective,
to the extent any satisfaction of indemnification obligations has been made in
shares, such shares shall, at the option of Parent, be sold by the LPC Holders.
The proceeds of any such sale net of transaction expenses approved by Parent
shall be paid to Parent and deemed to satisfy such indemnification obligation in
full.
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8.4. Indemnification Escrow Fund.
(a) Subject Section 8.3(a), in addition to any other available
remedies, Parent and the Surviving Corporation shall be entitled to recover from
the Indemnification Escrow Fund the amount of any indemnification to which it is
entitled under this Agreement.
(b) At the Closing, fifteen percent (15%) of the shares of Parent
Common Stock issued hereunder (or, with respect to the SAU Shares, immediately
prior to the effectiveness of the Registration Statement 15% of the shares
issued in redemption of the Stock Appreciation Units which do not constitute SAU
Escrow Shares) (collectively, the "Indemnification Escrow Shares"), shall be
registered in the name of, and be deposited with, Continental Stock Transfer and
Trust Company (or other institution selected by Parent with the reasonable
consent of LPC) as escrow agent (the "Indemnification Escrow Agent"), such
deposit to constitute the Indemnification Escrow Fund and to be governed by the
terms set forth herein and in the Indemnification Escrow Agreement attached
hereto as Exhibit E. The Indemnification Escrow Fund shall be available to
compensate Parent pursuant to the indemnification obligations of the LPC
Holders, but shall not be the exclusive source of such compensation, subject to
the third sentence of Section 8.3. In the event Parent issues any Additional
Indemnification Escrow Shares (as defined in Section 8.4(c)), such shares will
be issued in the name of the Indemnification Escrow Agent and delivered to the
Indemnification Escrow Agent in the same manner as the Indemnification Escrow
Shares delivered at the Closing.
(c) Except for dividends paid in stock declared with respect to
the Indemnification Escrow Shares ("Additional Indemnification Escrow Shares"),
which shall be treated pursuant to Section 8.4(b) hereof, any cash dividends,
dividends payable in securities or other distributions of any kind made in
respect of the Indemnification Escrow Shares will be delivered to the LPC
Holders on a pro rata basis based on their respective escrow contribution. Each
LPC Holder will have voting rights with respect to the Indemnification Escrow
Shares deposited in the Indemnification Escrow Fund with respect to such person
so long as such Indemnification Escrow Shares are held in escrow, and Parent
will take all reasonable steps necessary to allow the exercise of such rights.
While the Indemnification Escrow Shares remain in the Indemnification Escrow
Agent's possession pursuant to this Agreement, the LPC Holders will retain and
will be able to exercise all other incidents of ownership of said
Indemnification Escrow Shares which are not inconsistent with the terms and
conditions of this Agreement.
8.5. Indemnification Escrow Period; Release From Indemnification
Escrow.
(a) The escrow shall terminate on the Termination Date (the
"Indemnification Escrow Period"); provided, however, that a portion of the
Indemnification Escrow Fund, which, in the reasonable judgment of Parent is
necessary to satisfy any unsatisfied claims specified in any Notice of Claim
(defined in Section 8.6) theretofore delivered to the Indemnification Escrow
Agent prior to termination of the Indemnification Escrow Period with respect to
facts and circumstances existing prior to expiration of the Indemnification
Escrow Period, shall remain in the Indemnification Escrow Fund until such claims
have been resolved.
(b) Within three (3) business days after the Termination Date
(the "Release Date"), the Indemnification Escrow Agent shall release from escrow
to the LPC
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Holders their portion of the Indemnification Escrow Shares and Additional
Indemnification Escrow Shares and cash in the Indemnification Escrow Fund, less
with respect to each such LPC Holder the number of Indemnification Escrow Shares
and Additional Shares and the amount of cash with a Fair Market Value equal to
(A) such LPC Holder's portion of any liability delivered to Parent in accordance
with Section 8.6 in satisfaction of indemnification claims by an Indemnitee and
(B) such LPC Holder's portion of any liability subject to delivery to an
Indemnitee in accordance with Section 8.5(a) with respect to any pending but
unresolved indemnification claims of such Indemnitee. Any Indemnification Escrow
Shares, Additional Indemnification Escrow Shares and/or cash held as a result of
clause (B) shall be released to the LPC Holders or released to Parent (as
appropriate) upon resolution of each specific indemnification claim involved.
Parent will take such action as may be necessary to cause certificates for such
shares to be issued in the names of the appropriate persons. Certificates
representing Indemnification Escrow Shares and Additional Indemnification Escrow
Shares so issued that are subject to resale restrictions under applicable
securities laws will bear a legend to that effect. No fractional shares shall be
released and delivered from Indemnification Escrow to the LPC Holders . In lieu
of any fraction of an Indemnification Escrow Share to which a LPC Holder would
otherwise be entitled, such LPC Holder will receive from Parent an amount of
cash (rounded to the nearest whole cent) equal to the product of such fraction
multiplied by the Fair Market Value per share.
(c) Except as may be otherwise set forth in the Indemnification
Escrow Agreement, no Indemnification Escrow Shares or Additional Indemnification
Escrow Shares or any beneficial interest therein may be pledged, sold, assigned
or transferred, including by operation of law, by any LPC Holder or be taken or
reached by any legal or equitable process in satisfaction of any debt or other
liability of any such LPC Holder, prior to the delivery to such LPC Holder of
his portion of the Indemnification Escrow Fund by the Indemnification Escrow
Agent as provided herein.
(d) The Indemnification Escrow Agent is hereby granted the power
to effect any transfer of Indemnification Escrow Shares contemplated by this
Agreement. Parent will cooperate with the Indemnification Escrow Agent in
promptly issuing stock certificates to effect such transfers.
8.6. Claims Upon Indemnification Escrow Fund. Upon receipt by the
Indemnification Escrow Agent on or before the Release Date of a certificate
signed by any officer of Parent (a "Notice of Claim ") stating that with respect
to the indemnification obligations of the LPC Holders set forth in Section
8.1(b) or (c), Damages exist and specifying in reasonable detail the individual
items of such Damages included in the amount so stated, the date each such item
was paid, or properly accrued or arose, and the nature of the misrepresentation,
breach of warranty or claim to which such item is related, or that an adjustment
pursuant to Section 1.6(f)(ii) is to be made, the Indemnification Escrow Agent
shall, subject to the provisions of this Section 8, deliver to Parent out of the
Indemnification Escrow Fund, as promptly as practicable, Parent Common Stock or
other assets held in the Indemnification Escrow Fund having a Fair Market Value
equal to such Damages or Adjustment Amount. For the purpose of compensating
Parent for its Damages or the Adjustment Amount pursuant to this Agreement, the
Parent Common Stock in the Indemnification Escrow Fund shall be valued at the
Fair Market Value. In determining the amount of any Damage attributable to a
breach, any
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materiality standard contained in a representation, warranty or covenant of LPC
or the LPC Holders shall be disregarded with respect to such breach.
8.7. Objections to Claims. At the time of delivery of any Notice of
Claim to the Indemnification Escrow Agent, a duplicate copy of such Notice of
Claim shall be delivered to the LPC Holders' Agent and for a period of thirty
(30) days after such delivery, the Indemnification Escrow Agent shall make no
delivery of Parent Common Stock or other property pursuant to Section 8.6 hereof
in compensation for Damages unless the Indemnification Escrow Agent shall have
received written authorization from the LPC Holders' Agent to make such
delivery. After the expiration of such thirty (30) day period, the
Indemnification Escrow Agent shall make delivery of the Parent Common Stock or
other property in the Indemnification Escrow Fund in compensation for Damages in
accordance with Section 8.6 hereof, provided that no such payment or delivery
may be made if the LPC Holders' Agent shall object in a written statement to the
claim made in the Notice of Claim, and such statement shall have been delivered
to the Indemnification Escrow Agent and to Parent prior to the expiration of
such thirty (30) day period.
8.8. Resolution of Conflicts and Arbitration.
(a) In case the LPC Holders' Agent shall so object in writing to
any claim or claims by Parent made in any Notice of Claim or otherwise in
compensation for Damages, Parent shall have thirty (30) days to respond in a
written statement to the objection of the LPC Holders' Agent. If after such
thirty (30) day period there remains a dispute as to any claims in compensation
for Damages, the LPC Holders' Agent and Parent shall attempt in good faith for
sixty (60) days to agree upon the rights of the respective parties with respect
to each of such claims. If the LPC Holders' Agent and Parent should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and shall be furnished to the LPC Holders and if such claim is against
the Indemnification Escrow Fund to the Indemnification Escrow Agent. With
respect to claims in compensation for Damages to be paid by the LPC Holders
hereunder which are not satisfied by the Indemnification Escrow Fund, the LPC
Holders shall, subject to the terms of this Section 8, pay the amount of such
claim to Parent within five (5) business days of the date of such memorandum.
The Indemnification Escrow Agent shall be entitled to rely on any such
memorandum and shall distribute the Parent Common Stock or other property from
the Indemnification Escrow Fund in accordance with the terms thereof.
(b) If no such agreement can be reached after good faith
negotiation, either Parent or the LPC Holders' Agent may, by written notice to
the other, demand arbitration of the matter unless the amount of the damage or
loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conduced by one arbitrator. Parent and the LPC Holders'
Agent shall agree on the arbitrator, provided that if Parent and the LPC
Holders' Agent cannot agree on such arbitrator, either Parent or LPC Holders'
Agent can request that Judicial Arbitration and Mediation Services ("JAMS")
select the arbitrator. The arbitrator shall set a limited time period and
establish procedures designed to reduce the cost and time for discovery while
allowing the parties an opportunity, adequate in the sole judgment of the
arbitrator, to discover relevant information from the opposing parties about the
subject matter of the dispute. The arbitrator shall rule upon motions
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to compel or limit discovery and shall have the authority to impose sanctions,
including attorneys' fees and costs, to the same extent as a court of competent
law or equity, should the arbitrator determine that discovery was sought without
substantial justification or that discovery was refused or objected to without
substantial justification. The decision of the arbitrator shall be written,
shall be in accordance with applicable law and with this Agreement, and shall be
supported by written findings of fact and conclusions of law which shall set
forth the basis for the decision of the arbitrator. The decision of the
arbitrator as to the validity and amount of any claim shall be binding and
conclusive upon the parties to this Agreement.
(c) Judgment upon any award rendered by the arbitrator may be
entered in any court having jurisdiction. Any such arbitration shall be held in
New York, New York under the commercial rules then in effect of the American
Arbitration Association.
8.9. LPC Holders' Agent.
(a) Bruce F. Failing, Jr. shall be constituted and appointed as
agent ("LPC Holders' Agent") for and on behalf of the LPC Holders to give and
receive notices and communications, to authorize delivery to Parent of the
Parent Common Stock or other property from the Indemnification Escrow Fund or
the LPC Holders in satisfaction of claims by Parent, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of the LPC Holders' Agent for the accomplishment of
the foregoing. Such agency may be changed by the holders of a majority in
interest of the LPC Holders from time to time upon not less than 10 days' prior
written notice to Parent. No bond shall be required of the LPC Holders' Agent,
and the LPC Holders' Agent shall receive no compensation for his services.
Notices or communications to or from the LPC Holders' Agent shall constitute
notice to or from each of the LPC Holders.
(b) The LPC Holders' Agent shall not be liable for any act done
or omitted hereunder as LPC Holders' Agent while acting in good faith and in the
exercise of reasonable judgment and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The LPC
Holders shall severally indemnify the LPC Holders' Agent and hold him harmless
against any loss, liability or expense incurred without gross negligence or bad
faith on the part of the LPC Holders' Agent and arising out of or in connection
with the acceptance or administration of his duties hereunder.
(c) The LPC Holders' Agent shall have reasonable access to
information about LPC and the reasonable assistance of LPC's officers and
employees for purposes of performing his duties and exercising his rights
hereunder, provided that the LPC Holders' Agent shall treat confidentially and
not disclose any nonpublic information from or about LPC to anyone (except on a
need to know basis to individuals who agree to treat such information
confidentially).
(d) Bruce F. Failing, Jr. acknowledges that he may have a
conflict of interest with respect to his duties as LPC Holders' Agent, and in
such regard Bruce F. Failing, Jr. agrees that he will act in the best interests
of the LPC Holders.
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8.10. Actions of the LPC Holders' Agent. A decision, act, consent or
instruction of the LPC Holders' Agent shall constitute a decision of all the LPC
Holders and shall be final, binding and conclusive upon each such LPC Holder,
and the Indemnification Escrow Agent and Parent may rely upon any decision, act,
consent or instruction of the LPC Holders' Agent as being the decision, act,
consent or instruction of each and every LPC Holder. The Indemnification Escrow
Agent and Parent are hereby relieved from any liability to any person for any
acts done by them in accordance with such decision, act, consent or instruction
of the LPC Holders' Agent.
9. Tax and Employee Covenants.
9.1. Tax Returns. From and after the Closing, the Shareholders shall
prepare and file, in a manner consistent with past practices, all federal income
tax returns of LPC relating to income of LPC for any period ending on or before
the Closing Date, and any state or local return of LPC relating to income of LPC
for any such period. The Shareholders shall permit Parent to review and comment
on each tax return described in the preceding sentence prior to filing. The
Shareholders shall include any income, gain, loss, deduction or other tax items
for such periods on their tax returns in a manner consistent with the Schedule
K-1s prepared by the Shareholders for such period. From and after the Closing,
Parent and Surviving Corporation shall provide the Shareholders, and each of
them, with such assistance as may reasonably be requested in connection with the
preparation of any tax return, any audit or other examination by any taxing
authority, or the response to any claim of any nature, or any judicial or
administrative proceeding (including, with limitation, with respect to any tax
liability), and in connection therewith shall furnish reasonable access to any
pertinent records or information relevant to such returns, audits, examination,
claims, or proceedings, as are in their respective possession or subject to
their respective control.
9.2. Employee Benefit Plans.
(a) Participation in Employee Benefit Plans. All participants in
the Lifetime Institute 401(k) Profit-Sharing Plan and the Lamaze Publishing
Company, Inc. Group Health Plan on the day before the Closing, who become
employees of the Surviving Corporation on Closing shall participate immediately
in any 401(k) Plan and any comparable group health plan maintained by Parent.
Coverage of such employees in the group health plan maintained by Parent shall
not be limited through the application of any pre-existing condition exclusion
except as allowed under applicable law.
(b) Distribution of Assets from Lifetime Institute 401(k) Profit
Sharing Plan. Following termination of the Lifetime Institute 401(k) Profit
Sharing Plan, assets will not be distributed among former participants in
connection with the plan termination until LPC receives a letter from the
Internal Revenue Service determining that the Lifetime Institute 401(k)
Profit-Sharing Plan is qualified under section 401(a) of the Internal Revenue
Code on termination.
(c) Payment of Claims Incurred but Not Yet Revealed on Closing.
Claims and expenses incurred but not submitted under the Lamaze Publishing
Company, Inc. Group Health Plan as of the Closing Date shall be paid pursuant to
the terms of the Lamaze
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Publishing Company, Inc., Group Health Plan by Parent or the Surviving
Corporation, subject to the indemnity set forth in Section 8.1(b) of this
Agreement.
10. General Provisions.
10.1. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed duly delivered if delivered personally (upon
receipt), or three (3) business days after being mailed by registered or
certified mail, postage prepaid (return receipt requested), or one (1) business
day after it is sent by reputable nationwide overnight courier service, or upon
transmission, if sent via facsimile (with confirmation of receipt) to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
(a) if to Parent or Merger Sub, to:
iVillage Inc.
170 Fifth Avenue
New York, New York 10010
Attention: Caterina Conti, Esq.
Telephone: (212) 206-2894
Telecopier: (212) 367-9133
with a copy (not constituting notice) to:
Orrick, Herrington & Sutcliffe LLP
400 Sansome Street
San Francisco, California 94111
Attention: Richard V. Smith, Esq.
Telephone: (415) 773-5830
Telecopier: (415) 773-5759
(b) if to LPC, to:
Lamaze Publishing Company Inc.
9 Old Kings Highway, South
Darien, CT 06820
Attention: Bruce F. Failing, Jr.
Telephone: (203) 559-3652
Telecopier: (203) 656-2574
with a copy to:
Krugman & Kailes
Park 80 West-Plaza Two
Saddle Brook, NJ 07663-5835
Attention: Howard Kailes and Robert I. Wexler
Telephone: (201) 845-3434
Telecopier: (201) 845-9627
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(c) if to LPC Holders' Agent, to:
Bruce F. Failing, Jr.
83 Pecksland Road
Greenwich, CT 06831
Telephone: (203) 869-0908
Telecopier: (203) 869-4371
with a copy to:
Krugman & Kailes
Park 80 West-Plaza Two
Saddle Brook, NJ 07663-5835
Attention: Howard Kailes and Robert I. Wexler
Telephone: (201) 845-3434
Telecopier: (201) 845-9627
10.2. Definitions. In this Agreement any reference to any event,
change, condition or effect being "material" with respect to any entity or group
of entities means any material event, change, condition or effect related to the
financial condition, properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that is materially adverse to the financial condition, properties,
assets, liabilities, business, operations or results of operations of such
entity and its subsidiaries, taken as a whole. In this Agreement any reference
to a party's "knowledge" means such party's actual knowledge after reasonable
inquiry of officers, directors and other employees of such party reasonably
believed to have knowledge of such matters. In this Agreement any reference to a
"business day" means any day other than a Saturday, Sunday or other day on which
banks are authorized to be closed in New York, New York.
10.3. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
10.4. Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules (including the LPC Disclosure Schedule and the Parent Disclosure
Schedule) (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms; (b) are not intended to confer upon any
other person any rights or remedies hereunder except for those rights of BBHC
and LII explicitly set forth herein; and shall not be assigned by operation of
law or otherwise without the written consent of the other party.
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<PAGE>
10.5. Severability. In the event that any provision of this Agreement,
or the application thereof becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.6. Remedies Cumulative. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
10.7. Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of New York that might otherwise
govern under applicable principles of conflicts of law. Each of the parties
hereto irrevocably consents to the exclusive jurisdiction of (a) the Supreme
Court of the State of New York, New York County, and (b) the United States
District Court for the Southern District of New York, for the purposes of any
Action (as defined below) arising out of this Agreement, any related document or
certificate or any transaction contemplated hereby or thereby. Each of the
parties hereto agrees to commence any Action relating hereto either in the
United States District Court for the Southern District of New York or if such
Action may not be brought in such court for jurisdictional reasons, in the
Supreme Court of the State of New York, New York County. Each of the parties
hereto further agrees that service of any process, summons, notice or document
by U.S. registered mail to such party's respective address set forth in Section
10.1 shall be effective service of process for any Action in New York with
respect to any matters to which it has submitted to jurisdiction in this Section
10.7. Each of the parties hereto irrevocably and unconditionally waives any
objection to the laying of venue of any Action arising out of this Agreement, or
any transaction contemplated hereby in (i) the Supreme Court of the State of New
York, New York County, or (ii) the United States District Court for the Southern
District of New York, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such Action brought
in any such court has been brought in an inconvenient forum. For purposes of
this Agreement, "Action" means any claim, action, suit or arbitration, or any
other proceeding, in each instance by or before any Governmental Entity or any
nongovernmental arbitration, mediation or other nonjudicial dispute resolution
body.
10.8. Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
50
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by each of them or their respective officers hereunto
duly authorized, all as of the date first written above.
iVILLAGE INC. LAMAZE PUBLISHING COMPANY, INC.
By: By:
---------------------------------- ---------------------------------
Steve Elkes Virginia Cargill
Senior Vice President President
LPC ACQUISITION CORPORATION SHAREHOLDERS:
By:
----------------------------------- ------------------------------------
Steve Elkes Bruce F. Failing, Jr.
Senior Vice President and Treasurer
Elizabeth F. Failing and Leigh Q.
Failing
Trustees under Paragraph II of
Article First of The Failing Trust
under Agreement dated July 31, 1990
for the Benefit of Lindsay Failing
By:
---------------------------------
By:
---------------------------------
Elizabeth F. Failing and Leigh Q.
Failing
Trustees under Paragraph II of
Article First of The Failing Trust
under Agreement dated July 31, 1990
for the Benefit of Bruce F.
Failing, III
By:
---------------------------------
By:
---------------------------------
51
<PAGE>
- -------------------------------------- ------------------------------------
Norton Garfinkle Robert C. Ford
THE GILLIAN GARFINKLE
S CORPORATION TRUST ------------------------------------
David Diamond
By:
-----------------------------------
THE NICHOLAS GARFINKLE
S CORPORATION TRUST
By:
-----------------------------------
STOCK APPRECIATION UNIT HOLDERS
- --------------------------------------
Virginia Cargill
- --------------------------------------
Douglas Bivona
- --------------------------------------
Paul Kessinger
52
<PAGE>
EX-11
Statement re: computation of earnings per share
LOSS PER SHARE
Computation of loss per share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1999
---- ----
<S> <C> <C>
Net loss $ 20,266 $ 34,663
======== ========
Net loss attributable to common stockholders $ 20,266 $ 58,274
======== ========
Weighted average shares of common stock outstanding
used in computing basic and diluted net loss per share
outstanding 6,179 14,565
======== ========
Basic and diluted net loss per share attributable to
common shareholders $ (3.28) $ (3.98)
======== ========
Shares of common stock used in computing pro forma basic
and diluted net loss per share 21,027
========
Pro forma basic and diluted net loss per share $ (2.77)
========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
and is qualified in its entirety to such financial statements (in thousands,
except per share data)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 85,278
<SECURITIES> 0
<RECEIVABLES> 3,425
<ALLOWANCES> (582)
<INVENTORY> 0
<CURRENT-ASSETS> 89,284
<PP&E> 13,624
<DEPRECIATION> (6,656)
<TOTAL-ASSETS> 158,072
<CURRENT-LIABILITIES> 12,780
<BONDS> 0
0
0
<COMMON> 243
<OTHER-SE> 145,049
<TOTAL-LIABILITY-AND-EQUITY> 158,072
<SALES> 14,572
<TOTAL-REVENUES> 14,572
<CGS> 9,112
<TOTAL-COSTS> 41,635
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,512
<INCOME-PRETAX> (34,663)
<INCOME-TAX> 0
<INCOME-CONTINUING> (34,663)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,663)
<EPS-BASIC> (3.98)
<EPS-DILUTED> (3.98)
</TABLE>
