<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14 (a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, For Use of the Commission only (as permitted by Rule 14a-6
(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
iVILLAGE INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[iVillage.com LOGO]
212 Fifth Avenue
New York, New York 10010
November 9, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
which will be held at The 200 Fifth Avenue Club, in the International Toy
Center, 200 Fifth Avenue, New York, New York at 10:00 a.m. on Wednesday,
December 15, 1999. On the following pages you will find the formal Notice of
Annual Meeting and Proxy Statement.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted at the meeting. Accordingly, please
date, sign and return the enclosed proxy card promptly.
I hope that you will attend the meeting and I look forward to seeing you
there.
Sincerely,
/s/ CANDICE CARPENTER
CANDICE CARPENTER
Co-Chairperson of the Board and
Chief Executive Officer
<PAGE>
IVILLAGE INC.
212 Fifth Avenue
New York, New York 10010
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 15, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of iVillage Inc., a Delaware corporation ("iVillage"), will be held on
Wednesday, December 15, 1999, at 10:00 a.m. (local time), at The 200 Fifth
Avenue Club, in the International Toy Center, 200 Fifth Avenue, New York, New
York, for the following purposes:
1. To elect three Class I Directors to the Board of Directors of iVillage;
2. To approve iVillage's Amended and Restated 1999 Employee Stock Option
Plan;
3. To ratify the appointment of PricewaterhouseCoopers LLP as the
independent auditors of iVillage for the fiscal year ending
December 31, 1999; and
4. To transact such other business as may properly come before the Annual
Meeting or at any adjournment or postponement thereof.
Stockholders of record at the close of business on November 4, 1999 are
entitled to notice of, and to vote at, the Annual Meeting or any adjournment or
postponement thereof. A list of such stockholders will be available at the
Annual Meeting and, for any purpose germane to the Annual Meeting, during the
ten days prior to the Annual Meeting, at the office of the Secretary of
iVillage, 212 Fifth Avenue, New York, New York, during ordinary business hours.
All stockholders are cordially invited to attend the Annual Meeting. If you
do not expect to be present at the Annual Meeting, you are requested to fill in,
date and sign the enclosed proxy and mail it promptly in the enclosed envelope
to make sure that your shares are represented at the Annual Meeting. In the
event you decide to attend the Annual Meeting in person, you may, if you desire,
revoke your proxy and vote your shares in person.
YOUR VOTE IS IMPORTANT
IF YOU ARE UNABLE TO BE PRESENT PERSONALLY, PLEASE MARK, SIGN AND DATE THE
ENCLOSED PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS, AND RETURN
IT PROMPTLY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
/s/ Steven A. Elkes
Steven A. Elkes
Secretary
New York, New York
November 9, 1999
<PAGE>
IVILLAGE INC.
212 Fifth Avenue
New York, New York 10010
------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 15, 1999
------------------
This Proxy Statement is furnished to stockholders of iVillage Inc.
("iVillage") in connection with the solicitation of proxies, in the accompanying
form, by the Board of Directors of iVillage (the "Board") for use in voting at
the Annual Meeting of Stockholders ("Annual Meeting") to be held at The 200
Fifth Avenue Club, in the International Toy Center, 200 Fifth Avenue, New York,
New York, on Wednesday, December 15, 1999, at 10:00 a.m., and at any adjournment
or postponement thereof.
This proxy statement, and the accompanying form of proxy, are first being
mailed to stockholders on or about November 9, 1999.
VOTING RIGHTS AND SOLICITATION OF PROXIES
PURPOSE OF THE ANNUAL MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in this proxy statement.
RECORD DATE AND OUTSTANDING SHARES
The Board has fixed the close of business on November 4, 1999 as the record
date (the "Record Date") for the determination of stockholders entitled to
notice of, and to vote at, the Annual Meeting. Only stockholders of record at
the close of business on that date will be entitled to vote at the Annual
Meeting or any and all adjournments or postponements thereof. As of November 4,
1999, iVillage had issued and outstanding 29,533,536 shares of common stock,
comprising all of iVillage's issued and outstanding voting stock.
REVOCABILITY AND VOTING OF PROXIES
Any person signing a proxy in the form accompanying this proxy statement
has the power to revoke it prior to the Annual Meeting or at the Annual Meeting
prior to the vote pursuant to the proxy. A proxy may be revoked by any of the
following methods:
o by writing a letter delivered to Steven A. Elkes, Secretary of iVillage,
stating that the proxy is revoked;
o by submitting another proxy with a later date; or
o by attending the Annual Meeting and voting in person.
Please note, however, that if a stockholder's shares are held of record by
a broker, bank or other nominee and that stockholder wishes to vote at the
Annual Meeting, the stockholder must bring to the Annual Meeting a letter from
the broker, bank or other nominee confirming that stockholder's beneficial
ownership of the shares.
Unless we receive specific instructions to the contrary or unless such
proxy is revoked, shares represented by each, properly executed proxy will be
voted: (i) FOR the election of each of iVillage's nominees as a director; (ii)
FOR approval of iVillage's Amended and Restated 1999 Employee Stock Option Plan;
(iii) FOR the ratification of the appointment of PricewaterhouseCoopers LLP as
the independent auditors of iVillage for the fiscal year ending December 31,
1999; and (iv) with respect to any other matters that may properly come before
the Annual Meeting, at the discretion of the
<PAGE>
proxy holders. iVillage does not presently anticipate any other business will be
presented for action at the Annual Meeting.
VOTING AT THE ANNUAL MEETING
Each share of common stock outstanding on the Record Date will be entitled
to one vote on each matter submitted to a vote of the stockholders, including
the election of directors. Cumulative voting by stockholders is not permitted.
The presence, in person or by proxy, of the holders of a majority of the
votes entitled to be cast by the stockholders entitled to vote at the Annual
Meeting is necessary to constitute a quorum. Abstentions and broker "non-votes"
are counted as present and entitled to vote for purposes of determining a
quorum. A broker "non-vote" occurs when a nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee does
not have discretionary voting power for that particular item and has not
received instructions from the beneficial owner.
A plurality of the votes cast is required for the election of directors.
Abstentions and broker "non-votes" are not counted for purpose of the election
of directors.
The affirmative vote of a majority of the shares of common stock
represented and voted at the Annual Meeting is required for approval of Proposal
Two (approval of iVillage' s Amended and Restated 1999 Employee Stock Option
Plan). Abstentions will have the same effect as a vote cast "against" such
proposals whereas broker non-votes are not considered to have been voted on such
proposal.
SOLICITATION
We will pay the costs relating to this proxy statement, the proxy and the
Annual Meeting. We may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to beneficial owners. Directors, officers and regular employees may
also solicit proxies. They will not receive any additional pay for the
solicitation. iVillage has retained Acumen Partners LLC to assist in the
solicitation of proxies, at an estimated cost of $7,500 plus other reasonable
expenses.
2
<PAGE>
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
The Bylaws of iVillage provide that the Board of Directors is divided into
three classes, denominated Class I, Class II and Class III, the terms of which
expire successively over a three-year period. At the Annual Meeting, three
individuals will be elected as Class I directors for a three-year term until
their successors are elected and qualified.
The Board of Directors currently has ten members. Alan Colner, Lennert J.
Leader and Michael Levy are Class I Directors whose terms expire at the Annual
Meeting and each of whom is a nominee for election. Jay C. Hoag, Douglas
McCormick and Daniel H. Schulman are Class II Directors whose terms expire at
the 2000 annual meeting of stockholders. Candice Carpenter, Nancy Evans, Habib
Kairouz and Martin Yudkovitz are Class III Directors whose terms expire at the
2001 annual meeting of stockholders.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the nominees named below, all of whom are presently
directors of iVillage. If any nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee designated by the present Board of Directors to fill the vacancy. It is
not expected that any nominee will be unable or will decline to serve as a
director. If stockholders properly nominate persons other than iVillage's
nominees for election as directors, the proxy holders will vote all proxies
received by them to assure the election of as many of iVillage's nominees as
possible, with the proxy holder making any required selection of specific
nominees to be voted for. The term of office of each person elected as a
director will continue until the 2002 annual meeting of stockholders or until
his earlier death, resignation or removal. There is no family relationship
between any director and any other director or executive officer of iVillage.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ELECTION OF MESSRS. COLNER, LEADER AND LEVY AS DIRECTORS.
DIRECTOR INFORMATION
The following provides information about each nominee and continuing
director, including data on their business backgrounds and the names of public
companies and other selected entities for which they also serve as directors.
The information concerning the directors and their security holdings has been
furnished to us by each director.
CLASS I DIRECTORS--NOMINEES FOR A TERM OF THREE YEARS EXPIRING IN 2002
ALAN COLNER has been a director of iVillage since February 1999. Since
August 1996, Mr. Colner has served as Managing Director, Private Equity
Investments at Moore Capital Management, Inc. Before joining Moore, he was a
Managing Director of Corporate Advisors, L.P., the general partner of Corporate
Partners, a private equity fund affiliated with Lazard Freres & Co. LLC.
Mr. Colner is a director of GoTo.com, Inc., an Internet search company, and
NextCard, Inc., an Internet based provider of consumer credit. Mr. Colner also
serves as a director of several privately held companies. Mr. Colner received an
M.B.A. from the Stanford University Graduate School of Business and a B.A. from
Yale University.
LENNERT J. LEADER has been a director of iVillage since July 1998. Since
February 1998, Mr. Leader has been President of AOL Investments, a division of
America Online, Inc. ("AOL"). Mr. Leader served as Senior Vice President, Chief
Financial Officer and Treasurer of AOL from September 1989 until July 1998 and
was Chief Accounting Officer from October 1993 until July 1998. Prior to joining
AOL, Mr. Leader was Vice President Finance of LEGENT Corporation, a computer
software and services company, from March 1989 to September 1989, and Chief
Financial Officer of Morino, Inc., a computer software and services company,
from 1986 to March 1989 and its Director of Finance from 1984 to 1986. Prior to
joining Morino, Inc. in 1984, he was an audit
3
<PAGE>
manager at Price Waterhouse. Mr. Leader serves as a director of Multex.com, Inc.
Mr. Leader graduated with a B.S. in Accounting in 1977 from the University of
Baltimore.
MICHAEL LEVY has been a director of iVillage since November 1998. Mr. Levy
currently serves as President and Chief Executive Officer at SportsLine USA,
Inc., a position he has held since February 1994. Mr. Levy is also a director of
SportsLine USA. Prior to joining SportsLine USA, Mr. Levy was a private
investor. Mr. Levy received a B.S. in Electrical Engineering from the Georgia
Institute of Technology.
CLASS II DIRECTORS--TO CONTINUE IN OFFICE UNTIL 2000
JAY C. HOAG has been a director of iVillage since February 1999. Since June
1995, Mr. Hoag has been a General Partner of Technology Crossover Ventures, a
venture capital firm. From 1982 to 1994, Mr. Hoag served in a variety of
capacities at Chancellor Capital Management, Inc. Mr. Hoag is currently a
director of ONYX Software Corporation, a provider of customer management
software and Autoweb.com, a consumer automotive Internet service. He also serves
as a director of several privately held companies. Mr. Hoag received his M.B.A.
from the University of Michigan and a B.A. in Economics and political science
from Northwestern University.
DOUGLAS MCCORMICK has been a director of iVillage since February 1999. From
1993 to 1998, Mr. McCormick was President and Chief Executive Officer of
Lifetime Television, a joint venture of The Hearst Corporation and The Walt
Disney Company. Mr. McCormick held various positions at Lifetime from 1984 to
1994 in the sales, marketing and research areas. Mr. McCormick received an
M.B.A. from the Columbia University School of Business and a B.A. in
speech/communications from the University of Dayton.
DANIEL H. SCHULMAN has been a director of iVillage since February 1999.
Since June 1999, Mr. Schulman has been President and Chief Operating Officer of
Priceline.com. From October 1998 to May 1999, Mr. Schulman was an Executive Vice
President at AT&T Corp. and was President of AT&T WorldNet Services from January
1997 to October 1998. From January 1996 to January 1997, Mr. Schulman was a Vice
President of Business Services at AT&T Corp. From December 1994 to January 1996,
he served as a Marketing Vice President at AT&T Corp. and also was a General
Manager at AT&T Corp. from June 1993 to December 1994. Mr. Schulman received an
M.B.A. from New York University and a B.S. from Middlebury College.
CLASS III DIRECTORS--TO CONTINUE IN OFFICE UNTIL 2001
CANDICE CARPENTER is a founder of iVillage and has been Chairperson of the
Board and Chief Executive Officer since the inception of iVillage in June 1995
and Co-Chairperson of the Board since December 1998. Prior to founding iVillage,
Ms. Carpenter was President of Q2, the upscale QVC, Inc. shopping channel, from
1993 through 1995. Ms. Carpenter was also a consultant to AOL and Discovery
Communications, Inc. in 1995. From 1989 to 1993, Ms. Carpenter was President of
Time Life Inc.'s Time Life Video and Television and previously was Vice
President in Consumer Marketing at American Express Company. Ms. Carpenter
received an M.B.A. from Harvard Business School and a B.A. from Stanford
University.
NANCY EVANS is a founder of iVillage and has been Editor-in-Chief since
inception in June 1995 and Co-Chairperson of the Board since December 1998.
Ms. Evans is primarily responsible for the editorial quality and content for all
of iVillage's editorial products online, in print or on television. Prior to
founding iVillage, Ms. Evans created Family Life magazine in 1991, which she
published in partnership with Jann Wenner. From 1987 to 1991, Ms. Evans served
as President and Publisher of Doubleday. Prior to her employment at Doubleday,
Ms. Evans was Vice President and Editor-In-Chief of the Book-of-the-Month Club,
where she launched the Children's Book-of-the-Month Club. Ms. Evans graduated
from Skidmore College with a B.A. and is also a graduate fellow at Columbia
University.
4
<PAGE>
HABIB KAIROUZ has been a director of iVillage since March 1998. Currently,
Mr. Kairouz is Managing Director of Rho Management Company, Inc., an investment
company, and has been with Rho since 1993. He also serves as a director at
Bellwether Exploration Company, Inc., an oil drilling company, and a number of
other private companies. Mr. Kairouz received a B.S. in Engineering and a B.A.
in Economics from Cornell University and an M.B.A. in Finance from Columbia
University.
MARTIN YUDKOVITZ has been a director of iVillage since February 1999. Since
December 1995, Mr. Yudkovitz has been the President and Chief Executive Officer
of NBC Multimedia, Inc., a division of the National Broadcasting Company, Inc.
In January 1997, Mr. Yudkovitz also became the Senior Vice President of Business
Development, Broadcast Network Applications for NBC. From 1994 to 1999,
Mr. Yudkovitz was Senior Vice President of NBC Multimedia. From 1992 to 1994, he
served as Senior Vice President of Strategic Development at NBC. His other
positions at NBC have included Vice President of Business Affairs for NBC's 1992
Olympics Unit; First General Counsel and Vice President for Business Affairs at
CNBC; and Senior Counsel to NBC's 1988 Seoul Olympics Unit in NBC Sports.
Mr. Yudkovitz joined NBC in January 1984 in the law department. Mr. Yudkovitz
received his J.D. from Columbia University and his B.A. from Rutgers University.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held one meeting during the fiscal year ended
December 31, 1998 and acted five times by unanimous written consent. The Board
of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee currently consists of directors Hoag, Leader and
Yudkovitz. The Audit Committee reviews the internal accounting procedures of
iVillage and consults with and reviews the services provided by iVillage's
independent accountants.
The Compensation Committee currently consists of directors McCormick,
Kairouz and Levy. The Compensation Committee reviews and recommends to the Board
of Directors the compensation and benefits of all officers of iVillage,
administers iVillage's stock option plans and establishes and reviews general
policies relating to compensation and benefits of employees of iVillage.
During fiscal 1998, each current director attended 75% or more of the
meetings of the Board of Directors and of the committees of the Board on which
the director served during the period for which he was director or committee
member, respectively.
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation from iVillage for
their service as members of the Board of Directors, although they are reimbursed
for certain expenses in connection with attendance at Board and Committee
meetings. From time to time, certain directors of iVillage have received grants
of options to purchase shares of iVillage's common stock pursuant to the 1995
Amended and Restated Employee Stock Option Plan. Under iVillage's 1999 Director
Option Plan, nonemployee directors are eligible to receive nondiscretionary,
automatic stock option grants.
5
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers of iVillage:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Candice Carpenter.................................... 47 Co-Chairperson of the Board and Chief Executive
Officer
Nancy Evans.......................................... 49 Co-Chairperson of the Board and Editor-in-Chief
Craig T. Monaghan.................................... 42 Chief Financial Officer
Allison Abraham...................................... 36 Chief Operating Officer
John W. Glascott..................................... 46 Senior Vice President, Sponsorship
Donna M. Introcaso................................... 41 Senior Vice President, Human Resources
Steven A. Elkes...................................... 38 Senior Vice President, Business Affairs and Secretary
Elizabeth J. Hudson.................................. 50 Senior Vice President, Corporate Communications
John Curran.......................................... 35 Senior Vice President, Corporate Development
Scott Levine......................................... 34 Vice President, Controller and Chief Accounting
Officer
</TABLE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
CRAIG T. MONAGHAN has been Chief Financial Officer of iVillage since June
1998. From 1991 to June 1998, Mr. Monaghan held various positions at Reader's
Digest Association Inc., including Vice President and Treasurer, Vice President,
Business Development and Controller, Reader's Digest Europe. Prior to joining
Reader's Digest, Mr. Monaghan served as Director of International Finance and
Director of Corporate Finance at Bristol-Myers Squibb Company. Mr. Monaghan
received an M.B.A. from The Wharton School at the University of Pennsylvania and
a B.S. in Engineering from Lehigh University.
ALLISON ABRAHAM has been Chief Operating Officer since November 1998. From
June 1998 to October 1998, Ms. Abraham was the Executive Vice President of
iVillage. From August 1996 to May 1998, Ms. Abraham was President and Chief
Operating Officer of OnCart, an online grocery shopping service. From 1992 to
1996, she served as Vice President of Marketing for Ameritech Corporation, a
telephone and cellular telecommunications company, as well as other sales and
marketing positions. From 1988 to 1992, Ms. Abraham was employed by American
Express Travel Related Services, where she focused on loyalty programs and new
product development. Ms. Abraham received an M.B.A. from The Darden School at
the University of Virginia and a B.A. from Tufts University.
JOHN W. GLASCOTT has been Senior Vice President, Sponsorship since April
1998. From September 1996 to March 1998, Mr. Glascott was Senior Vice President
and Director of Corporate Marketing and Sales for Hearst Magazines. From August
1994 to September 1996, Mr. Glascott was a publisher and partner of SmartHealth
at Meigher Communications L.P., a magazine publisher. Prior to such time,
Mr. Glascott held various sales management positions at Whittle
Communications L.P., a media company, from 1982 to 1994. Mr. Glascott received
an M.B.A. from New York University and a B.A. from Ohio Wesleyan University.
DONNA M. INTROCASO has been Senior Vice President, Human Resources since
February 1999. From October 1998 to February 1999, Ms. Introcaso was Vice
President, Human Resources. From March 1996 to September 1998, Ms. Introcaso was
Vice President of Human Resources for WinStar Communications, Inc., a
telecommunications company, where she focused on executive compensation and
employee benefit programs. From April 1995 until February 1996, Ms. Introcaso
6
<PAGE>
was the Director of Human Resources at iGuide, an online Internet service
provider. From July 1991 to March 1995, she was the manager of Human Resources
of Wm. H. McGee and Co., Inc., a marine insurance company. Ms. Introcaso
received her M.B.A from Cornell University and her B.A. from the College of
Notre Dame.
STEVEN A. ELKES has been Senior Vice President, Business Affairs since
April 1999 and Secretary since October 1999. From August 1996 to April 1999,
Mr. Elkes was Vice President, Business Affairs. From August 1993 to August 1996,
Mr. Elkes was Vice President Credit/Structured Finance at CNA Insurance Company.
From August 1991 to August 1993, Mr. Elkes served as Assistant Vice President at
CNA Insurance Company. Mr. Elkes received his M.B.A. from Baruch College and his
B.A. from Grinnell College.
ELIZABETH J. HUDSON has been Senior Vice President, Corporate
Communications since June 1999. From January 1998 to May 1999, Ms. Hudson was a
director in the Global Media and Communications Practice for Spencer Stuart, an
executive recruiting firm. From May 1996 to July 1997, Ms. Hudson was Senior
Vice President of Corporate Communications at The Readers Digest Association.
From 1979 to 1996, Ms. Hudson held various positions at the National
Broadcasting Company, Inc., including Vice President of Corporate Projects, Vice
President of Corporate Relations and Advertising, Vice President of Corporate
and Media Relations, Vice President of Corporate Communications and Senior Vice
President of Corporate Communications and Executive Producer of NBC Productions,
a division of NBC. Ms. Hudson received a B.A. in Journalism from the University
of Georgia.
JOHN CURRAN has been Senior Vice President, Corporate Development since
August 1999. From 1995 to 1999, Mr. Curran was Director, Media Investment
Banking at Merrill Lynch & Co. From 1986 to 1995, Mr. Curran held various
positions at Goldman, Sachs & Co. including Vice President, Communications,
Media & Entertainment Group. Mr. Curran received a B.A. from DePauw University.
SCOTT LEVINE has been Vice President, Controller and Chief Accounting
Officer since February 1999. From July 1998 to February 1999, Mr. Levine was
Controller for Fundtech Ltd., a financial software company. From April 1997 to
July 1998, Mr. Levine was the Controller of AmeriCash, Inc., an operator of a
network of automated teller and electronic commerce machines. From 1993 to 1997,
Mr. Levine was employed by Coopers & Lybrand L.L.P. Mr. Levine is a Certified
Public Accountant and received his M.B.A. from Baruch College and his B.A. from
State University of New York, Buffalo.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned for services
rendered to iVillage in all capacities for the fiscal years ended December 31,
1996, 1997 and 1998 by iVillage's Chief Executive Officer and its four next most
highly compensated executive officers who earned more
7
<PAGE>
than $100,000 during the fiscal years ended December 31, 1996, 1997 and 1998
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------------------------- UNDERLYING
OTHER ANNUAL OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) (#)(1)
- ------------------------------------------------ ---- --------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Candice Carpenter .............................. 1998 $ 225,000 $ -- $ -- 153,334
Chief Executive Officer 1997 266,250 50,000 3,708 93,334
1996 280,000 -- 12,564 --
Nancy Evans .................................... 1998 195,000 -- -- 76,667
Editor-in-Chief 1997 245,417 25,000 -- --
1996 250,000 -- 26,602 --
John W. Glascott ............................... 1998 155,906 50,000 -- 66,667
Senior Vice President, Sponsorship 1997 -- -- -- --
1996 -- -- -- --
Stephen Lake ................................... 1998 146,250 -- -- 8,333
Vice President, Business Development 1997 122,625 45,000 -- 58,334
1996 -- -- -- --
Steven A. Elkes ................................ 1998 158,968 12,150 -- 16,667
Senior Vice President, Business Affairs 1997 135,000 40,000 1,875 28,334
1996 35,192 -- -- 5,000
</TABLE>
- ------------------------------
(1) Options were granted under iVillage's 1995 Amended and Restated Employee
Stock Option Plan and 1/4 vest one year after the date of employment and the
remainder in equal quarterly installments.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers during the fiscal year
ended December 31, 1998. iVillage has never granted any stock appreciation
rights. The exercise price per share of each option was equal to the fair market
value of the common stock on the date of grant as determined by the Board of
Directors. The potential realizable value is calculated based on the term of the
option at its time of grant (seven years). It is calculated assuming that the
fair market value of common stock on the date of grant appreciates at the
indicated annual rate compounded annually for the entire term of the option and
that the option is exercised and sold on the last day of its term for the
appreciated stock price. These numbers are calculated based on the requirements
of the Securities and Exchange Commission and do not reflect iVillage's estimate
of future stock price growth.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE PER
GRANTED FISCAL YEAR SHARE EXPIRATION
NAME (#) (%)(1) ($/SH) DATE
- ------------------------------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Candice Carpenter.............. 153,333 10% $6.00 5/25/05
Nancy Evans.................... 76,667 5 6.00 5/25/05
John W. Glascott............... 66,667 4 6.00 4/4/05
Stephen Lake................... 8,333 1 6.00 5/25/05
Steven A. Elkes................ 16,667 1 6.00 4/1/05
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE APPRECIATION
FOR OPTION TERM
----------------------------------------------
NAME 5%($) 10%($)
- ------------------------------- ---------------------- ----------------------
<S> <C> <C>
Candice Carpenter.............. $374,532 $872,820
Nancy Evans.................... 187,266 436,410
John W. Glascott............... 162,840 379,487
Stephen Lake................... 20,355 47,436
Steven A. Elkes................ 40,710 94,872
</TABLE>
(Footnote continued on next page)
8
<PAGE>
(Footnote from previous page)
(1) Based on options to purchase an aggregate of 1,515,143 shares of common
stock granted under the 1995 Amended and Restated Employee Stock Option Plan
and the 1997 Amended and Restated Acquisition Stock Option Plan by iVillage
in the year ended December 31, 1998 to employees, consultants and directors
of iVillage.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning stock options held during the fiscal year ended
December 31, 1998 and exercisable and unexercisable options held as of
December 31, 1998. No options were exercised during fiscal 1998 by any of the
officers. The value of unexercised in-the-money options at fiscal year-end is
based on $9.45 per share, the assumed fair market value of the common stock at
December 31, 1998, less the exercise price per share.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT FISCAL YEAR-END (#) FISCAL YEAR-END
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Candice Carpenter.................................... 48,332 198,334 $ 192,995 $ 742,002
Nancy Evans.......................................... 9,583 67,084 33,061 231,440
John W. Glascott..................................... -- 66,667 -- 230,000
Stephen Lake......................................... 26,562 40,104 114,607 167,891
Steven A. Elkes...................................... 14,374 35,626 60,652 141,848
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires iVillage's officers and directors, and persons who own more than 10% of
a registered class of iVillage's equity securities, to file certain reports
regarding ownership of, and transactions in, iVillage's securities with the
Securities and Exchange Commission and The Nasdaq Stock Market, Inc. Such
officers, directors and 10% stockholders are also required by Securities and
Exchange Commission rules to furnish iVillage with copies of all Section 16(a)
forms that they file. iVillage was not subject to Section 16 of the 1934 Act
during the fiscal year ended December 31, 1998, and so no compliance was
required by such persons.
9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of November 4, 1999 of (i) each person known by
iVillage to beneficially own more than 5% of the common stock, (ii) each
director or director nominee of iVillage, (iii) each executive officer of
iVillage for whom information is given in the Summary Compensation Table in this
proxy statement, and (iv) all directors and executive officers of iVillage as a
group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY HELD(1) PERCENT OF CLASS
- -------------------------------------------------------------------------- -------------------- ----------------
<S> <C> <C>
America Online, Inc ...................................................... 2,511,983 8.4%
22000 AOL Way
Dulles, Virginia 20166-9323
National Broadcasting Company, Inc ....................................... 2,161,634 7.2
30 Rockefeller Plaza
New York, New York 10112
Rho Management Trust I (2) ............................................... 1,662,842 5.6
767 Fifth Avenue
New York, New York 10153
Candice Carpenter(3)...................................................... 776,668 2.6
Nancy Evans(4)............................................................ 362,084 1.2
Alan Colner(5)............................................................ 743,293 2.5
Jay C. Hoag(6)............................................................ 616,634 2.1
Habib Kairouz(7).......................................................... 1,662,842 5.6
Lennert J. Leader(8)...................................................... 2,511,983 8.4
Michael Levy(9)........................................................... 38,333 *
Douglas McCormick(10)..................................................... 11,111 *
Daniel Schulman(11)....................................................... 5,556 *
Martin Yudkovitz(12)...................................................... 2,165,634 7.3
Steven Elkes(13).......................................................... 29,559 *
Stephen Lake(14).......................................................... 49,626 *
John W. Glascott(15)...................................................... 29,559 *
All directors and executive officers as a group (19 persons).............. 9,131,910 29.8
</TABLE>
- ------------------------------
* Less than one percent of the outstanding common stock.
(1) Unless otherwise indicated, the address for each listed director or officer
is c/o iVillage Inc., 212 Fifth Avenue, New York, New York 10010. As used
in this table, "beneficial ownership" means the sole or shared power to
vote or direct the voting or to dispose or direct the disposition of any
security. For purposes of this table, a person is deemed to be the
beneficial owner of securities that can be acquired within 60 days from
November 4, 1999 through the exercise of any option or warrant. Shares of
common stock subject to options or warrants that are currently exercisable
or exercisable within 60 days are deemed outstanding for computing the
ownership percentage of the person holding such options or warrants, but
are not deemed outstanding for computing the ownership percentage of any
other person. The amounts and percentages are based upon 29,533,536 shares
of common stock outstanding as of November 4, 1999.
(2) Rho Management Partners L.P., a Delaware limited partnership, may be deemed
the beneficial owner of the 1,662,842 shares registered in the name of Rho
Management Trust I, according to an investment advisory relationship by
which Rho Management Partners L.P. exercises voting and investment control
over the shares.
(Footnotes continued on next page)
10
<PAGE>
(Footnotes continued from previous page)
(3) Includes (a) options to purchase 110,000 shares of common stock that are
currently exercisable and (b) 104,166 shares of common stock beneficially
owned by the Carpenter Family 1998 Irrevocable Trust. Ms. Carpenter
disclaims beneficial ownership of the shares of common stock held by the
Carpenter Family 1998 Irrevocable Trust.
(4) Includes (a) options to purchase 28,752 shares of common stock that are
currently exercisable and (b) 104,166 shares of common stock beneficially
owned by the Evans/Wishman 1998 Irrevocable Trust. Ms. Evans disclaims
beneficial ownership of the shares of common stock held by the
Evans/Wishman 1998 Irrevocable Trust.
(5) Mr. Colner is Managing Director, Private Equity Investments at Moore
Management, Inc., the investment advisor to Moore Global Investments, Ltd.
and Remington Investment Strategies, L.P. Mr. Colner does not have voting
or investment power with respect to the shares of common stock owned by
Moore or Remington. Mr. Colner disclaims beneficial ownership of the shares
of common stock beneficially owned by Moore Global Investments, Ltd. and
Remington Investment Strategies, L.P.
(6) Mr. Hoag is a Managing Member of Technology Crossover Management II,
L.L.C., the General Partner of TCV II Strategic Partners, L.P., TCV II (Q),
L.P., TCV II V.O.F., Technology Crossover Ventures II, C.V. and Technology
Crossover Ventures II, L.P. Mr. Hoag may be deemed to have beneficial
ownership of 40,246 shares owned by TCV II Strategic Partners, L.P.,
226,786 shares owned by TCV II (Q) L.P., 9,582 shares owned by TCV II
V.O.F., 45,037 shares owned by Technology Crossover Ventures II, C.V. and
294,981 shares owned by Technology Crossover Ventures II, L.P. Mr. Hoag
disclaims beneficial ownership of the shares, except to the extent of his
pecuniary interest therein arising from his interest in Technology
Crossover Management II, L.L.C.
(7) Mr. Kairouz is Managing Director of Rho Management Company, Inc., an
affiliate of Rho Management Partners L.P. In such capacity, Mr. Kairouz may
be deemed to have beneficial ownership of the 1,662,842 shares owned by Rho
Management Trust I. Mr. Kairouz disclaims beneficial ownership of the
shares reported by Rho Management Trust I, other than 17,249 shares in
which Mr. Kairouz has a pecuniary interest.
(8) Consists of 2,511,983 shares of common stock beneficially owned by America
Online, Inc., including 350,908 shares of common stock issuable upon the
exercise of warrants. Mr. Leader shares voting power with America Online,
Inc. Mr. Leader disclaims beneficial ownership of the shares of common
stock beneficially owned by America Online, Inc.
(9) Includes options to purchase 16,667 shares of common stock that are
currently exercisable.
(10) Consists of options to purchase 11,111 shares of common stock that are
currently exercisable.
(11) Consists of options to purchase 5,556 shares of common stock that are
currently exercisable.
(12) Consists of 4,000 shares of common stock beneficially owned by
Mr. Yudkovitz and 2,161,634 shares of common stock beneficially owned by
the National Broadcasting Company, Inc., including 323,625 shares of common
stock issuable upon the exercise of a warrant. Mr. Yudkovitz is President
and Chief Executive Officer of NBC Multimedia, Inc., a division of NBC.
Mr. Yudkovitz does not have voting or investment power with respect to the
shares of common stock owned by NBC. Mr. Yudkovitz disclaims beneficial
ownership of the shares of common stock beneficially owned by NBC.
(13) Includes options to purchase 26,459 shares of common stock that are
currently exercisable.
(14) Includes options to purchase 46,876 shares of common stock that are
currently exercisable.
(15) Includes options to purchase 25,002 shares of common stock that are
currently exercisable.
11
<PAGE>
CERTAIN TRANSACTIONS
In February 1998, March 1998 and May 1998, iVillage issued shares of series
D convertible preferred stock to certain entities affiliated with directors of
iVillage at a purchase price of $2.50 per share. The number of shares of series
D convertible preferred stock issued to each entity is set forth below. Upon
completion of iVillage's initial public offering on March 24, 1999, the series D
convertible preferred stock automatically converted into an aggregate of
4,333,333 shares of common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF SERIES D
NAME OF INVESTOR PREFERRED STOCK
- -------------------------------------------------------------------------- ----------------
<S> <C>
ENTITIES AFFILIATED WITH DIRECTORS
America Online, Inc....................................................... 1,200,000
Rho Management Trust I.................................................... 1,080,000
TCV II Strategic Partners, L.P............................................ 104,429
TCV II (Q), L.P........................................................... 588,448
TCV II, V.O.F............................................................. 24,864
Technology Crossover Ventures II, C.V..................................... 116,861
Technology Crossover Ventures II, L.P..................................... 765,398
</TABLE>
On June 5, 1998, Candice Carpenter executed a promissory note in favor of
iVillage for borrowings up to a maximum principal amount of $500,000, of which
$500,000 was outstanding at December 31, 1998. Subject to prepayment or
acceleration, any loans made to Ms. Carpenter under the note mature on December
31, 2001. Borrowings made under the note bear interest at 5.58% per annum and
are payable on an annual basis on December 31 of each year commencing on
December 31, 1998. The note is collateralized by a pledge by Ms. Carpenter of
166,666 shares of common stock.
On September 14, 1998, iVillage entered into a sponsorship agreement with
Re.Store, Inc. now known as MyBasics.com. In 1998, iVillage recognized $546,875
as revenue from the agreement. As of December 31, 1998, MyBasics.com had paid
$312,500 of such amount. The balance of $234,375 was paid in September 1999. In
addition, in 1998, iVillage received 2,243 shares of common stock of
MyBasics.com in accordance with the agreement. Candice Carpenter resigned as a
director of MyBasics.com on April 5, 1999.
In December 1998, iVillage issued shares of series E convertible preferred
stock to certain entities affiliated with directors of iVillage at a purchase
price of $2.85 per share. The number of shares of series E convertible preferred
stock issued to each entity is set forth below. Upon completion of iVillage's
initial public offering on March 24, 1999, the series E convertible preferred
stock automatically converted into an aggregate of 3,910,316 shares of common
stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF SERIES E
NAME OF INVESTOR PREFERRED STOCK
- -------------------------------------------------------------------------- ----------------
<S> <C>
ENTITIES AFFILIATED WITH DIRECTORS
TCV II Strategic Partners, L.P............................................ 12,003
TCV II (Q), L.P........................................................... 67,638
TCV II, V.O.F............................................................. 2,858
Technology Crossover Ventures II, C.V..................................... 13,432
Technology Crossover Ventures II, L.P..................................... 87,976
America Online, Inc....................................................... 701,754
Rho Management Trust I.................................................... 477,079
</TABLE>
In December 1998, iVillage entered into an interactive services agreement
with AOL, in which some of iVillage's icons are placed within the AOL service.
The AOL agreement supersedes all prior services agreements between iVillage and
AOL and expires December 21, 2000. Either party may extend the agreement for an
additional year. In consideration for AOL carrying certain channels,
12
<PAGE>
iVillage received a guaranty of a minimum number of impressions. iVillage is
obligated to pay AOL in quarterly installments, provide AOL with or purchase
from AOL advertising and provide in-kind commitments to AOL consisting of
specific references to AOL through specified media.
On February 4, 1999, Candice Carpenter and Nancy Evans were granted
incentive stock options under the Amended and Restated 1999 Employee Stock
Option Plan to purchase 333,333 and 116,666 shares of common stock,
respectively, at an exercise price equal to $24.00 per share. The stock options
granted to Ms. Carpenter vest 20% upon each of the second and third
anniversaries of the date of grant and 30% upon each of the fourth and fifth
anniversaries of the date of grant. Ms. Evans' options vest at the rate of 25%
per year beginning on the second anniversary of the date of grant.
Upon being elected to the Board of Directors, Douglas McCormick and Daniel
Schulman were granted stock options under the 1999 Director Option Plan to
purchase 33,333 and 16,666 shares of common stock, respectively, at an exercise
price equal to $24.00 per share. One-third of the options vested upon the date
of grant and one-third vest upon each of the second and third anniversaries of
the date of grant.
On March 9, 1999, iVillage and NBC amended their November 11, 1998
advertising and promotional agreement and entered into a stock purchase
agreement pursuant to which iVillage issued 4,889,030 shares of series E
convertible preferred stock and warrants to purchase up to 970,874 shares of
series E convertible preferred stock at $5.15 per share during 2000 and 813,008
shares at $6.15 per share during 2001 in exchange for a promissory note in the
approximate amount of $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 addition, iVillage has
agreed to purchase, for cash, $13.5 million of advertising and promotional spots
during 1999 and $8.5 million per annum during 2000 and 2001. iVillage has also
agreed to pay $1.1 million during 1999 for prominent placement on the NBC.com
Web site.
iVillage has entered into indemnification agreements with its officers and
directors containing provisions which may require iVillage, among other things,
to indemnify its officers and directors against certain liabilities that may
arise by reason of their status or service as officers or directors, other than
liabilities arising from willful misconduct of a culpable nature, and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified.
PERFORMANCE MEASUREMENT COMPARISON
iVillage had its initial public offering on March 19, 1999, at which time
iVillage's common stock first became publicly traded. Consequently iVillage's
common stock was not publicly traded until after the completion of its last
fiscal year, and so no performance measurement comparison has been provided.
13
<PAGE>
PROPOSAL NO. 2:
APPROVAL OF AMENDED AND RESTATED
1999 EMPLOYEE STOCK OPTION PLAN
The Board of Directors proposes that iVillage's stockholders approve
iVillage's Amended and Restated 1999 Employee Stock Option Plan, as amended and
restated through October 6, 1999 (the "Employee Plan"). The Employee Plan amends
and restates iVillage's 1999 Employee Stock Option Plan, which was approved by
the Board of Directors on February 4, 1999. The amendments to this plan which
are reflected in the Employee Plan will, among other things, increase the number
of shares of common stock reserved for issuance under the Employee Plan by an
additional 1,500,000 shares. The Employee Plan is being submitted for
stockholder approval in its entirety.
PURPOSE OF THE PROPOSAL
On November 4, 1999, 4 options to purchase shares remained available for
future grants under the Employee Plan. In order to continue to provide key
individuals with awards and incentives commensurate with their contributions and
competitive with those offered by other employers, the Compensation Committee
determined that it was in our best interest to increase the number of shares
with respect to which options may be granted under the Employee Plan.
Consequently, on October 6, 1999, our Board of Directors adopted, subject to
approval by our stockholders, the amendment to the Employee Plan to increase the
number of shares of common stock available for grant under the Employee Plan.
The Board of Directors believes that this amendment will increase stockholder
value by further aligning the interests of key individuals with the interest of
our stockholders by providing a great opportunity to benefit from stock price
appreciation that generally accompanies improved financial performance.
The Board of Directors is submitting the Employee Plan for stockholder
approval so that iVillage may continue to grant options under the Employee Plan
and the compensation attributable to options granted under the Employee Plan may
qualify as "performance-based compensation" for purposes of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code").
GENERAL
The following summary is qualified in its entirety by reference to the
Employee Plan, a copy of which is attached to this proxy statement as
Exhibit A. The Employee Plan provides for the granting of stock options and
stock purchase rights (collectively, "Awards") to eligible plan participants. If
the Employee Plan is approved at the Annual Meeting by the stockholders, the
maximum number of shares of iVillage's common stock available for Awards under
the Employee Plan will be 2,840,163. As of November 4, 1999, 1,340,159 shares
are subject to Awards granted under the Employee Plan, and 4 shares remained
available for Awards to be granted in the future.
PURPOSE OF THE EMPLOYEE PLAN
The Employee Plan is intended to:
o attract and retain the best available personnel for positions of
substantial responsibility;
o provide additional incentives to employees, directors and consultants of
iVillage; and
o promote the success of iVillage's business.
ADMINISTRATION OF THE EMPLOYEE PLAN
The Employee Plan may be administered by iVillage's Board of Directors or a
committee of directors appointed by the Board of Directors (the "Committee")
with respect to whether the optionee is an employee, a director or a consultant.
To the extent that iVillage wishes to qualify options granted under the Employee
Plan as performance-based compensation under Section 162(m), members of the
Committee must also be "outside directors" under Section 162(m). In this
14
<PAGE>
description, the Board of Directors or Committee is generally referred to as the
Committee, except where only the Board of Directors may act.
Subject to the terms of the Employee Plan, the Committee has the sole
discretion to determine the employees, directors and consultants who shall be
granted Awards, the size and types of such Awards, and the terms and conditions
of such Awards.
ELIGIBILITY TO RECEIVE AWARDS
Employees, directors and consultants of iVillage are eligible to be
selected to receive one or more Awards. The actual number of employees who will
receive Awards under the Employee Plan cannot be determined because eligibility
for participation in the Employee Plan is in the discretion of the Committee.
As of the date of this proxy statement, the Committee has approved the
following options for grant under the Employee Plan, as proposed to be amended
and restated:
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
SHARES SUBJECT
TO OPTIONS
GRANTED UNDER THE
NAME AND POSITION EMPLOYEE PLAN (#) (1)
- ------------------------------------------------------------------------------------------- ---------------------
<S> <C>
Candice Carpenter.......................................................................... --
Nancy Evans................................................................................ --
John W. Glascott........................................................................... --
Stephen Lake............................................................................... --
Steven A. Elkes............................................................................ --
All current executive officers as a group (consisting of 10 persons)....................... 125,000
All current directors (including nominees for director) who are not executive officers as a
group (8 persons)........................................................................ --
All employees (other than current executive officers and directors who are not executive
officers) as a group (368 persons)....................................................... 167,800
</TABLE>
- ------------------------------
(1) These grants are conditioned upon stockholder approval of the Employee Plan.
As of the Record Date the closing sales price of a share of iVillage common
stock was $26.50.
iVillage cannot currently determine the number of additional shares of
common stock that may be subject to options granted in the future, generally,
under the Employee Plan.
OPTIONS
The Committee may grant non-qualified stock options, incentive stock
options ("ISO") (which are entitled to favorable tax treatment), or a
combination thereof. The number of shares covered by each option will be
determined by the Committee but during any fiscal year of iVillage, no
participant may be granted options for more than 500,000 shares. However, a
participant may be granted options for an additional 200,000 shares in
connection with the participant's commencement of service with iVillage.
The price of the shares of iVillage's common stock subject to each stock
option is set by the Committee, subject to the following restrictions. The
exercise price of an ISO (or a nonqualified stock option intended to be
performance based compensation under Section 162(m)) cannot be less than 100% of
the fair market value (on the date of grant) of the shares covered by the
option. In addition, the exercise price of an ISO must be at least 110% of fair
market value if (on the grant date) the participant owns stock possessing more
than 10% of the total combined voting power of all classes of stock of iVillage
or any of its subsidiaries. Also, the aggregate fair market value of the shares
(determined on the grant date) covered by ISOs which first become exercisable by
any participant during any calendar year may not exceed $100,000. Any excess
over this amount will be deemed a nonqualified stock option.
15
<PAGE>
Options become exercisable at the times and on the terms established by the
Committee. If iVillage is acquired in certain types of transactions and the
acquisition and options are not assumed or substituted by the acquirer, options
granted under the Employee Plan will become fully exercisable.
STOCK PURCHASE RIGHTS
Stock purchase rights are shares of iVillage's common stock that vest in
accordance with terms and conditions established by the Committee. The number of
shares of restricted stock granted to a participant (if any) will be determined
by the Committee.
In determining whether an Award of stock purchase rights should be made,
and/or the vesting schedule for an Award, the Committee may impose whatever
conditions to vesting as it determines to be appropriate. For example, the
Committee may determine to grant stock purchase rights only if performance goals
established by the Committee are satisfied. Again, if stock purchase rights are
not assumed or substituted by the acquirer in certain transactions, their
vesting will accelerate.
TRANSFERABILITY OF AWARDS
Awards granted under the Employee Plan generally may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the applicable laws of descent and distribution.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The rules concerning the Federal income tax consequences with respect to
Awards granted and to be granted pursuant to the Employee Plan are quite
technical. Moreover, the applicable statutory provisions are subject to change,
as are their interpretations and applications which may vary in individual
circumstances. Therefore, the following is designed only to provide a general
understanding of the Federal income tax consequences. In addition, the following
discussion does not set forth any gift, estate, social security or state or
local tax consequences that may be applicable and is limited to the U.S. federal
income tax consequences to individuals who are citizens or residents of the
U.S., other than those individuals who are taxed on a residence basis in a
foreign country.
Incentive Stock Options. In general, an employee will not realize taxable
income upon either the grant or the exercise of an ISO and iVillage will not
realize an income tax deduction at either such time. In general, however, the
excess of the fair market value of the shares of common stock acquired upon
exercise of an ISO (determined at the time of exercise) over the exercise price
of the ISO will be considered income for purposes of the alternative minimum
tax. If the recipient does not sell the common stock received pursuant to the
exercise of the ISO within either (i) two years after the date of the grant of
the ISO or (ii) one year after the date of exercise, a subsequent sale of the
common stock will result in long-term capital gain or loss to the recipient and
will not result in a tax deduction to iVillage.
If the recipient disposes of the common stock acquired upon exercise of the
ISO within either of the above mentioned time periods, the recipient will
generally realize as ordinary income an amount equal to the lesser of (i) the
fair market value of the common stock on the date of exercise over the exercise
price, or (ii) the amount realized upon disposition over the exercise price. In
such event, iVillage generally will be entitled to an income tax deduction equal
to the amount recognized as ordinary income. Any gain in excess of such amount
realized by the recipient as ordinary income would be taxed at the rates
applicable to short-term or long-term capital gains (depending on the holding
period).
Nonqualified Stock Options. A recipient generally will not realize any
taxable income upon the grant of a nonqualified stock option and iVillage will
not receive a deduction at the time of such grant. Upon exercise of a
nonqualified stock option, the recipient generally will receive ordinary income
in an amount equal to the excess of the fair market value of the common stock on
the date of exercise over the exercise price. Upon a subsequent sale of the
common stock by the recipient,
16
<PAGE>
the recipient will recognize short-term or long-term capital gain or loss
depending upon his or holding period for the common stock. iVillage will
generally be allowed a deduction equal to the amount recognized by the recipient
as ordinary income.
All Options. With regard to both ISOs and nonqualified stock options, the
following also apply: (i) any entitlement to a tax deduction on the part of
iVillage is subject to the applicable tax rules (including, without limitation,
Section 162(m) of the Code regarding a $1,000,000 limitation on deductible
compensation), and (ii) in the event that the exercisability or vesting of any
award is accelerated because of a change of control, payments relating to the
awards (or a portion thereof), either alone or together with certain other
payments, may constitute parachute payments under Section 280G of the Code,
which excess amounts may be subject to excise taxes and a loss of deductibility
for iVillage or the resulting entity.
Stock Purchase Rights. Unless a recipient makes an election under
Section 83(b) of the Code, the recipient will not recognize taxable income when
iVillage grants stock purchase rights (or if there is a purchase price, when the
recipient buys restricted stock pursuant to a stock purchase right). Instead,
the recipient generally will recognize ordinary income as the shares vest. If
the recipient makes a Section 83(b) election, the recipient will recognize
ordinary income when iVillage grants the recipient stock purchase rights (or buy
restricted stock if a purchase price is required). If the recipient later loses
its shares, however, the recipient cannot take a tax deduction. In either case,
the recipient's ordinary income will be equal to the fair market value of the
shares when the recipient recognizes the income
In general, Section 162(m) of the Code denies a publicly held corporation a
deduction for Federal income tax purposes for compensation in excess of
$1,000,000 per year per person to its chief executive officer and four other
executive officers whose compensation is disclosed in its proxy statement,
subject to certain exceptions. Options will generally qualify under one of these
exceptions if they are granted under a plan that states the maximum number of
shares with respect to which options may be granted to any recipient during a
specified period if the plan under which the options are granted is approved by
stockholders and is administered by a compensation committee comprised
exclusively of outside directors. The Employee Plan is intended to satisfy these
requirements with respect to options.
AMENDMENT AND TERMINATION OF THE EMPLOYEE PLAN
The Board of Directors, in its sole discretion, generally may amend or
terminate the Employee Plan, or any part thereof at any time and for any reason.
The amendment, suspension or termination of the Employee Plan shall not, without
the consent of the participant, alter or impair any rights or obligations under
any Award granted to such participant. Any Employee Plan amendment shall be
approved by the iVillage stockholders as required by law. The Employee Plan
shall remain in effect, subject to the Board of Directors' right to terminate
the plan. Absent further Board of Directors action, the Employee Plan will
terminate ten (10) years from the Employee Plan's effective date.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE EMPLOYEE PLAN.
PROPOSAL NO. 3:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected the firm of PricewaterhouseCoopers LLP
as iVillage's independent auditors to audit the financial statements of iVillage
for the fiscal year ending December 31, 1999, and recommends that stockholders
vote for ratification of this appointment. PricewaterhouseCoopers LLP has
audited iVillage's financial statements since 1995. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting and
will have the opportunity to make a statement if they desire to do so, and are
expected to be available to respond to appropriate questions. The affirmative
vote of the holders of a majority of the
17
<PAGE>
shares present in person or represented by proxy and voting at the Annual
Meeting will be required to ratify the selection of PricewaterhouseCoopers LLP.
Stockholder ratification of the selection of PricewaterhouseCoopers LLP as
iVillage's independent auditors is not required by iVillage's Bylaws or
otherwise. However, the Board of Directors is submitting the selection of
PricewaterhouseCoopers LLP to the stockholders for ratification as a matter of
good corporate practice. If the stockholders fail to ratify the selection, the
Audit Committee and the Board of Directors will reconsider whether or not to
retain that firm. Even if the selection is ratified, the Board of Directors in
its discretion may direct the appointment of different independent auditors at
any time during the year if it determines that such change would be in the best
interests of iVillage and its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS iVILLAGE'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
STOCKHOLDER PROPOSALS
Stockholder proposals to be presented at the 2000 Annual Meeting of
Stockholders, for inclusion in iVillage's proxy statement and form of proxy
relating to that meeting, must be received by iVillage at its offices in New
York, New York, addressed to the Secretary, not later than March 3, 2000. Such
proposals must comply with iVillage's Bylaws and the requirements of Regulation
14A of the 1934 Act.
In addition, Rule 14a-4 of the 1934 Act governs iVillage's use of its
discretionary proxy voting authority with respect to a stockholder proposal that
is not addressed in the proxy statement. With respect to iVillage's 2000 Annual
Meeting of Stockholders, if iVillage is not provided notice of a stockholder
proposal prior to March 3, 2000, iVillage will be allowed to use its
discretionary voting authority when the proposal is raised at the meeting,
without any discussion of the matter in the proxy statement.
OTHER MATTERS
At the date of this proxy statement, management was not aware that any
matters not referred to in this proxy statement would be presented for action at
the Annual Meeting. If any other matters should come before the Annual Meeting,
the persons named in the accompanying proxy will have discretionary authority to
vote all proxies in accordance with their best judgment, unless otherwise
restricted by law.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Steven A. Elkes
Steven A. Elkes
Secretary
Dated: November 9, 1999
18
<PAGE>
EXHIBIT A
IVILLAGE INC.
AMENDED AND RESTATED
1999 EMPLOYEE STOCK OPTION PLAN
1. Purposes of the Plan.
The purposes of this Plan are:
(1) to attract and retain the best available personnel for positions
of substantial responsibility,
(2) to provide additional incentive to Employees, Directors and
Consultants, and
(3) to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions.
As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall be
administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the administration
of stock option plans under U. S. state corporate laws, U.S. federal and state
securities laws, the Code, any stock exchange or quotation system on which the
Common Stock is listed or quoted and the applicable laws of any foreign country
or jurisdiction where Options or Stock Purchase Rights are, or will be, granted
under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the Board in
accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means iVillage Inc., a Delaware corporation.
(h) "Consultant" means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors, employed
by the Company or any Parent or Subsidiary of the Company. A Service Provider
shall not cease to be an Employee in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of the Company or
between the Company, its Parent, any Subsidiary, or any successor. For purposes
of Incentive Stock Options, no such leave may exceed ninety days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
19
<PAGE>
(m) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed or quoted on any established stock
exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source
as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market
Value of a Share of Common Stock shall be the mean between the high bid and
low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding Options
are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or Stock
Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock Purchase
Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1999 Employee Stock Option Plan, as amended and
restated.
(y) "Restricted Stock" means shares of Common Stock acquired pursuant to a
grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement between
the Company and the Optionee evidencing the terms and restrictions applying to
stock purchased under a Stock Purchase Right. The Restricted Stock Purchase
Agreement is subject to the terms and conditions of the Plan and the Notice of
Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
(cc) "Service Provider" means an Employee, Director or Consultant.
20
<PAGE>
(dd) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
Subject to the provisions of Section 13 of the Plan, the maximum aggregate
number of Shares which may be optioned and sold under the Plan shall be
2,840,163.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be administered by
different Committees with respect to different groups of Service Providers.
(ii) Section 162(m). To the extent that the Administrator determines
it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of
the Code, the Plan shall be administered by a Committee of two or more
"outside directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption
under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be covered
by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Option or Stock Purchase Right granted hereunder.
Such terms and conditions include, but are not limited to, the exercise
price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
21
<PAGE>
(vi) to reduce the exercise price of any Option or Stock Purchase
Right to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations relating to
the Plan, including rules and regulations relating to sub-plans established
for the purpose of qualifying for preferred tax treatment under foreign tax
laws;
(x) to modify or amend each Option or Stock Purchase Right (subject to
Section 15(c) of the Plan), including the discretionary authority to extend
the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having
a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined. All elections by
an Optionee to have Shares withheld for this purpose shall be made in such
form and under such conditions as the Administrator may deem necessary or
advisable;
(xii) to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option or Stock Purchase
Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or advisable
for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. Eligibility.
Nonstatutory Stock Options and Stock Purchase Rights may be granted to
Service Providers. Incentive Stock Options may be granted only to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year (under all plans of the
Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be
treated as Nonstatutory Stock Options. For purposes of this Section 6(a),
Incentive Stock Options shall be taken into account in the order in which they
were granted. The Fair Market Value of the Shares shall be determined as of the
time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall confer
upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of the
Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial service, a Service Provider
may be granted Options to purchase up to an additional 200,000 Shares,
which shall not count against the limit, set forth in subsection (i) above.
22
<PAGE>
(iii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the Company
in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if
the exercise price of an Option is reduced, the transaction will be treated
as a cancellation of the Option and the grant of a new Option.
7. Term of Plan.
Subject to Section 19 of the Plan, the Plan shall become effective upon its
adoption by the Board. It shall continue in effect for a term of ten (10) years
unless terminated earlier under Section 15 of the Plan.
8. Term of Option.
The term of each Option shall be stated in the Option Agreement. In the
case of an Incentive Stock Option, the term shall be ten (10) years from the
date of grant or such shorter term as may be provided in the Option Agreement.
Moreover, in the case of an Incentive Stock Option granted to an Optionee who,
at the time the Incentive Stock Option is granted, owns stock representing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
a. granted to an Employee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110%
of the Fair Market Value per Share on the date of grant.
b. granted to any Employee other than an Employee described in
paragraph (a) immediately above, the per Share exercise price shall be
no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per
Share exercise price shall be no less than 100% of the Fair Market Value
per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a per
Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is granted,
the Administrator shall fix the period within which the Option may be exercised
and shall determine any conditions that must be satisfied before the Option may
be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
23
<PAGE>
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an Option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(v) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the issuance
of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Unless the Administrator provides otherwise, vesting of
Options granted hereunder shall be tolled during any unpaid leave of absence. An
Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i) written
or electronic notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the Shares
are issued (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued, except as provided
in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service Provider
as a result of the Optionee's Disability, the Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement to the
extent the Option is vested on the date of termination (but in no event later
than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not
24
<PAGE>
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider, the
Option may be exercised within such period of time as is specified in the Option
Agreement (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquires the right to exercise the Option by bequest or inheritance, but
only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy out
for a payment in cash or Shares an Option previously granted based on such terms
and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either alone,
in addition to, or in tandem with other awards granted under the Plan and/or
cash awards made outside of the Plan. After the Administrator determines that it
will offer Stock Purchase Rights under the Plan, it shall advise the offeree in
writing or electronically, by means of a Notice of Grant, of the terms,
conditions and restrictions related to the offer, including the number of Shares
that the offeree shall be entitled to purchase, the price to be paid, and the
time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise, the
Restricted Stock Purchase Agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
service with the Company for any reason (including death or Disability). The
purchase price for Shares repurchased pursuant to the Restricted Stock Purchase
Agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at a rate determined by the Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Stockholder. Once the Stock Purchase Right is exercised,
the purchaser shall have the rights equivalent to those of a stockholder, and
shall be a stockholder when his or her purchase is entered upon the records of
the duly authorized transfer agent of the Company. No adjustment will be made
for a dividend or other right for which the record date is prior to the date the
Stock Purchase Right is exercised, except as provided in Section 13 of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights.
Unless determined otherwise by the Administrator, an Option or Stock
Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any manner other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the Optionee, only by
the Optionee. If the Administrator makes an Option or Stock Purchase Right
transferable, such Option or Stock Purchase Right shall contain such additional
terms and conditions as the Administrator deems appropriate.
25
<PAGE>
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset
Sale.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, the Administrator shall notify each Optionee as
soon as practicable prior to the effective date of such proposed transaction.
The Administrator in its discretion may provide for an Optionee to have the
right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with or
into another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option and Stock Purchase Right shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option or Stock Purchase
Right, the Optionee shall fully vest in and have the right to exercise the
Option or Stock Purchase Right as to all of the Optioned Stock, including Shares
as to which it would not otherwise be vested or exercisable. If an Option or
Stock Purchase Right becomes fully vested and exercisable in lieu of assumption
or substitution in the event of a merger or sale of assets, the Administrator
shall notify the Optionee in writing or electronically that the Option or Stock
Purchase Right shall be fully vested and exercisable for a period of fifteen
(15) days from the date of such notice, and the Option or Stock Purchase Right
shall terminate upon the expiration of such period. For the purposes of this
paragraph, the Option or Stock Purchase Right shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
26
<PAGE>
14. Date of Grant.
The date of grant of an Option or Stock Purchase Right shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option or Stock Purchase Right, or such other later date as is determined
by the Administrator. Notice of the determination shall be provided to each
Optionee within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain stockholder approval of
any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise
of an Option or Stock Purchase Right unless the exercise of such Option or Stock
Purchase Right and the issuance and delivery of such Shares shall comply with
Applicable Laws and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
18. Reservation of Shares.
The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
19. Stockholder Approval.
The Plan shall be subject to approval by the stockholders of the Company
within twelve (12) months after the date the Plan is adopted. Such stockholder
approval shall be obtained in the manner and to the degree required under
Applicable Laws.
27
<PAGE>
APPENDIX A
IVILLAGE INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Selected Consolidated Financial Data...................................................................... A-4
Management's Discussion and Analysis of Financial Condition and Results of Operations..................... A-6
</TABLE>
IVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants......................................................................... A-18
Consolidated Balance Sheets at December 31, 1997 and 1998................................................. A-19
Consolidated Statements of Operations for the years ended December 31, 1996, 1997 and 1998................ A-20
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1997 and 1998...... A-21
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998................ A-22
Notes to Consolidated Financial Statements................................................................ A-23
Schedule of Valuation and Qualifying Accounts............................................................. A-40
</TABLE>
IVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets at December 31, 1998 and June 30, 1999 (unaudited).................. A-41
Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 1998
and 1999(unaudited)..................................................................................... A-42
Condensed Consolidated Statements of Cash Flows for the three months and six months ended June 30, 1998
and 1999 (unaudited).................................................................................... A-43
Notes to Condensed Consolidated Financial Statements...................................................... A-44
</TABLE>
IVILLAGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Consolidated Financial Information.......................................... A-48
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1999.............................. A-50
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1998... A-51
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the six months ended June 30,
1999.................................................................................................... A-52
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.................................. A-53
</TABLE>
A-1
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants......................................................................... A-55
Balance Sheets at December 31, 1995 and 1996 and May 29, 1997 (unaudited)................................. A-56
Statements of Operations for the years ended December 31, 1995 and 1996 and the periods ended May 29, 1996
and 1997 (unaudited).................................................................................... A-57
Statements of Stockholder's (Deficit) Equity for the years ended December 31, 1995 and 1996 and the period
ended May 29, 1997 (unaudited).......................................................................... A-58
Statements of Cash Flows for the years ended December 31, 1995 and 1996 and the periods ended May 29, 1996
and 1997 (unaudited).................................................................................... A-59
Notes to Financial Statements............................................................................. A-60
</TABLE>
KNOWLEDGEWEB, INC.
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants......................................................................... A-64
Balance Sheets at December 31, 1997 and 1998.............................................................. A-65
Statements of Operations for the years ended December 31, 1997 and 1998................................... A-66
Statements of Stockholders' Equity for the years ended December 31, 1997 and 1998......................... A-67
Statements of Cash Flows for the years ended December 31, 1997 and 1998................................... A-68
Notes to Financial Statements............................................................................. A-69
</TABLE>
LAMAZE PUBLISHING COMPANY, INC.
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants......................................................................... A-75
Balance Sheets at December 31, 1997 and 1998 and June 30, 1999 (unaudited)................................ A-76
Statements of Operations for the years ended December 31, 1997 and 1998 and the six month period ended
June 30, 1998 and 1999 (unaudited)...................................................................... A-77
Statements of Changes in Stockholder's Deficit for the years ended December 31, 1997 and 1998 and the
period ended June 30, 1999 (unaudited).................................................................. A-78
Statements of Cash Flows for the years ended December 31, 1997 and 1998 and the six month period ended
June 30, 1998 and 1999 (unaudited)...................................................................... A-79
Notes to Financial Statements............................................................................. A-80
</TABLE>
A-2
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants......................................................................... A-86
Balance Sheets at December 31, 1997 and 1998 and March 31, 1999 (unaudited)............................... A-87
Statements of Operations for the years ended December 31, 1997 and 1998 and the three months ended
March 31, 1998 and 1999 (unaudited)..................................................................... A-88
Statements of Stockholders' Deficit for the three years ended December 31, 1997 and 1998 and the period
ended March 31, 1999 (unaudited)........................................................................ A-89
Statements of Cash Flows for the years ended December 31, 1997 and 1998 and the three months ended
March 31, 1998 and 1999 (unaudited)..................................................................... A-90
Notes to Financial Statements............................................................................. A-91
</TABLE>
A-3
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and notes to those
statements and other financial information included elsewhere in this appendix.
The consolidated statement of operations data for the years ended December 31,
1996, 1997 and 1998 and the consolidated balance sheet data as of December 31,
1997 and 1998 are derived from the audited consolidated financial statements of
iVillage included in this appendix. The consolidated statement of operations
data for the six months ended June 30, 1999 and 1998 and the consolidated
balance sheet data as of June 30, 1999 are derived from our unaudited
consolidated financial statements which are included in this appendix. The
consolidated balance sheet data as of December 31, 1996 and 1995 and the
consolidated statement of operations data for the six month period for July 1,
1995 (inception) to December 31, 1995 are derived from our audited financial
statements not included in this appendix. The results of interim periods are not
necessarily indicative of results for the full year. Moreover, the historical
annual results presented here are not necessarily indicative of future results.
iVillage acquired ParentsPlace.com, Inc. in December 1996, Health
ResponseAbility Systems, Inc. in May 1997, the majority interest and remaining
minority interest in iBaby in April 1998 and March 1999, respectively,
Astrology.Net in February 1999 and Online Psychological Services, Inc. in June
1999. The financial data reflect the results of operations of these subsidiaries
since their dates of acquisition. The following table excludes the acquisition
of Family Point, Inc. as of August 31, 1999. For the year ended December 31,
1998, a portion of the net loss for iBaby, Inc. attributable to minority
stockholders is included as a reduction to net loss.
A-4
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
JULY 1, 1995 YEAR ENDED DECEMBER 31, ENDED JUNE 30,
(INCEPTION) TO ----------------------------------------------- ---------------------
DECEMBER 31, 1995 1996 1997 1998 1998 1998 1999
----------------- -------- -------- -------- -------- -------- --------
PRO
ACTUAL FORMA(1) ACTUAL
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues.................. $ -- $ 732 $ 6,019 $ 15,012 $ 27,293 $ 4,838 $ 14,572
Costs of revenues......... 508 3,468 5,530 12,403 18,250 5,437 9,112
------- -------- -------- -------- -------- -------- --------
Gross margin.............. (508) (2,736) 489 2,609 9,043 (599) 5,460
------- -------- -------- -------- -------- -------- --------
OPERATING EXPENSES:
Product development and
technology............... 121 1,053 2,076 2,118 2,118 986 3,038
Sales and marketing....... 329 2,709 8,771 28,523 31,320 12,054 23,206
General and
administrative........... 656 3,104 7,841 10,612 14,284 4,206 7,872
Depreciation and
amortization............. 17 109 2,886 5,683 37,603 2,658 7,519
------- -------- -------- -------- -------- -------- --------
Total operating
expenses............. 1,123 6,975 21,574 46,936 85,325 19,904 41,635
------- -------- -------- -------- -------- -------- --------
Loss from operations...... (1,631) (9,711) (21,085) (44,327) (76,282) (20,503) (36,175)
Interest (expense) income,
net...................... (7) 28 (216) 591 588 237 1,513
Loss on sale of Web
site(2).................. -- -- -- (504) (504) -- --
Minority interest......... -- -- -- 586 -- -- --
------- -------- -------- -------- -------- -------- --------
Net loss.................. (1,638) (9,683) (21,301) (43,654) (76,198) (20,266) (34,662)
Preferred stock deemed
dividend................. -- -- -- -- -- -- (23,612)
------- -------- -------- -------- -------- -------- --------
Net loss attributable to
common stockholders...... $(1,638) $ (9,683) $(21,301) $(43,654) $(76,198) $(20,266) $(58,274)
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
Basic and diluted net loss
per share................ $ (1.51) $ (8.90) $ (13.65) $ (21.11) $ (3.28) $ (3.98)
------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- --------
Weighted average shares of
common stock outstanding
used in computing basic
and diluted net loss per
share.................... 1,083 1,087 1,561 2,068 6,179 14,656
------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- --------
Pro forma basic and
diluted net loss per
share(3)................. $ (2.59) $ (3.51) $ (2.77)
-------- -------- --------
-------- -------- --------
Shares of common stock
used in computing pro
forma basic and diluted
net loss per share(3).... 16,854 21,738 21,027
-------- -------- --------
-------- -------- --------
<CAPTION>
SIX
MONTHS
ENDED
JUNE 30,
--------
1999
--------
PRO
FORMA(1)
--------
<S> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues.................. $ 21,336
Costs of revenues......... 12,685
--------
Gross margin.............. 8,651
--------
OPERATING EXPENSES:
Product development and
technology............... 3,038
Sales and marketing....... 24,570
General and
administrative........... 9,489
Depreciation and
amortization............. 19,473
--------
Total operating
expenses............. 56,570
--------
Loss from operations...... (47,919)
Interest (expense) income,
net...................... 1,510
Loss on sale of Web
site(2).................. --
Minority interest......... --
--------
Net loss.................. (46,409)
Preferred stock deemed
dividend................. (23,612)
--------
Net loss attributable to
common stockholders...... $(70,021)
--------
--------
Basic and diluted net loss
per share................
Weighted average shares of
common stock outstanding
used in computing basic
and diluted net loss per
share....................
Pro forma basic and
diluted net loss per
share(3)................. $ (2.89)
--------
--------
Shares of common stock
used in computing pro
forma basic and diluted
net loss per share(3).... 24,221
--------
--------
</TABLE>
- ------------------------------
(1) Pro forma giving effect to the following transactions as if they occurred on
January 1, 1998:
o the acquisition of Lamaze Publishing;
o the acquisition of Astrology.Net;
o the purchase of the minority interest in iBaby; and
o the acquisition of Online Psych.
(2) Please see note 5 to iVillage's consolidated financial statements.
(3) Please see note 2 to iVillage's consolidated financial statements.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------- JUNE 30,
1995 1996 1997 1998 1999
----- ------ ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ 162 $2,102 $ 4,335 $30,825 $ 85,279
Working capital (deficit)............................................. (715) 1,006 1,114 19,919 76,504
Total assets.......................................................... 275 4,997 16,236 46,791 158,072
Long-term liabilities................................................. -- -- 139 -- --
Stockholders' equity (deficit)........................................ (629) 3,259 10,522 32,022 145,292
</TABLE>
A-5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and notes to those statements and the other
financial information appearing elsewhere in this prospectus. In addition to
historical information, the following discussion and other parts of this
prospectus contain forward-looking information that involves risks and
uncertainties.
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 14 content specific channels and a shopping
area 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. We facilitate channel usage
by providing common features and functionality within each channel, including
experts, chats, message boards and services.
Up to June 30, 1999, our revenues have been derived primarily from the sale
of sponsorship and advertising contracts. Sponsorship and advertising revenues
constituted 83% and 73% of total revenues for the year ended December 31, 1998
and the six months ended June 30, 1999, respectively.
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 integration of advertising with editorial content. Sponsorship
agreements typically include the delivery of impressions on our 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 our 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. Accordingly, to the
extent that minimum guaranteed impressions are not met, we defer recognition of
the corresponding revenues until the guaranteed impressions are met. The portion
of sponsorship revenues related to the up-front 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 our sponsorship deals, certain sponsors who also sell products
provide us with a commission on sales of their products generated through our
Web site. To date, these amounts have been immaterial.
Advertising revenues are derived principally from short-term advertising
contracts in which we typically guarantee 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 our Web sites or
for targeted audiences and properties within specific areas of iVillage.com.
Sponsorship and advertising revenues also include barter revenues, which
represent exchanges by us of advertising space on our 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 and its affiliated properties. Barter
expenses are recognized at the value of advertisements received when our
advertisements are run on the reciprocal Web sites or properties, 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
A-6
<PAGE>
expenses. We do not receive cash for the advertisements delivered, nor do we pay
for the advertisements received. Typically, these barter transactions have no
impact on our cash flows and results of operations. Barter transactions enable
us to continue to build strong brand recognition as part of our overall business
strategy without expending cash resources. 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. We
anticipate that barter revenues will continue to increase in the future although
they will decrease as a percentage of total revenues.
With the acquisition of Lamaze Publishing, we will generate additional
revenues through advertising placements in its publications, videos, Newborn
Channel satellite broadcasts and e-commerce opportunities. In addition, revenues
are expected to be generated through a sampling and coupon program which offers
advertisers the ability to distribute samples, coupons and promotional
literature to new and expectant mothers.
Commerce revenues are derived principally from sales through iBaby,
iMaternity 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. The inventory and services
agreement between iBaby and Kid's Warehouse, iVillage's former joint venture
partner in iBaby, has terminated and iBaby has become responsible for all
merchandising, inventory management and order fulfillment functions. In order to
fulfill these functions, we 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. Our failure to assume effectively and in a timely manner the
merchandising, inventory management and order fulfillment functions has and
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 of all product orders for iMaternity
is 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. We recognize 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.
Recently, we received fees from the licensing of portions of our content in
connection with our licensing agreement with PlanetRx.com.
A-7
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth our results of operations expressed as a
percentage of total revenues:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ -------------
1996 1997 1998 1998 1999
------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues.......................................................... 100% 100% 100% 100% 100%
------ ---- ---- ---- ----
Cost of revenues.................................................. 474 92 83 112 63
------ ---- ---- ---- ----
Gross margin...................................................... (374) 8 17 (12) 37
------ ---- ---- ---- ----
Operating expenses:
Product development and technology................................ 144 34 14 20 21
Sales and marketing............................................... 370 146 190 249 159
General and administrative........................................ 424 130 71 87 54
Depreciation and amortization..................................... 15 48 38 55 52
------ ---- ---- ---- ----
Total operating expenses.......................................... 953 358 313 411 286
------ ---- ---- ---- ----
Loss from operations.............................................. (1,327) (350) (295) (424) (248)
------ ---- ---- ---- ----
------ ---- ---- ---- ----
Net loss.......................................................... (1,323)% (354)% (291)% (419)% (238)%
------ ---- ---- ---- ----
------ ---- ---- ---- ----
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
REVENUES
Revenues were $14.6 million for the six months ended June 30, 1999, which
represented an increase of 201%, when compared with the corresponding period in
1998. The increase in revenues was primarily due to our ability to generate
significantly higher sponsorship and advertising revenues during the 1999
period, as well as the development of our commerce strategy through our
investments in iBaby and Astrology.Net. Sponsorship, advertising and other
revenues were $10.7 million for the six months ended June 30, 1999, compared to
$4.3 million for the corresponding period 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 number of sponsors advertising on our
Web sites during the 1999 period. Sponsorship, advertising and other revenues
accounted for approximately 73% of total revenues for the six months ended June
30, 1999. Commerce revenues accounted for $3.9 million, or 27% of total
revenues, for the six months ended June 30, 1999, compared to $0.5 million, or
11% of total revenues, for the six-month period in 1998.
Although no one advertiser accounted for greater than 10% of total revenues
for the six months ended June 30, 1999, our five largest advertisers accounted
for 22% of total revenues.
Included in sponsorship and advertising revenues are barter transactions
which accounted for approximately 12% of total revenues for the six months ended
June 30, 1999, compared to 25% for the comparable period in 1998.
COST OF REVENUES
The principal elements of cost of advertising, sponsorship and other
revenues for our 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 our 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 was $6.1 million, or 57% of
advertising, sponsorship and other revenues, for the six months ended June 30,
1999. Cost of advertising, sponsorship and other revenues was $5.0 million, or
116% of advertising, sponsorship and other revenues, for the comparable period
in the prior year. Cost of
A-8
<PAGE>
advertising, sponsorship and other revenues, as a percentage of these revenues,
decreased during the six months ended June 30, 1999 due to the significant
growth in advertising and sponsorship revenues over the prior period. Cost of
commerce revenues was $3.0 million, or 78% of commerce revenues, for the six
months ended June 30, 1999, compared to $0.4 million, or 85% of commerce
revenues, for the corresponding period 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 six months ended
June 30, 1999 was approximately $3.0 million, or 21% of total revenues. Product
development and technology expenses was $1.0 million, or 20% of total revenues,
for the corresponding period 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 our network of Web sites.
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 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 six months ended June 30, 1999 were approximately $23.2 million, or 159% of
total revenues. Sales and marketing expenses were $12.1 million, or 249% of
total revenues, for the comparable period in 1998. The dollar increase in sales
and marketing expenses between the 1998 and 1999 periods was primarily
attributable to our advertising campaign on the Internet and television in
accordance with our agreement with NBC. Sales and marketing expenses as a
percentage of revenues decreased between the 1998 and 1999 periods as a result
of the growth in revenues.
Included in sales and marketing are barter transactions which amounted to
approximately 12% of total revenues during the six months ended June 30, 1999,
compared to 25% of total revenues during the comparable period 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
six months ended June 30, 1999 were $7.9 million, or 54% of total revenues. For
the comparable period in 1998, general and administrative expenses were $4.2
million, or 87% of total revenues. 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 our
business. General and administrative expenses decreased as a percentage of total
revenues as a result of the growth in revenues in the six months ended June 30,
1999 compared to the comparable period in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses for
the six months ended June 30, 1999 were $7.5 million, or 52% of total revenues.
For the comparable period in 1998, depreciation and amortization expenses were
$2.7 million, or 55% of total revenues. The dollar increase between the 1998 and
1999 periods was primarily attributable to increased amortization expense
resulting from our acquisitions of iBaby and Astrology.Net, as well as
depreciation on a greater base of fixed assets owned by us during the 1999
period.
INTEREST INCOME, NET
Interest income, net includes interest income from our cash balances and
interest expenses related to our financing obligations. Interest income, net for
the six months ended June 30, 1999 was $1.5 million, or 10% of total revenues.
For the comparable period in 1998,
A-9
<PAGE>
interest income, net was $0.2 million, or 5% of total revenues. 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
our initial public offering of common stock in March 1999.
NET LOSS
We recorded a net loss of $34.7 million, or $3.98 per share, for the six
months ended June 30, 1999. The 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 period in 1998,
iVillage recorded a net loss of $20.3 million.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
REVENUES
Revenues increased 149% to $15.0 million for the year ended December 31,
1998, from $6.0 million for the year ended December 31, 1997. The increase in
revenues was primarily due to our ability to generate significantly higher
sponsorship and advertising revenues, and the development of our commerce
strategy through the investment in iBaby. Sponsorship, advertising and usage
revenues increased $6.4 million primarily as a result of a higher number of
impressions sold and additional sponsors advertising on our Web sites. Commerce
revenues accounted for $2.6 million in 1998, with no revenues in 1997. During
1998, we expanded our sales force and the number of impressions available on our
Web sites increased as additional channels were launched and additional content
was produced. Sponsorship and advertising revenues accounted for approximately
80% and 93% of revenues for the years ended December 31, 1998 and 1997,
respectively. Commerce revenues accounted for approximately 17% of revenues for
the year ended December 31, 1998, with no such revenues for the comparable
period in 1997.
Although no one advertiser accounted for greater than 10% of total revenues
for the year ended December 31, 1998, our five largest advertisers accounted for
17% of total revenues for the year. At December 31, 1998, one advertiser
accounted for 11% of net accounts receivable due to a significant invoice billed
close to year-end. Although our five largest sponsorship and advertising
customers accounted for 26% of total revenues for the year ended December 31,
1997, no one advertiser accounted for greater than 10% of total revenues. At
December 31, 1997, one customer accounted for approximately 31% of the net
accounts receivable balance due to a significant invoice billed close to
year-end. A large portion of the invoice was recorded as deferred revenue and
recognized as revenue in 1998, when the services were provided. Included in
sponsorship and advertising revenues are barter transactions which accounted for
approximately 20% and 10% of total revenues for the years ended December 31,
1998 and 1997, respectively. Barter revenues increased as a percentage of
revenues because of the development of barter as a viable vehicle for online
advertising in the industry.
COST OF REVENUES
Cost of advertising, sponsorship and other revenues were $10.2 million and
$5.5 million, or 82% and 92% of advertising, sponsorship and other revenues, for
the years ended December 31, 1998 and 1997, respectively. Cost of advertising,
sponsorship and other revenues, as a percentage of these revenues, decreased
during the year ended December 31, 1998 when compared to the year ended
December 31, 1997 due to the significant growth in advertising and sponsorship
revenues over the prior period. Cost of commerce revenues were $2.2 million or
85% of commerce revenues, for the year ended December 31, 1998. There were no
cost of commerce revenues for the year ended December 31, 1997. Cost of commerce
revenues, as a percentage of these revenues, increased during the year ended
December 31, 1998 when compared to the year ended December 31, 1997 due to our
joint venture with iBaby in 1998.
A-10
<PAGE>
OPERATING EXPENSES
PRODUCT DEVELOPMENT AND TECHNOLOGY. Product development and technology
expenses for the years ended December 31, 1998 and 1997, were approximately $2.1
million, or 14% of total revenues, and $2.1 million, or 34% of total revenues,
respectively. The decrease in product development and technology cost, as a
percentage of total revenues, is due to the significant growth in total revenues
for the year ended December 31, 1998 as compared to the year ended December 31,
1997.
SALES AND MARKETING. Sales and marketing expenses increased to $28.5
million, or 190% of revenues, for the year ended December 31, 1998, from $8.8
million, or 146% of revenues, for the year ended December 31, 1997. The dollar
increase in sales and marketing expenses was primarily due to expanded
distribution agreements which increased by about $6.3 million, increases in
advertising expenses related to our branding campaign of $5.4 million on the
Internet, television and in print and higher advertising and sales personnel
expenses of about $3.0 million. We invested heavily in distribution arrangements
during the year ended December 31, 1998. These distribution agreements, with
major Web search and retrieval and other online service companies, generally
range from one to two years and include the placement of promotional features or
textual links to our sites. Sales and marketing expenses as a percentage of
revenues increased due to our branding campaign, increased distribution
agreements and additional personnel in our sales department. Included in sales
and marketing expenses are barter transactions, which accounted for
approximately 10% and 7% of sales and marketing expenses for the years ended
December 31, 1998 and 1997, respectively.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $10.6 million, or 71% of revenues, for the year ended December 31, 1998, from
$7.8 million, or 130% of revenues, for the year ended December 31, 1997. The
increase in general and administrative expenses 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 during the year to support the
growth of our business. General and administrative expenses decreased as a
percentage of total revenues because of the growth in revenues relative to the
growth in our general and administrative expenses. This is due to the
development of our infrastructure in 1997 which was necessary for future growth
of revenues. We expect that we will incur additional general and administrative
expenses as we continue to hire personnel and incurs expenses related to the
growth of the business and our operations as a public company.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased to $5.7 million, or 38% of revenues, for the year ended December 31,
1998 from $2.9 million, or 48% of revenues, for the year ended December 31,
1997. The dollar increase was primarily attributable to increased depreciation
of $1.2 million resulting from purchases of fixed assets of approximately $6.3
million and increased amortization expense of $1.6 million due to the Health
ResponseAbility Systems acquisition in May 1997.
INTEREST (EXPENSE) INCOME, NET
Interest (expense) income, net includes interest income from our cash
balances and interest expense related to our financing obligations, including
non-cash expenses related to the issuance of warrants associated with a bridge
financing in 1997. Interest (expense) income, net improved to an income of $0.6
million for the year ended December 31, 1998, from an expense of $0.2 million
for the year ended December 31, 1997. This increase was primarily due to a
higher average net cash and cash equivalents balance from the issuance of
preferred and common stock during 1998.
MINORITY INTEREST
Minority interest represents the portion of the net loss of iBaby
attributable to minority stockholders. On March 25, 1999, we completed our
purchase of all of the outstanding shares of iBaby held by the minority
stockholders of iBaby.
A-11
<PAGE>
INCOME TAXES
As of December 31, 1998, we had approximately $69.9 million of net
operating loss carryforwards for federal tax reporting purposes available to
offset future taxable income. Our federal net operating loss carryforwards
expire beginning in 2010. Certain future changes in the share ownership of
iVillage, as defined in the Tax Reform Act of 1986, may restrict the utilization
of carryforwards. A valuation allowance has been recorded for the entire
deferred tax asset as a result of uncertainties regarding the realization of the
asset due to the lack of our earnings history.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES
Revenues were $6.0 million and $0.7 million for the years ended
December 31, 1997 and 1996, respectively. The increase was driven by the growth
in sponsorship and advertising revenues, which was the result of more
advertisers and a higher number of impressions sold. Sponsorship and advertising
revenues accounted for 93% and 74% of revenues for the years ended December 31,
1997 and 1996, respectively. Included in advertising and sponsorship revenues
were barter transactions, which accounted for approximately 10% and 1% of
revenues for the years ended December 31, 1997 and 1996, respectively. At
December 31, 1997 and 1996, one customer accounted for 31% and four customers
each represented greater than 10% of the net accounts receivable balance,
respectively. At December 31, 1997, our five largest sponsorship and advertising
customers accounted for 26% of total revenues, but no one customer accounted for
greater than 10% of total revenues. For the years ended December 31, 1997 and
1996, we derived revenues from usage fees paid by AOL based on visitation to
iVillage.com on the AOL service. Usage fees were $0.4 million and $0.2 million
for the years ended December 31, 1997 and 1996, respectively. During the year
ended December 31, 1997, we entered into a new agreement with AOL that
eliminated usage fees.
COST OF REVENUES
Cost of advertising, sponsorship and other revenues were $5.5 million and
$3.5 million, or 92% and 474% of advertising, sponsorship and other revenues,
for the years ended December 31, 1997 and 1996, respectively. Cost of
advertising, sponsorship and other revenues as a percentage of these revenues,
decreased during the year ended December 31, 1997 when compared to the year
ended December 31, 1996 due to the significant growth in advertising and
sponsorship revenues over the prior period. There were no cost of commerce
revenues for years ended December 31, 1997 and 1996.
OPERATING EXPENSES
PRODUCT DEVELOPMENT AND TECHNOLOGY. Product development and technology
expenses for the years ended December 31, 1997 and 1996, were approximately $2.1
million, or 34% of total revenues, and $1.1 million, or 144% of total revenues,
respectively. The increase was primarily attributable to additional personnel
costs related to creating and testing new channel concepts and tools to be used
throughout our network of Web sites.
SALES AND MARKETING. Sales and marketing expenses were $8.8 million, or
146% of revenues, and $2.7 million, or 370% of revenues, for the years ended
December 31, 1997 and 1996, respectively. The increase in sales and marketing
expenses was primarily due to expanded online banner and distribution
arrangements and the addition of a direct sales force, which we began building
in the second half of 1996. Included in sales and marketing are barter
transactions, which accounted for approximately 7% of sales and marketing in the
year ended December 31, 1997. Sales and marketing expenses as a percentage of
revenues decreased because of the growth in revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$7.8 million, or 130% of revenues, and $3.1 million, or 424% of revenues, for
the years ended December 31, 1997 and 1996, respectively. The increase in
general and administrative expenses was primarily due to increases in the number
of general and administrative personnel
A-12
<PAGE>
and professional services and facility expenses to support the growth of our
operations. General and administrative expenses as a percentage of revenues
decreased because of the growth in revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased to $2.9 million, or 48% of revenues, for the year ended December 31,
1997 from $0.1 million, or 15% of revenues, for the year ended December 31,
1996. The dollar increase was primarily attributable to purchases of fixed
assets of approximately $4 million and acquisitions of Web sites for
approximately $2.9 million during the year ended December 31, 1997.
INTEREST (EXPENSE) INCOME, NET
Interest (expense) income, net was approximately $216,000 expense and
$28,000 income for the years ended December 31, 1997 and 1996, respectively. The
increase in interest (expense) income, net for the year ended December 31, 1997
was primarily due to warrants issued in connection with the receipt of bridge
financing resulting in an interest charge of approximately $334,000.
RECENT EVENTS
ARMCHAIR MILLIONAIRE. We recently entered into an option agreement with
Investorama.com Inc. to sell the assets associated with Armchair Millionaire, a
site located on our Money channel. Investorama has 30 days after the agreement
is signed to exercise the option. If Investorama exercises the option, iVillage
will, among other things, be entitled to a percentage of the advertising
revenues from Armchair Millionaire for two years, not to exceed $550,000 and
will receive $1.0 million in advertising revenues over a 12-month period,
subject to guaranteed impressions.
PLANETRX.COM. On September 3, 1999, iVillage and PlanetRx.com, Inc., a
full service online pharmacy, entered into a three-year sponsorship agreement
under which PlanetRx.com will pay us $15.0 million to be, for the term of the
agreement, the exclusive online retail drugstore promoted on the iVillage
network. iVillage and PlanetRx.com have also entered into a two and a half year
content license agreement under which PlanetRx.com has paid us $7.5 million for
the use of selected information and tools on the iVillage network. In addition,
we have made a $7.5 million equity investment in PlanetRx.com.
FAMILY POINT. In accordance with a merger agreement dated as of August 31,
1999, we acquired Family Point, the operator of a leading online meeting place
for families, friends and groups. The aggregate purchase price paid to acquire
Family Point was approximately $28.0 million and consisted of $4.5 million cash
and approximately 612,000 shares of our common stock valued under the purchase
method of accounting. The difference between the purchase price and the fair
value of the acquired net assets of Family Point will be recorded as goodwill
and amortized over the period of expected benefit which is estimated at three
years.
LAMAZE PUBLISHING. On August 20, 1999, we acquired all of the outstanding
stock of Lamaze Publishing, a multimedia provider of education information to
expectant and new mothers. The total purchase price consisted of approximately
1,750,000 shares of our common stock and approximately $5 million to repay debt.
The difference between the purchase price of $102.3 million as calculated
according to generally accepted accounting principles and the fair value of the
acquired net assets of Lamaze Publishing will be recorded as goodwill and
amortized over the period of expected benefit which is estimated at ten years.
ONLINE PSYCH. On June 30, 1999, we acquired Online Psychological Services,
Inc. and Code Stone Technologies, Inc. As a result of the acquisitions, Online
Psych and Code Stone became our wholly-owned subsidiaries. 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 our common
stock valued at approximately $28.5 million under the purchase method of
accounting. The difference between the purchase price and the fair value of the
acquired net assets of Online
A-13
<PAGE>
Psych and Code Stone has been recorded as goodwill and is being amortized over
the period of expected benefit which is estimated to be three years.
QUARTERLY RESULTS OF OPERATIONS
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, many of which are outside our control. These
factors include:
o our ability to attract and retain users and members;
o our ability to attract and retain advertisers and sponsors and maintain
advertiser and sponsor satisfaction;
o our ability to attract and retain customers and maintain customer
satisfaction for our existing and future e-commerce businesses;
o new sites, services or products introduced by us or our competitors;
o the timing and uncertainty of sales cycles;
o the level of Web and online services usage;
o our ability to upgrade and develop our systems and infrastructure and
attract new personnel in a timely and effective manner;
o traffic levels on our Web sites;
o our ability to successfully integrate operations and technologies from
acquisitions or other business combinations;
o technical difficulties or system downtime affecting the Internet
generally or the operation of our Web sites;
o the dilutive effect of acquisitions; and
o economic conditions specific to the Internet as well as general economic
conditions.
As a result, our operating results for any particular quarter may not be
indicative of future operating results.
The following table sets forth unaudited quarterly consolidated statement
of operations data for the third and fourth quarters of 1997, each of the four
quarters in 1998 and for the first and second quarters of 1999. In the opinion
of management, this information has been prepared substantially on the same
basis as the audited consolidated financial statements appearing elsewhere in
this prospectus, and all necessary adjustments, consisting only of normal
recurring adjustments, have been included in the amounts stated below to present
fairly the unaudited consolidated quarterly results. The quarterly data should
be read in conjunction with our audited consolidated financial statements and
unaudited financial statements for the six months ended June 30, 1999 and the
notes to those statements appearing elsewhere in this appendix.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1997 1998 1998 1998 1998 1999 1999
------------- ------------ --------- -------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......... $ 1,518 $ 2,357 $ 2,200 $ 2,638 $ 4,288 $ 5,886 $ 6,464 $ 8,108
Cost of revenues.. 1,379 1,749 2,175 3,262 3,368 3,598 4,902 4,210
--------- -------- --------- -------- --------- -------- --------- --------
Gross margin...... 139 608 25 (624) 920 2,288 1,562 3,898
Product
development and
technology...... 526 700 482 504 617 515 1,685 1,353
Sales and
marketing....... 1,935 3,372 4,870 7,184 7,877 8,592 10,888 12,318
General and
administrative.. 1,967 2,662 2,004 2,202 3,606 2,800 4,025 3,847
Depreciation and
amortization.... 1,034 655 1,261 1,397 1,386 1,639 2,854 4,665
--------- -------- --------- -------- --------- -------- --------- --------
Total operating
expenses........ 5,462 7,389 8,617 11,287 13,486 13,546 19,452 22,183
--------- -------- --------- -------- --------- -------- --------- --------
Loss from
operations...... $ (5,323) $ (6,781) $ (8,592) $(11,911) $ (12,566) $(11,258) $(17,890) $(18,285)
--------- -------- --------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- -------- --------- --------
</TABLE>
A-14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Until our initial public offering in March 1999, which raised net proceeds
of $91.4 million, we financed our operations primarily through the private
placement of our convertible preferred stock. As of June 30, 1999, we had
approximately $85.3 million in cash and cash equivalents.
Net cash used in operating activities increased to $26.2 million for the
six months ended June 30, 1999 from $17.0 million for the six months ended
June 30, 1998. 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 iVillage brand on the Internet through further investment in content and
technology. Net cash used in operating activities amounted to $32.3 million for
the year ended December 31, 1998, $15.3 million for the year ended December 31,
1997 and $8.7 million for 1996. The increase in net cash used resulted primarily
from increasing net losses, offset by the timing of payable settlements and
increased depreciation and amortization expense.
Net cash used in investing activities was $12.5 million in the six months
ended June 30, 1999. This compares to net cash used in investing activities of
$2.7 million for the six months ended June 30, 1998. 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 used in investing activities decreased to
$5.8 million for the year ended December 31, 1998 from $6.9 million for the year
ended December 31, 1997 and $0.7 million for 1996, resulting primarily from
increased purchases of property and equipment and the $2.6 million cash portion
of the acquisition of our health channel in 1997.
Net cash provided by financing activities amounted to $93.2 million for the
six months ended June 30, 1999, compared to $32.8 million for the six months
ended June 30, 1998. The increase was primarily due to the receipt of $91.4
million of net proceeds from our initial public offering in March 1999. Net cash
provided by financing activities increased to $64.5 million for the year ended
December 31, 1998 from $24.4 million for 1997 and $11.3 million for 1996. The
increase in 1998 was primarily due to $65.3 million of net cash proceeds from
the sale of shares of our series E convertible preferred stock, series D
convertible preferred stock and common stock as compared to the $24.8 million of
net cash proceeds from the sale of shares of our series C convertible preferred
stock in 1997, inclusive of convertible notes. In 1996, we received net cash
proceeds of $11.3 million from the sale of shares of our series B and B-1
convertible preferred stock, inclusive of convertible notes.
Subsequent to June 30, 1999, we have used approximately $8.5 million in
cash on the Lamaze Publishing and Family Point acquisitions, excluding
acquisition costs. On August 2, 1999, we announced a $28.5 million marketing
campaign which commenced in the third quarter of 1999 and will run through the
first quarter of 2000. In addition, on September 3, 1999, we paid $7.5 million
to PlanetRx.com for 37,103 shares of series D preferred stock of PlanetRx.com.
However, we separately received $7.5 million from PlanetRx.com in a content
license agreement and have entered into a $15.0 million sponsorship agreement
with them. We 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.
Our capital requirements depend on numerous factors, including:
o market acceptance of our services;
o the amount of resources we devote to investments in the iVillage.com
network, including acquisition of other entities;
o the resources we devote to marketing; and
o the resources we devote to selling our services and brand promotions.
We have experienced a substantial increase in our expenditures since our
inception. The increase in expenditures is consistent with the growth in our
operations
A-15
<PAGE>
and staffing. We anticipate we will continue to evaluate possible investments in
businesses, products and technologies, and continue to expand our sales and
marketing programs and conduct more aggressive brand promotions, any of which
could reduce our liquidity.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
is effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software
development or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs. This standard did not have a
significant effect on our capitalization policy.
In April 1998, AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start up
activities and organization costs to be expensed as incurred. As we have
expensed these costs historically, the adoption of this standard did not have a
significant impact on our results of operations, financial position or cash
flows.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for our fiscal quarters beginning fiscal
year 2001. The adoption of SFAS No. 133 is not expected to have an impact on our
results of operations, financial position or cash flows upon the adoption of
this standard.
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 Year 2000 requirements or risk system failure
or miscalculations causing disruptions of normal business activities.
STATE OF READINESS
We are engaged in an ongoing assessment of the Year 2000 readiness of our
operating, financial and administrative systems, including the hardware and
software that support our systems. Our assessment plan consists of:
o quality assurance testing of our internally developed proprietary
software;
o contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to
the delivery of our services to our users;
o contacting vendors of third-party systems;
o assessing repair and replacement requirements;
o implementing repair or replacement;
o implementation; and
o if deemed necessary or appropriate, creating contingency plans in the
event of Year 2000 failures.
We have engaged Keane, Inc., a consulting firm with Year 2000 experience,
to assist us with our Year 2000 compliance program.
Our Year 2000 task force has conducted an inventory of and developed
testing procedures for all software and other systems that we believe might be
affected by Year 2000 issues. Since third parties developed and currently
support many of the systems that we
A-16
<PAGE>
use, a significant part of this effort has been to ensure that these third-party
systems are Year 2000 compliant. We have confirmed 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.
COSTS
Through August 31, 1999, we have spent approximately $250,000 on Year 2000
compliance issues but expect to incur an additional $50,000 in connection with
identifying, evaluating and addressing Year 2000 compliance issues. Most of our
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 our business,
results of operations and financial condition.
RISKS
We are not currently aware of any Year 2000 compliance problems relating to
our systems that would have a material adverse effect on our business, results
of operations and financial condition, without taking into account our efforts
to avoid or fix such problems. There can be no assurance that we will not
discover Year 2000 compliance problems in our systems that will require
substantial revision. In addition, there can be no assurance that third-party
software, hardware or services incorporated into our material systems will not
need to be revised or replaced, all of which could be time-consuming and
expensive. Our failure to fix or replace our 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 our business, results of operations and financial condition. Moreover, the
failure to adequately address Year 2000 compliance issues in our 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.
We are 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 us could cause our 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 our 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 our control will be Year 2000 compliant. The failure by these
entities to be Year 2000 compliant could result in a systemic failure beyond our
control, such as a prolonged Internet, telecommunications or electrical failure,
which could also prevent us from delivering our services to our customers,
decrease the use of the Internet or prevent users from accessing our Web sites
which could have a material adverse effect on our business, results of
operations and financial condition.
CONTINGENCY PLAN
As discussed above, we are engaged in an ongoing Year 2000 assessment and
have not yet developed any contingency plans. The results of our 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.
A-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
iVillage Inc. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of iVillage
Inc. and Subsidiaries (the "Company") at December 31, 1998 and 1997, and the
consolidated results of operations and cash flows for each of the three years
then ended, in conformity with generally accepted accounting principles. In
addition, in our opinion, the accompanying financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
February 4, 1999
A-18
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA AS OF
---------------------------- DECEMBER 31,
1997 1998 1998
------------ ------------ ---------------
(UNAUDITED)
(SEE NOTE 2)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 4,334,721 $ 30,824,869 $ 30,824,869
Accounts receivable, less allowance of $279,829
and $746,349, respectively...................... 2,199,520 3,147,561 3,147,561
Other current assets.............................. 153,985 715,161 715,161
------------ ------------ -------------
Total current assets.......................... 6,688,226 34,687,591 34,687,591
------------ ------------ -------------
Fixed assets, net................................. 3,802,823 7,380,366 7,380,366
Goodwill and other intangible assets, net......... 5,598,233 4,535,148 4,535,148
Other assets...................................... 146,801 187,860 187,860
------------ ------------ -------------
Total assets.................................. $ 16,236,083 $ 46,790,965 $ 46,790,965
------------ ------------ -------------
------------ ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............. $ 3,989,945 $ 11,559,711 $ 11,559,711
Capital leases payable............................ 247,943 136,573 136,573
Deferred revenue.................................. 1,004,199 2,909,740 2,909,740
Other current liabilities......................... 332,531 162,859 162,859
------------ ------------ -------------
Total current liabilities..................... 5,574,618 14,768,883 14,768,883
Capital leases payable, net of current portion.... 139,346 -- --
------------ ------------ -------------
Total liabilities............................. 5,713,964 14,768,883 14,768,883
------------ ------------ -------------
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock--par value
$.0005, 1,000,000 shares authorized, issued and
outstanding..................................... 500 500 --
Series B and B-1 convertible preferred stock--par
value $.0005, 5,929,846 shares authorized,
4,777,746 issued and outstanding................ 2,389 2,389 --
Series C convertible preferred stock--par value
$.0005, 13,528,765 shares authorized, 13,193,445
issued and outstanding.......................... 6,597 6,597 --
Series D convertible preferred stock--par value
$.0005, 13,000,000 shares authorized, issued and
outstanding..................................... -- 6,500 --
Series E convertible preferred stock--par value
$.0005, 18,953,616 shares authorized, 11,730,948
issued and outstanding.......................... -- 5,865 --
Common stock, par value $.01, 35,000,000 and
65,000,000 shares authorized, 1,819,735 and
2,113,385 issued and outstanding at
December 31, 1997 and 1998, respectively;
16,898,590 issued and outstanding, pro forma
(unaudited)..................................... 18,197 21,133 168,986
Additional paid-in capital........................ 43,180,649 112,848,505 112,722,503
Accumulated deficit............................... (32,621,213) (76,274,895) (76,274,895)
Stockholders notes receivable..................... (65,000) (565,000) (565,000)
Unearned compensation and deferred advertising.... -- (4,029,512) (4,029,512)
------------ ------------ -------------
Total stockholders' equity.................... 10,522,119 32,022,082 32,022,082
------------ ------------ -------------
Total liabilities and stockholders' equity.... $ 16,236,083 $ 46,790,965 $ 46,790,965
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-19
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Sponsorship, advertising and usage......... $ 732,045 $ 6,018,696 $ 12,450,620
Commerce................................... -- -- 2,561,203
----------- ------------ ------------
Total revenues........................... 732,045 6,018,696 15,011,823
----------- ------------ ------------
Cost of revenues............................. 3,468,374 5,530,431 12,403,247
----------- ------------ ------------
Gross margin................................. (2,736,329) 488,265 2,608,576
Operating expenses:
Product development and technology......... 1,053,036 2,075,924 2,117,768
Sales and marketing........................ 2,708,779 8,770,581 28,522,874
General and administrative................. 3,103,864 7,840,588 10,612,434
Depreciation and amortization.............. 108,956 2,886,256 5,683,006
----------- ------------ ------------
Total operating expenses................. 6,974,635 21,573,349 46,936,082
----------- ------------ ------------
Loss from operations......................... (9,710,964) (21,085,084) (44,327,506)
Interest income (expense), net............... 28,282 (215,876) 591,186
Loss on sale of Web site..................... -- -- (503,961)
Minority interest............................ -- -- 586,599
----------- ------------ ------------
Net loss..................................... $(9,682,682) $(21,300,960) $(43,653,682)
----------- ------------ ------------
Basic and diluted net loss per share......... $ (8.90) $ (13.65) $ (21.10)
----------- ------------ ------------
----------- ------------ ------------
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share................. 1,087,353 1,560,957 2,068,473
----------- ------------ ------------
----------- ------------ ------------
Pro forma basic and diluted net loss per
share (Note 2)............................. $ (2.59)
------------
------------
Shares of common stock used in computing pro
forma basic and diluted net loss per
share(Note 2).............................. 16,853,678
------------
------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-20
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
SERIES A SERIES B SERIES C SERIES D SERIES E
----------------- ----------------- ------------------ ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ --------- ------ ---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996.... 1,000,000 $500
Issuance of warrants in
connection with interest on
convertible notes............
Issuance of common stock in
connection with
acquisition..................
Issuance of Series B and
Series B-1 convertible
preferred stock.............. 4,777,766 $2,389
Issuance of stock options to
consultants and directors....
Issuance of Warrants to AOL
for channel services.........
Net loss......................
--------- ---- --------- ------ ---------- ------ ---------- ------ ---------- ------
Balance at December 31,
1996......................... 1,000,000 500 4,777,746 2,389
Issuance of common stock in
connection with exercise of
stock options................
Notes receivable due from
stockholders in connection
with exercise of options.....
Issuance of Series C
convertible preferred
stock........................ 13,193,445 $6,597
Issuance of warrants in
connection with interest on
convertible notes............
Issuance of common stock and
options in connection with
business acquisitions........
Issuance of stock options to
consultants and directors....
Net loss......................
--------- ---- --------- ------ ---------- ------ ---------- ------ ---------- ------
Balance at December 31,
1997......................... 1,000,000 500 4,777,746 2,389 13,193,445 6,597
Issuance of common stock for
cash.........................
Issuance of Series D
convertible preferred
stock........................ 13,000,000 $6,500
Issuance of Series E
convertible preferred
stock........................ 11,730,948 $5,865
Issuance of stock options to
consultants and directors....
Issuance of common stock in
connection with exercise of
stock options................
Issuance of stock options in
connection with business
transactions.................
Officer loan receivable.......
Issuance of options to NBC....
Net loss......................
--------- ---- --------- ------ ---------- ------ ---------- ------ ---------- ------
Balance at December 31,
1998......................... 1,000,000 $500 4,777,746 $2,389 13,193,445 $6,597 13,000,000 $6,500 11,730,948 $5,865
--------- ---- --------- ------ ---------- ------ ---------- ------ ---------- ------
--------- ---- --------- ------ ---------- ------ ---------- ------ ---------- ------
<CAPTION>
COMMON STOCK
------------------
SHARES AMOUNT
--------- -------
<S> <C> <C>
Balance at January 1, 1996.... 1,083,335 $10,833
Issuance of warrants in
connection with interest on
convertible notes............
Issuance of common stock in
connection with
acquisition.................. 66,667 667
Issuance of Series B and
Series B-1 convertible
preferred stock..............
Issuance of stock options to
consultants and directors....
Issuance of Warrants to AOL
for channel services.........
Net loss......................
--------- -------
Balance at December 31,
1996......................... 1,150,002 11,500
Issuance of common stock in
connection with exercise of
stock options................ 33,333 333
Notes receivable due from
stockholders in connection
with exercise of options.....
Issuance of Series C
convertible preferred
stock........................
Issuance of warrants in
connection with interest on
convertible notes............
Issuance of common stock and
options in connection with
business acquisitions........ 636,400 6,364
Issuance of stock options to
consultants and directors....
Net loss......................
--------- -------
Balance at December 31,
1997......................... 1,819,735 18,197
Issuance of common stock for
cash......................... 284,317 2,843
Issuance of Series D
convertible preferred
stock........................
Issuance of Series E
convertible preferred
stock........................
Issuance of stock options to
consultants and directors....
Issuance of common stock in
connection with exercise of
stock options................ 9,333 93
Issuance of stock options in
connection with business
transactions.................
Officer loan receivable.......
Issuance of options to NBC....
Net loss......................
--------- -------
Balance at December 31,
1998......................... 2,113,385 $21,133
--------- -------
--------- -------
<CAPTION>
UNEARNED
ADDITIONAL STOCKHOLDERS COMPENSATION
PAID IN NOTES AND DEFERRED ACCUMULATED
CAPITAL RECEIVABLE ADVERTISING COST DEFICIT TOTAL
----------- ------------- ---------------- ------------ ------------
Balance at January 1, 1996.... 997,037 $ (1,637,571) $ (629,201)
Issuance of warrants in
connection with interest on
convertible notes............ 30,101 30,101
Issuance of common stock in
connection with
acquisition.................. 499,333 500,000
Issuance of Series B and
Series B-1 convertible
preferred stock.............. 11,941,976 11,944,360
Issuance of stock options to
consultants and directors.... 62,007 62,007
Issuance of Warrants to AOL
for channel services......... 1,034,838 1,034,838
Net loss...................... (9,682,682) (9,682,682)
----------- --------- ------------ ------------ ------------
Balance at December 31,
1996......................... 14,565,292 (11,320,253) 3,259,428
Issuance of common stock in
connection with exercise of
stock options................ 99,667 100,000
Notes receivable due from
stockholders in connection
with exercise of options..... $ (65,000) (65,000)
Issuance of Series C
convertible preferred
stock........................ 24,823,398 24,829,995
Issuance of warrants in
connection with interest on
convertible notes............ 334,339 334,339
Issuance of common stock and
options in connection with
business acquisitions........ 3,292,558 3,298,922
Issuance of stock options to
consultants and directors.... 65,395 65,395
Net loss...................... (21,300,960) (21,300,960)
----------- --------- ------------ ------------ ------------
Balance at December 31,
1997......................... 43,180,649 (65,000) (32,621,213) 10,522,119
Issuance of common stock for
cash......................... 1,663,823 1,666,666
Issuance of Series D
convertible preferred
stock........................ 31,481,978 31,488,478
Issuance of Series E
convertible preferred
stock........................ 32,089,088 32,094,95
Issuance of stock options to
consultants and directors.... 146,994 $ (68,845) 78,149
Issuance of common stock in
connection with exercise of
stock options................ 47,507 47,600
Issuance of stock options in
connection with business
transactions................. 277,799 277,799
Officer loan receivable....... (500,000) (500,000)
Issuance of options to NBC.... 3,960,667 (3,960,667)
Net loss...................... (43,653,682) (43,653,682)
----------- --------- ------------ ------------ ------------
Balance at December 31,
1998......................... $112,848,505 $(565,000) $ (4,029,512) $(76,274,895) $ 32,022,082
----------- --------- ------------ ------------ ------------
----------- --------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-21
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $(9,682,682) $(21,300,960) $(43,653,682)
Adjustments to reconcile net loss to net cash used in operating
activities:
Expense recognized in connection with issuance of warrants and
stock options.................................................... 92,108 1,434,572 255,954
Depreciation and amortization...................................... 108,956 2,886,256 5,683,006
Bad debt expense................................................... -- 746,589 855,000
Loss on sale of Web site........................................... -- -- 503,961
Minority interest.................................................. -- -- (586,599)
Changes in operating assets and liabilities:
Accounts receivable.............................................. (528,968) (2,410,489) (1,878,637)
Other current assets............................................. (71,787) (194,781) (360,580)
Accounts payable and accrued expenses............................ 1,034,070 2,609,437 5,144,391
Deferred revenue................................................. 294,998 709,201 1,905,541
Other liabilities................................................ 64,236 268,295 (169,672)
----------- ------------ ------------
Net cash used in operating activities.......................... (8,689,069) (15,251,880) (32,301,317)
----------- ------------ ------------
Cash flows from investing activities:
Purchase of fixed assets............................................. (665,148) (4,001,052) (5,315,516)
Acquisitions of Web sites............................................ -- (2,865,000) (1,040,000)
Proceeds from sale of Web sites...................................... -- -- 600,000
----------- ------------ ------------
Net cash used in investing activities.......................... (665,148) (6,866,052) (5,755,516)
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from convertible notes payable.............................. 1,800,000 3,775,000 --
Proceeds from issuance of common stock............................... -- 37,500 1,714,266
Proceeds from issuance of convertible preferred stock, net........... 9,494,365 21,054,995 63,583,431
Principal payments on capital leases................................. -- (516,621) (250,716)
Stockholder note receivable.......................................... -- -- (500,000)
----------- ------------ ------------
Net cash provided by financing activities...................... 11,294,365 24,350,874 64,546,981
----------- ------------ ------------
Net increase in cash for the period.................................... 1,940,148 2,232,942 26,490,148
Cash and cash equivalents, beginning of period......................... 161,631 2,101,779 4,334,721
----------- ------------ ------------
Cash and cash equivalents, end of period............................... $ 2,101,779 $ 4,334,721 $ 30,824,869
----------- ------------ ------------
----------- ------------ ------------
Cash paid during the period for interest............................... $ -- $ 66,223 $ 37,392
----------- ------------ ------------
----------- ------------ ------------
Supplemental disclosure of non-cash investing and financing activities:
During 1996 and 1997, certain convertible notes were converted into preferred stock (see Note 8).
During December 1996, iVillage acquired ParentsPlace.com in exchange for the issuance of common stock (see
Note 5).
During 1997, iVillage entered in capital leases for computer equipment totaling $1,015,460.
During 1997, iVillage acquired several Web site assets through the issuance of stock (see Note 5).
During 1998, iVillage recorded a liability of $1,040,000 in connection with a contingent payment to be provided
to the prior owners of Health ResponseAbility Systems, Inc. (see Note 5).
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-22
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND 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") is engaged in the development of programming
material for distribution through online service providers and the Internet and
is involved in the sale of products through its Web sites. The Company has
sustained net losses and negative cash flows from operations since its
inception. The Company's ability to meet its obligations in the ordinary course
of business is dependent upon its ability to establish profitable operations and
raise additional financing through public or private equity financings,
collaborative or other arrangements with corporate sources, or other sources of
financing to fund operations. During 1998, the Company has received additional
financing of approximately $65.3 million through the issuance of common stock
and Series D and Series E convertible preferred stock. Management believes that
its current funds will be sufficient to enable the Company to meet its planned
expenditures through at least December 31, 1999. If anticipated operating
results are not achieved, management has the intent and believes it has the
ability to delay or reduce expenditures so as not to require additional
financial resources, if such resources were not available on terms acceptable to
the Company.
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 that the Company does not successfully implement its business plan,
certain assets may not be recoverable.
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Intercompany balances and transactions have been
eliminated.
REVENUE RECOGNITION
To date, the Company's revenues have been derived primarily from the sale
of sponsorship and advertising contracts and commerce revenues.
Sponsorship and Advertising
Sponsorship revenues are derived principally from contracts ranging from
one to three years in which the Company commits to provide sponsors promotional
opportunities in addition to traditional banner advertising. Typically,
sponsorship agreements provide for the delivery of impressions (on-line
advertisements displayed to a user) on the Company's Web sites, exclusive
relationships and the design and development of customized sites designed to
enhance the promotional objective of the sponsor. The portion of sponsorship
revenues related to the delivery of impressions are recognized ratably in the
period in which the advertisement is displayed, provided that none of the
Company'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. The portion of the up-front non refundable
fee specified in the contract related to the up-front customized design work is
recognized in the period in which the design work is performed, typically within
the first three months of the contract term.
Advertising revenues are derived principally from short-term advertising
contracts in which the Company typically guarantees a minimum number of
impressions or pages to be delivered to users over a specified period of time
for a fixed fee. Advertising revenues are recognized ratably in the period in
which the advertisement is displayed, provided that no significant Company
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, the
Company defers recognition of the corresponding revenues until the guaranteed
impressions are achieved. Sponsorship and advertising revenues were
approximately 74%, 93% and 80% of total revenues for the years ended December
31, 1996, 1997 and 1998, respectively.
A-23
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Sponsorship and advertising revenues include barter revenues, which is the
exchange by the Company of advertising space on the Company'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 the Company's Web sites. Barter expenses are
recognized at the value of advertisements received when the Company's
advertisements are run on the reciprocal Web sites, which typically occurs in
the same period as when the revenue is recognized, and are included as part of
sales and marketing expenses. Barter revenues represented 1%, 10% and 20% of
total revenues for the years ended December 31, 1996, 1997 and 1998,
respectively.
Usage revenues received from America Online, Inc. ("AOL"), which totaled
approximately $187,000 and $390,000 for the years ended December 31, 1996 and
1997, are derived from AOL customers visiting the Company's site on the AOL
online service and are recognized as they are earned (based upon visitations to
the site). As discussed in Note 4, the Company signed a new agreement with AOL
during 1997 which eliminated future usage revenues.
In 1996, no one advertiser accounted for greater than 10% of total
revenues. In 1997, revenues from the Company's five largest advertisers
accounted for approximately 26% of total revenues, however, no one advertiser
accounted for greater than 10% of total revenues. In 1998, revenues from the
Company's five largest advertisers accounted for approximately 17% of total
revenues, however, no one advertiser accounted for greater than 10% of total
revenues. At December 31, 1996, four customers individually represented greater
than 10% of the net accounts receivable balance. At December 31, 1997, one
customer accounted for approximately 31% of the net accounts receivable balance.
At December 31, 1998, one customer accounted for 11% of the net accounts
receivable balance.
Commerce
As discussed in Note 5, in April 1998, the Company acquired a majority
interest in a subsidiary, iBaby, an on-line distributor of children's products.
The Company recognizes revenue from product sales, net of any discounts, when
products are shipped to customers and the collection of the receivable is
reasonably assured. Outbound shipping and handling charges billed to customers
are included in sales. The Company provides an allowance for sales returns,
which have not been significant, based on iBaby's historical experience. Total
net revenues of iBaby were approximately $2.6 million for the period April 1998
(date of acquisition) through December 31, 1998.
FIXED ASSETS
Depreciation of equipment, furniture and fixtures, and purchased computer
software is provided for by the straight-line method over their estimated useful
lives ranging from three to five years. Amortization of leasehold improvements
is provided for over the lesser of the term of the related lease or the
estimated useful life of the improvement. The cost of additions and betterments
is capitalized, and repairs and maintenance costs are charged to operations in
the periods incurred.
GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of trademarks and the excess of
purchase price paid over identified intangible and tangible net assets of
acquired companies. Goodwill and intangible assets are amortized using the
straight-line method over the period of expected benefit, generally between
three and five years. The Company assesses the recoverability of its goodwill
and intangible assets by determining whether the amortization of the unamortized
balance over its remaining life can be recovered through forecasted cash flows.
If undiscounted forecasted cash flows indicate that the unamortized amounts will
not be recovered, an adjustment will be made to reduce the net amounts to an
amount consistent with forecasted future cash flows discounted at the Company's
incremental borrowing rate. Cash flow forecasts are based on trends of
historical performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and
A-24
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
economic conditions. Amortization expense for goodwill and intangible assets for
the years ended December 31, 1997 and 1998 was approximately $1,100,000 and
$2,996,000, respectively.
INCOME TAXES
The Company recognizes deferred taxes by the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for differences between the financial statement and
tax basis of assets and liabilities at enacted statutory tax rates in effect for
the years in which the differences are expected to reverse. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. In addition, valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include money market accounts and all highly
liquid investments purchased with original maturities of three months or less.
The Company maintains its cash and cash equivalents in highly rated financial
institutions.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and accrued
liabilities, approximate fair value because of their short maturities. The
carrying amount of the Company's capital lease and other equipment financing
obligations approximates the fair value of such instruments based upon
management's best estimate of interest rates that would be available to the
Company for similar debt obligations at December 31, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Significant
estimates made by the Company include the useful lives of fixed assets and the
recoverability of fixed assets, capitalized software, goodwill and deferred tax
assets.
NET LOSS PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128"). SFAS No. 128 replaced primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. 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 equivalent shares outstanding during the period. Common stock
equivalent shares are excluded from the computation if their effect is
antidilutive. 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 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.
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). This statement requires companies to classify items of
other comprehensive income by their nature in the financial statements and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS No. 130 is effective for financial
statements issued for fiscal years beginning after December 15, 1997. The
Company adopted SFAS No. 130 in the first quarter of 1998. The Company has had
no other comprehensive income items to report.
A-25
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
PRO FORMA INFORMATION (UNAUDITED)
The pro forma balance sheet as of December 31, 1998 reflects the
issuance/conversion of the following equity securities into an aggregate of
14,785,205 shares of common stock:
i. 1,000,000 shares of Series A Convertible Preferred Stock;
ii. 4,777,746 shares of Series B and B-1 Convertible Preferred Stock;
iii. 13,193,445 shares of Series C Convertible Preferred Stock;
iv. 13,000,000 shares of Series D Convertible Preferred Stock;
v. 217,825 shares of common stock to holders of Series B and B-1
Convertible Preferred Stock resulting from anti-dilution protection;
and
vi. 11,730,948 shares of Series E Convertible Preferred Stock.
Excludes (a) such number of shares that may be issuable in connection with
the acquisition of the minority interest in iBaby and (b) 4,889,030 shares of
Series E Convertible Preferred Stock issuable to National Broadcasting Company,
Inc. ("NBC") over the next three years pursuant to the Company's agreement with
NBC, plus a warrant granted to NBC to purchase up to 1,783,882 additional shares
of Series E Convertible Preferred Stock and (c) 802,125 shares issuable in
connection with the acquisition of KnowledgeWeb, Inc. d/b/a/Astrology.Net and
181,208 options to purchase shares issuable in conjunction with employment
agreements with certain stockholders and employees of KnowledgeWeb, Inc.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
is effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software developed
or obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company does not expect the adoption
of this standard to have a material effect on the Company's capitalization
policy.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start up activities and organization costs to be expensed as incurred. As the
Company has expensed these costs historically, the adoption of this standard is
not expected to have a significant impact on the Company's results of
operations, financial position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company does not expect the adoption of
this statement to have a significant impact on the Company's results of
operations, financial position or cash flows.
A-26
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. FIXED ASSETS:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
---------- -----------
<S> <C> <C>
Computer equipment............................................ $2,579,083 $ 6,949,815
Capitalized software.......................................... 2,295,138 2,655,838
Furniture and fixtures........................................ 283,024 1,165,283
Leasehold improvements........................................ 462,262 1,113,386
---------- -----------
5,619,507 11,884,322
Less, accumulated depreciation and amortization............... (1,816,684) (4,503,956)
---------- -----------
$3,802,823 $ 7,380,366
---------- -----------
---------- -----------
</TABLE>
Depreciation and amortization of fixed assets was approximately $109,000,
$1,780,000 and $2,687,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
4. RELATED-PARTY TRANSACTIONS:
AOL
In September 1995, the Company entered into an information provider
agreement with AOL, a holder of different classes of iVillage stock, whereby AOL
had agreed to carry the Company's programming material on the AOL service for a
period of one year. As a result of this agreement, AOL received a percentage, as
defined, of the Company's revenues and paid the Company a usage fee based upon
hours of viewership of the iVillage site on the AOL network.
In May 1996, the Company entered into an information provider agreement
with AOL whereby AOL agreed to carry up to four Company channels for a period of
two years. In return, the Company issued to AOL 266,666 warrants (on a
post-split basis) convertible into Series B Convertible Preferred Stock at an
exercise price of $7.50 per warrant. In accordance with Statement of Financial
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
the Company valued the warrants issued to AOL, using the Black-Scholes option
pricing model, at $3.87 per share. The following assumptions were used in the
option pricing model: stock price of $7.50, exercise price of $7.50, option term
of 5 years, risk free rate of interest of 6.5%, 50% volatility and a dividend
yield of 0%. The cost of the warrants were to be expensed over the life of each
channel, however, the agreement was canceled in 1997; as a result, the Company
expensed the unamortized value of these warrants, $1,034,838, in 1997.
In July 1997, the Company entered into an interactive services agreement
with AOL (the "AOL Agreement"), whereby the Company received anchor tenant
distribution within the AOL service. This agreement superseded any prior
agreements between the Company and AOL. The AOL Agreement, which was due to
expire on February 28, 1999, provided both parties with the right to extend the
agreement. In consideration for AOL carrying certain channels of the Company,
the Company receiving guaranteed impressions and other services, the Company was
obligated to pay AOL monthly payments of approximately $229,000 until September
1, 1998 and approximately $201,000 thereafter until February 28, 1999, make
certain additional payments based on revenues and provide $2,334,000 of in-kind
commitments to AOL which primarily consisted of the mentioning of "AOL Keyword:
iVillage" within iVillage advertisements and other promotions. These commitments
were not valued as part of the obligation to AOL as no incremental costs were
incurred and fair value could not be reasonably determined. At December 31,
1997, the Company owed AOL approximately $947,000 in connection with the AOL
Agreement and other expenses.
In January 1998, iVillage entered into a shopping channel promotional
agreement with AOL (the "Shopping Channel Agreement"), whereby AOL agreed to
promote iVillage and its services on the AOL shopping channel and provide access
to iVillage's online sites. The Shopping Channel Agreement provided for monthly
installments of $10,417 paid to AOL through December 31, 1998.
A-27
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On December 31, 1998, the Company entered into an interactive services
agreement with AOL (the "1998 AOL Agreement"), which supersedes the AOL
Agreement. The 1998 AOL Agreement expires on December 31, 2000 and allows both
parties to extend the term of the agreement for an additional year. The 1998 AOL
Agreement provides for the Company to receive anchor tenant distribution on
certain AOL channels, guaranteed impressions, and other services. In
consideration for such services the Company is obligated to (i) pay AOL minimum
quarterly payments of approximately $921,000 until March 31, 1999, approximately
$611,000 from April 1, 1999 through December 31, 1999 and approximately $807,000
from January 1, 2000 through December 31, 2000, and (ii) provide up to $2
million of advertising to AOL, as defined in the 1998 AOL Agreement. At December
31, 1998 no amounts were owed to AOL in connection with the 1998 AOL Agreement,
however, the Company recorded a prepaid expense of approximately $201,000 as a
result of an advance payment on the new agreement.
The Company estimates that a significant portion of its traffic is derived
from AOL and if the financial condition and operations of AOL were to
deteriorate significantly, or if the traffic to the Company's site generated by
AOL were to substantially decrease, the Company's advertising revenues could be
adversely affected.
OTHER RELATED PARTIES
In July 1997, iVillage entered into a one-year agreement with Tenet
Healthcare Corporation ("Tenet"), a stockholder, whereby Tenet was a sponsor of
one of iVillage's channels and developed content for use on the channel in
exchange for a fee paid in quarterly installments. For the year ended December
31, 1998, this agreement generated revenues of approximately $247,000. As of
December 31, 1998, the Company was owed approximately $75,000 from this
stockholder.
During 1997 and 1998, the Company had sponsorship and advertising
agreements with Intel Corp., a stockholder, which generated revenues of
approximately $19,000 and $130,000, respectively. As of December 31, 1997 and
1998, the Company was owed approximately $16,000 and $120,000, respectively,
from this stockholder.
In November 1998, iVillage entered into a one-year content distribution
agreement with Cox Interactive Media ("Cox"), a stockholder, whereby iVillage
agreed to provide content for Cox's Web sites in return for displaying the
iVillage logo on the Cox Web sites and establishing links on the Cox Web sites
to iVillage's network.
OFFICER LOAN RECEIVABLE
In June 1998, the Company accepted a non-recourse promissory note in the
principal amount of $500,000 (the "Note") from its chief executive officer
("CEO"). The Note is collateralized by 166,666 shares of the Company's common
stock which is held by the Company. Interest is payable annually on December 31
of each year, commencing December 31, 1998, at the rate of 5.58%. The
outstanding principal balance on the Note is payable on June 5, 2001. As of
December 31, 1998, the CEO has borrowed $500,000 under the note, which is
recorded as a stockholder note receivable and classified as a reduction of
equity.
A-28
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. BUSINESS ACQUISITIONS AND DISPOSITIONS:
PARENTSPLACE.COM
On December 9, 1996, the Company acquired all of the outstanding stock of
ParentsPlace.com, an Internet content provider, in exchange for 66,666 shares of
the Company's common stock. The cost of the acquisition was allocated to the
assets and liabilities assumed based upon their estimated fair values as
follows:
<TABLE>
<S> <C>
Working capital.................................................................. $(77,323)
Equipment........................................................................ 19,726
Goodwill......................................................................... 557,597
--------
$500,000
--------
--------
</TABLE>
HRS
In May 1997, the Company completed the acquisition of Health
ResponseAbility Systems, Inc. ("HRS"), an Internet content provider, in exchange
for $2,600,000 in cash, 433,400 shares of the Company's common stock valued at
$2,210,340 or $5.10 per share, and additional cash amounts contingent on future
performance levels of HRS and the Company. In addition, the Company issued to
AOL 203,000 shares of common stock in exchange for the release of all equity
rights in HRS held by AOL valued at $1,035,300.
The cost of the acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows:
<TABLE>
<S> <C>
Working capital................................................................ $ (159,991)
Equipment...................................................................... 50,300
Goodwill....................................................................... 5,955,331
----------
$5,845,640
----------
----------
</TABLE>
In January 1998, the Company agreed to pay $1,560,000 to the prior owners
of HRS in a final settlement of the cash amounts contingent upon future
performance levels, as stipulated in the agreement for the acquisition of HRS.
This amount was recorded as additional goodwill and is being amortized over the
remaining period of expected benefit.
The following unaudited pro forma summary presents consolidated results of
operations for the Company as if the acquisition of HRS had been consummated on
January 1, 1996. The acquisitions of ParentsPlace.com and StudentCenter would
not have had a significant impact on the pro forma information. 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.
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Revenues.................................................... $ 1,674,226 $ 6,381,437
Net loss.................................................... $(2,092,617) $(22,910,945)
</TABLE>
STUDENTCENTER
In September 1997, the Company acquired substantially all of the assets of
StudentCenter LLC ("StudentCenter"), an Internet content provider, for $125,000
and the issuance of options to purchase 41,666 shares of common stock of the
Company at $5.10 per share. These options were valued at approximately $53,000
using the Black-Scholes option pricing model. The following assumptions were
used in the option pricing model: stock price of $5.10, exercise price of $7.50,
term of 3 years, risk free rate of interest of 6%, 50% volatility and a dividend
yield of 0%. In addition, the Company was required to make revenue-based and
other bonus payments, of which $30,000 was recorded as of December 31, 1997,
based on the amount of StudentCenter revenues, page views and other criteria.
The $208,000 purchase price was allocated to goodwill and intangible assets and
is being amortized over three years.
A-29
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In May 1998, the Company sold the assets of StudentCenter as part of the
sale of About Work.
ABOUT WORK
In May 1998, the Company sold About Work, one of the Company's channels, as
well as the assets of StudentCenter, to TMP Worldwide Inc. ("TMP") in exchange
for net proceeds of $600,000. In connection with the sale of About Work, the
Company paid the former owners of StudentCenter $520,000 and issued options to
purchase 33,333 shares at $5.10 per share as settlement of all revenue-based and
other bonus payments. The options were valued at approximately $100,000 using
the Black-Scholes option pricing model using the following assumptions: stock
price of $6.00, exercise price of $6.00, term of 5 years, risk free rate of
interest of 5.44%, 50% volatility and a dividend yield of 0%. In addition, the
Company accrued a cost of $340,000 in connection with AOL carriage fees to be
paid on behalf of TMP for About Work. The Company recorded a loss of
approximately $504,000 on this sale due to the bonus payment, the options issued
to StudentCenter, the write off of approximately $195,000 of remaining goodwill
and the accrual for AOL carriage fees.
An additional $575,000 was received in exchange for production, sponsorship
and consulting services provided to TMP during 1998. The agreement also calls
for a $600,000 reimbursement payment to be made to the Company for maintaining
the About Work tenancy on AOL for a one year period beginning May 1, 1999. In
the event that the About Work site is not carried on AOL after April 1999
through iVillage's distribution agreement, this reimbursement payment will not
be made.
IBABY
In April 1998, the Company entered into a joint venture agreement (the
"iBaby Agreement") with Ourbaby, LLC, a California limited liability company, to
form iBaby, Inc., a Delaware corporation ("iBaby"). The Company has purchased
1,000,000 shares of iBaby (of the total 1,666,666 shares outstanding) for
$1,350,000 and for the delivery of certain promotional rights, including
impressions on the iVillage web site. In connection with the acquisition, the
Company recorded approximately $500,000 of goodwill to be amortized over a
period of three years. The Company's equity ownership in iBaby may be altered
due to various provisions included in the joint venture agreement including: (i)
conversion of any convertible notes issued in connection with any bridge loan
financing provided to iBaby by the Company, (ii) the issuance of iBaby shares
upon exercise of stock options and grants of restricted stock, (iii) the
Company's failure to meet certain promotional obligations or (iv) the occurrence
of an initial public offering of the Company's stock or a merger, consolidation
or sale transaction ("call event" or "put event").
Since the formation of iBaby in April 1998, the accounts of iBaby have been
consolidated into the Company's financial statements, as the Company holds a
majority interest and has control of iBaby.
In connection with the formation of iBaby, iBaby entered into an inventory
and services agreement with Kids Warehouse, the minority interest holder of
iBaby. The agreement, dated April 8, 1998, has a one-year term and provides for
Kids Warehouse to make available to iBaby at least $2,000,000 of inventory at
wholesale value, as defined, for iBaby to sell to customers. In addition, Kids
Warehouse is to stock and provide storage of iBaby inventory. In consideration
for such services, iBaby is to pay Kids Warehouse an inventory fee, as defined,
based on the cost of items sold by iBaby. This agreement is terminable at the
sole option of iBaby.
In connection with the joint venture agreement, the Company also entered
into a rights agreement with the minority stockholders which provides for
various rights including:
o The right and option by the Company, exercisable upon the occurrence
of a call or put event, to purchase all of the shares held by the
minority stockholders ("call option"); and
o The right and option by the minority stockholders, exercisable upon
the occurrence of a put event, to require iVillage to purchase the
shares held by the minority stockholders ("put option").
A-30
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In December 1998, the board of directors of iVillage opted to exercise the
call option to acquire the minority interest in iBaby.
6. STOCK OPTION PLANS:
1995 Amended And Restated Employee Stock Option Plan
In 1995, iVillage's Board of Directors and stockholders adopted the
Company's 1995 Amended and Restated Employee Stock Option Plan (the "ESOP"),
which was amended in May 1997. The ESOP provides for the granting, at the
discretion of the Stock Option Committee of the board of directors (the "SOC"),
of: (i) options that are intended to qualify as incentive stock options, within
the meaning of Section 422 of the Internal Revenue Code of 1986 (the "Code"), as
amended, to employees and (ii) options not intended to so qualify to employees,
officers, consultants and directors. The total number of shares of common stock
for which options may be granted under the ESOP is 1,798,548.
The exercise price of all stock options granted under the ESOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the ESOP is 10 years from the date of grant. Options shall become
exercisable at such times and in such installments as the SOC shall provide in
the terms of each individual option.
The exercise price of all of the options under the ESOP which range from
$3.00-$9.45, were determined based upon the fair market value of iVillage's
common stock on the date of grant. In September 1997, the SOC adjusted the
exercise price of all ESOP shares priced above $5.10 to $5.10 per share based
upon the then determined current fair market value of the Company's common
stock. Generally, the options vest equally over a period of four years and
expire 5-10 years from the date of grant.
As of December 31, 1998, there were no shares available for future grants
under the ESOP.
Changes in options outstanding under the ESOP, the fair value per option
and weighted average exercise price of stock option activity for the years ended
December 31, 1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE FAIR AVERAGE
VALUE PER EXERCISE PRICE
OPTIONS OPTION PER SHARE
--------- ------------ --------------
<S> <C> <C> <C>
Outstanding, January 1, 1996........................................ 108,666 $ .78 $ 3.15
Granted............................................................. 254,048 2.10 4.56
--------- ------ ------
Outstanding, December 31, 1996...................................... 362,714 1.71 3.96
Granted............................................................. 687,833 1.41 5.10
Exercised........................................................... (33,333) 1.05 3.00
Canceled............................................................ (215,750) 1.62 3.84
--------- ------ ------
Outstanding, December 31, 1997...................................... 801,464 1.50 5.04
Granted............................................................. 1,256,750 1.92 6.90
Exercised........................................................... (9,333) 2.49 5.10
Canceled............................................................ (250,333) 1.38 5.25
--------- ------ ------
Outstanding, December 31, 1998...................................... 1,798,548 $ 1.80 $ 6.30
--------- ------ ------
--------- ------ ------
Options exercisable at December 31, 1996............................ 35,500 $ 1.08 $ 3.63
Options exercisable at December 31, 1997............................ 103,333 $ 1.71 $ 4.92
Options exercisable at December 31, 1998............................ 287,057 $ 1.77 $ 5.28
</TABLE>
At December 31, 1998, the weighted average remaining contractual life of
the options outstanding, under the ESOP, was approximately 6.3 years.
A-31
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1997 Amended and Restated Acquisition Stock Option Plan
In May 1997, the Company's Board of Directors and stockholders adopted the
Company's 1997 Amended and Restated Acquisition Stock Option Plan (the "ASOP").
The ASOP provides for the granting, at the discretion of the SOC of:
(i) options that are intended to qualify as incentive stock options, within the
meaning of Section 422 of the Code, as amended, to directors who are employees
of the Company or any of its subsidiaries, or as part of one or more of such
acquisitions and (ii) options not intended to so qualify to employees, officers,
consultants and directors of the Company, or as part of one or more of such
acquisitions. The total number of shares of common stock for which options may
be granted under the ASOP is 360,726.
The exercise price of all stock options granted under the ASOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the ASOP is 10 years from the date of grant. Options shall become
exercisable at such times and in such installments as the SOC shall provide in
the terms of each individual option.
Generally, the options vest equally over a period of four years and expire
7-10 years from the date of grant. The exercise price of all of the options
under the ASOP is $5.10, which was determined based upon the fair market value
of the Company's common stock on the date of grant.
In September 1997, the SOC adjusted the exercise price of all outstanding
options of the ASOP from the original exercise price of $7.50 a share to $5.10 a
share, based on the then determined current fair market value of the Company's
common stock.
As of December 31, 1998, no shares were available for future grants under
the ASOP.
Changes in options outstanding under the ASOP, the fair value per option
and weighted average exercise price of stock option activity for the years ended
December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE FAIR AVERAGE
VALUE PER EXERCISE PRICE
OPTIONS OPTION PER SHARE
--------- ------------ --------------
<S> <C> <C> <C>
Outstanding, January 1, 1997........................................ -- $ -- $ --
Granted............................................................. 393,393 1.44 5.10
--------- ------ ------
Outstanding, December 31, 1997...................................... 393,393 1.44 5.10
Granted............................................................. 258,393 3.00 5.10
Canceled............................................................ (291,060) 1.35 5.10
--------- ------ ------
Outstanding, December 31, 1998...................................... 360,726 $ 2.64 $ 5.10
--------- ------ ------
--------- ------ ------
Options exercisable at December 31, 1997............................ 10,833 $ 1.98 $ 5.10
Options exercisable at December 31, 1998............................ 305,226 $ 2.79 $ 5.10
</TABLE>
At December 31, 1998, the weighted average remaining contractual life of
the options outstanding, under the ASOP, was approximately 6.4 years.
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock option issuances. The Company has adopted the
disclosure-only provisions of SFAS No. 123. Had compensation cost for the
Company's stock options issued at the fair value of the Company's stock been
determined based on the fair value of the stock options at the grant date for
awards in 1996, 1997 and 1998 consistent with the
A-32
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
provisions of SFAS No. 123, the Company's net loss would have been adjusted to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Net loss as reported........................................... $(9,682,682) $(21,300,960) $(43,653,682)
Net loss pro forma............................................. $(9,767,127) $(21,693,415) $(44,213,487)
</TABLE>
The fair value of each option grant is estimated using the minimum value
method of the Black-Scholes option pricing model which assumes no volatility.
The weighted average assumptions used for grants made in 1996, 1997 and 1998 are
as follows:
<TABLE>
<CAPTION>
OPTIONS GRANTED DURING THE
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate......................................................... 6.10% 6.22% 5.44%
Expected option life............................................................ 5 years 5 years 5 years
Dividend yield.................................................................. 0.0% 0.0% 0.0%
</TABLE>
In 1997, in connection with the exercise of options by former employees,
the Company accepted two promissory notes, with recourse, from the former
employees to cover the costs to exercise the options.
iBaby, Inc. 1998 Stock Option Plan
In 1998, the Board of Directors and stockholders of iBaby adopted the
iBaby, Inc. 1998 Stock Option Plan ("iBaby SOP"). The iBaby SOP provides for the
granting, at the discretion of the iBaby Stock Option Committee ("iBaby SOC")
of: (i) options that are intended to qualify as incentive stock options, within
the meaning of the Code, to employees and (ii) options not intended to so
qualify to employees, officers, consultants and directors. The total number of
shares of iBaby common stock for which options may be granted under the iBaby
SOP is 294,118.
The exercise price of all stock options granted under the iBaby SOP is
determined by the iBaby SOC at the time of grant. The maximum term of each
option granted under the iBaby SOP is seven years from the date of grant.
Options shall become exercisable at such time and in such installments as the
iBaby SOC shall provide in the terms of each individual option.
Under the iBaby SOP, options to purchase 110,059 shares of iBaby common
stock were granted during the year ended December 31, 1998, with a weighted
average exercise price per share of $2.68 and a weighted average remaining
contractual life of 6.4 years. As of December 31, 1998, 184,059 shares remain
available for future grants.
A-33
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
LEASES:
The Company leases office space, under non-cancelable operating leases
expiring at various dates through April 2001. The following is a schedule of
future minimum lease payments under non-cancelable operating leases as of
December 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31: 1998
- ----------------------------------------------------------------------------------------------------- --------
<S> <C>
1999................................................................................................. $669,684
2000................................................................................................. 279,540
2001................................................................................................. 12,280
--------
$961,504
--------
--------
</TABLE>
Rent expense was approximately $149,000, $486,000 and $714,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.
At December 31, 1998, minimum future lease payments due under capital
leases for computer equipment are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31: 1998
- ----------------------------------------------------------------------------------------------------- --------
<S> <C>
1999................................................................................................. $144,203
Less: amount representing interest................................................................... 6,630
--------
Net minimum lease payments........................................................................... $136,573
--------
--------
</TABLE>
Accumulated amortization on assets accounted for as capital leases amounted
to approximately $301,000 and $553,000 as of December 31, 1997 and 1998,
respectively.
LITIGATION
The Company has been involved in litigation relating to claims arising out
of its operations in the normal course of business, including a claim by a
former employee. The Company does not believe that an adverse outcome of any of
these legal proceedings will have a material adverse effect on the Company's
results of operations.
8. CONVERTIBLE NOTES
In August 1995, the Company entered into a promissory note agreement with
AOL whereby the Company received $500,000. This note was converted into shares
of Series A Convertible Preferred Stock ("Series A") in September 1995.
In September 1995, the Company entered into a promissory note agreement
with AOL whereby the Company received $650,000 in 1995 and an additional
$1,100,000 in 1996. In connection with this note, the Company issued warrants to
purchase 17,366 shares (on a post-split basis) of Series B Convertible Preferred
Stock ("Series B") at $7.50 a share which resulted in interest expense of $6,745
in 1995 and $30,101 in 1996.
In 1996, the Company entered into promissory note agreements with AOL and
certain other investors whereby the Company received $1,800,000 inclusive of the
$1,000,000 received from AOL as described above. These notes, as well as the
$650,000 discussed above that was received in 1995, were converted into 980,000
shares of Series B.
In 1997, the Company entered into promissory note agreements with AOL and
certain other investors whereby the Company received $3,775,000. In connection
with these notes, the Company issued warrants to purchase 111,771 shares of
common stock for $5.86 per share, which resulted in an interest charge of
$334,339 in 1997. The Company valued these options using the Black-Scholes
option pricing model at $3.00 per share. The following assumptions were used in
determining the value of the
A-34
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
option: stock price of $5.86, exercise price of $5.86, term of 5 years, risk
free rate of interest 6%, 50% volatility and a dividend yield of 0%. In 1997,
these notes were converted into approximately 1.93 million shares of Series C
Convertible Preferred Stock ("Series C").
9. CAPITAL STOCK
COMMON STOCK
At December 31, 1998, the authorized capital stock of the Company consists
of 65,000,000 shares of common stock, $0.01 par value per share and 25,000,000
shares of preferred stock, $0.0005 par value per share. The Board of Directors
(the "Board") of the Company has the authority to issue preferred stock in
series with rights and privileges determined by the Board. Upon formation of the
Company, 1,083,335 shares of $0.01 par value common stock were issued to the
founders.
In February 1998, the Company issued 284,317 shares of common stock in
exchange for net proceeds of approximately $1,700,000.
CONVERTIBLE PREFERRED STOCK
In September 1995, the Company issued 1,000,000 shares of Series A
Convertible Preferred Stock ("Series A"), through a private placement, in
consideration for net proceeds of approximately $1,000,000, inclusive of the
conversion of a $500,000 convertible note payable.
In May 1996, the Company issued 4,777,746 shares of Series B and Series B-1
Convertible Preferred Stock ("Series B-1") through a private placement in
exchange for net proceeds of approximately $11,944,000, inclusive of the
conversion of convertible notes payable in the amount of $2,450,000. The holder
of Series B-1 has the same rights as the Series B holders, however, the Series
B-1 holder does not have voting rights.
In May 1997, the Company issued 11,003,067 shares of Series C Convertible
Preferred Stock ("Series C") through a private placement in exchange for net
proceeds of approximately $20,550,000, inclusive of the conversion of
convertible notes payable in the amount of approximately $2,975,000. In
connection with the issuance of Series C, the Company will issue additional
shares of common stock to Series B holders that had anti-dilution provisions,
upon the conversion to common stock. The Company also issued 30,194 warrants to
purchase shares of common stock at $.03 a share to the Company's placement agent
in consideration for services provided in connection with the private placement.
In December 1997, the Company issued an additional 2,190,378 shares of
Series C through a private placement in exchange for net proceeds of
approximately $4,280,000, inclusive of the conversion of an $800,000 convertible
note payable.
In February 1998, the Company issued 13,000,000 shares of Series D
Convertible Preferred Stock ("Series D") in exchange for net proceeds of
approximately $31,500,000.
In December 1998, the Company issued 11,730,948 shares of Series E
Convertible Preferred Stock ("Series E") through a private placement in exchange
for net proceeds of approximately $32,100,000. Holders of Series E have
participating preferred rights.
The holders of convertible preferred stock are entitled to receive
noncumulative dividends when and if declared by the Board. These dividends are
in preference to any declaration or payment of any dividend on the common stock
of the Company.
In the event of liquidation, the holders of convertible preferred stock
have a liquidation preference over the holders of common stock with holders of
Series C, D and E having preference to Series A and B holders. Such preference
is equal to the original cost of the respective class of convertible preferred
stock, plus any declared or unpaid dividends.
A-35
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
All classes of convertible preferred stock are convertible into common
stock at prices and at times, subject to the provisions set forth in the
Company's restated Certificate of Incorporation, on a one for one basis. In the
event of a public offering of the Company's shares with gross proceeds and an
offering price as defined, the convertible preferred stock will be automatically
converted into common stock on a one for one basis (on a pre-split basis). The
holders of Series B and B-1 shares will receive an additional 217,825 shares of
common stock as a result of the anti-dilution provisions contained in the Series
B and Series B-1 agreements. Convertible preferred stockholders maintain voting
rights equivalent to the number of shares of common stock on an as if converted
basis.
As discussed in Notes 4, 8 and above, as of December 31, 1998, the Company
has 425,998 warrants outstanding with a weighted average exercise price of $6.54
per share.
INITIAL PUBLIC OFFERING
In December 1998, the Board of Directors and stockholders of the Company,
authorized the Company's management to file a registration statement for an
initial public offering (the "IPO") of the Company's common stock.
10. ADVERTISING AND PROMOTIONAL AGREEMENTS:
NBC
On November 11, 1998, the Company entered into an agreement with NBC
pursuant to which NBC will promote the Company's Web site, iVillage.com, on
television primarily during prime time programs, as well as through its web
sites. The terms of the NBC agreement provide for the following:
i. NBC to provide the Company with the use of advertising spots having an
aggregate value of $3.5 million per annum over a three-year period. For
each $3.5 million of advertising spots, the Company will issue
1,228,070 shares of Series E (or 409,356 shares of the Company's common
stock after the IPO).
ii. NBC will have the option, exercisable at its sole discretion, to
provide the Company with additional spots having an aggregate value of
$5 million for each of the three years. Upon exercise of NBC's option,
iVillage will issue shares of series E (or shares of iVillage's common
stock after the IPO), subject to anti-dilution protection, equal to the
aggregate value of additional spots divided by $4.15 in the first year,
$5.15 in the second year and $6.15 in the third year ($12.45, $15.45
and $18.45 if converted to common stock).
iii. NBC may terminate the agreement in the event that a change of control
of iVillage, as defined in the agreement, occurs involving a
television broadcast network entity or its affiliate that directly
competes with NBC.
The Company will account for the NBC agreement in accordance with Emerging
Issues Task Force Abstract No. 96-18, "Accounting for Equity Instruments That
are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services."
In addition, iVillage has valued the option provided to NBC using the
Black-Scholes option pricing model. The $3,960,667 value has been recorded in
the equity section as deferred compensation, and will be adjusted at each
balance sheet date to market value. If and when NBC exercises their option by
delivering advertising, then any amounts previously deferred in the equity
section related to those shares will be reversed into the statement of
operations along with any additional amounts necessary to bring the total charge
up to the then current market value.
On March 9, 1999, the Company and NBC entered into an agreement to amend,
subject to closing conditions, the November 11, 1998 advertising and promotional
agreement with NBC. See Note 13-Subsequent Events.
A-36
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SNAP
In November 1998, iVillage entered into a two-year agreement with Snap! LLC
("Snap") which provided for Snap assisting iVillage in promoting its network of
Web sites and related services. Under the agreement, Snap is to deliver
guaranteed impressions as well as certain exclusivity rights in connection with
limitations on the percentage of content that can be provided by iVillage's
competitors. In exchange for the impressions and exclusivity provided by Snap,
iVillage is required to make payments of: (i) $1 million in the first year and
$2.26 million in the second year, (ii) an amount equal to 20% of all gross
margin earned by iVillage from all sales made through the Company's iBaby Web
site arising from customers directed by Snap and (iii) a standard monthly fee
based on the daily average number of successful search results page on the Snap
Web site that is served by Snap in response to a search inquiry.
iVillage will record all of the payments required under the agreement as
sales and marketing expense and will be recognized ratably over the term of the
contract as services are provided.
AT&T
In October 1998, iVillage entered into a two-year agreement with AT&T under
which (subject to meeting certain quarterly performance measures) iVillage will
promote and market certain AT&T telecommunication services in exchange for
minimum payments, subject to adjustments based upon delivered impressions, as
defined in the agreement. In return, AT&T will display a text line for
iVillage.com on the AT&T WorldNet service and promote and market iVillage.com
through AT&T television, mass media marketing or other mass media.
11. INCOME TAXES:
The components of the net deferred tax asset as of December 31, 1997 and
1998 consists of the following:
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Operating loss carryforward.................................................... $ 13,940,842 $ 31,321,682
Depreciation and amortization.................................................. (50,508) (166,554)
Bad debt allowance and reserves................................................ -- 674,864
Benefits related costs......................................................... -- 230,701
------------ ------------
Net deferred tax asset......................................................... 13,890,334 32,060,693
Less, valuation allowance...................................................... (13,890,334) (32,060,693)
------------ ------------
Deferred tax asset............................................................. $ -- $ --
------------ ------------
------------ ------------
</TABLE>
The difference between the Company's U.S. federal statutory rate of 35%, as
well as its state and local rate, net of a federal benefit, of 10%, when
compared to the effective rate is principally comprised of the valuation
allowance.
As of December 31, 1998, the Company has a net operating loss carryforward
for federal income tax purposes of approximately $69,990,000 which begin to
expire in 2010. The net deferred tax asset has been fully reserved due to the
uncertainty of the Company's ability to realize this asset in the future.
12. SEGMENT INFORMATION:
In June 1997, FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which established standards for reporting information about
operating segments in annual financial statements. The Company's business is
comprised of the development of programming material by iVillage for
distribution through online service providers and the Internet ("New Media") and
the sale of products by iBaby through its Web sites ("Commerce"). The Company's
management reviews corporate assets and
A-37
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
overhead expenses combined with the New Media segment. The summarized segment
information, as of and for the year ended December 31, 1998, is as follows:
<TABLE>
<CAPTION>
NEW MEDIA COMMERCE TOTAL
------------ ----------- ------------
<S> <C> <C> <C>
Revenues....................................................... $ 12,450,620 $ 2,561,203 $ 15,011,823
Cost of revenues and product development and technology........ 11,741,776 2,779,239 14,521,015
Sales and marketing............................................ 28,176,407 346,467 28,522,874
General and administrative..................................... 9,546,082 1,066,352 10,612,434
Depreciation and amortization.................................. 5,628,322 54,684 5,683,006
Loss from operations........................................... (42,641,967) (1,685,539) (44,327,506)
Interest income, net........................................... 570,704 20,482 591,186
Total assets................................................... 45,944,997 845,968 46,790,965
</TABLE>
Information for the years ended December 31, 1996 and 1997 has not been
provided since during those years the Company operated only in the New Media
segment.
13. SUBSEQUENT EVENTS (UNAUDITED):
Acquisition of Minority Interest of iBaby
On February 10, 1999, the Company entered into an agreement to purchase all
of the outstanding shares of iBaby held by the minority stockholders (the
"Minority Interest") for $11.0 million (the "Purchase Price") (the "iBaby
Purchase Agreement"). The Purchase Price is comprised of $8 million in cash and
common stock having an aggregate value of $3.0 million. The Company paid $1.5
million on February 12, 1999, with the remaining $6.5 million being payable
within two business days of the closing of the IPO and receipt, by the Company,
of at least $6.5 million of IPO proceeds. The number of shares to be issued will
be dependent upon the IPO price per share, less the underwriters' discount.
If an IPO does not occur, the iBaby Purchase Agreement also provides for
the right by the Company to purchase the Minority Interest for an aggregate
$9.3 million in cash until May 31, 1999 (the "Additional Purchase Period")
provided that (i) written notice is given by April 15, 1999 and a non-
refundable payment of $1 million is made to the minority stockholders (the
"Deposit") as a credit toward the remaining $9.3 million. In the event that the
Minority Interest is not purchased in accordance with the terms of the iBaby
Purchase Agreement, the Deposit will be forfeited by the Company and the terms
of the iBaby Agreement shall continue in full force except that the parties will
have 10 business days to agree to a fair value per share or select a mutually
acceptable investment bank to issue a valuation within 15 business days.
The iBaby Purchase Agreement also provides for certain other provisions,
the most significant of which include the extension of the management, and
inventory and services agreements until April 8, 2000 and certain piggyback
registration rights to the minority stockholders.
Acquisition of Astrology.Net
On February 18, 1999, the Company acquired all of the outstanding stock of
KnowledgeWeb, Inc. d/b/a/ Astrology.Net ("Astrology.Net"), an Internet content
provider, in exchange for 802,125 shares of iVillage's common stock and
$1 million in cash. The Astrology.Net Agreement also provides for employment,
non-compete and stock option agreements for the founding stockholders of
Astrology.Net.
The terms of the agreement are such that 326,331 of the shares of common
stock are issued up-front and the remaining 475,794 will be placed into escrow
to be released to the stockholders of Astrology.Net within a period of five
years. The release from escrow will be accelerated dependent on Astrology.Net
meeting revenue targets. In the event there is no acceleration of the release of
these shares by the end of the five-year term, all remaining shares in escrow
will be released to
A-38
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Astrology.Net's stockholders. In addition, all outstanding options to purchase
Astrology.Net common stock were converted into non-qualified options to purchase
an aggregate of 31,208 shares of iVillage common stock.
In addition to the shares issued, the Company has issued the founding
stockholders of Astrology.Net, who will continue as employees of Astrology.Net,
options to purchase 150,000 shares of iVillage common stock at an exercise price
equal to the IPO price. These options vest over a period of seven years, with
accelerated vesting dependent on Astrology.Net meeting certain revenue targets.
The Company also granted to the founding stockholders of Astrology.Net, subject
to its existing agreements with respect to registration rights, piggyback
registration rights in connection with the shares of the Company's common stock
to be issued pursuant to the agreement.
The acquisition will be accounted for as a purchase with an estimated
purchase price of approximately $21.0 million, based on a value of the Company's
common stock of $24.00 per share and an estimate for the value of the
Astrology.Net options assumed by iVillage. The difference between the purchase
price and the fair value of the acquired net assets of Astrology.Net will be
recorded as goodwill and amortized over the period of expected benefit.
Reverse Stock Split
On March 11, 1999, the Board effected a one-for-three reverse common stock
split. The Board also approved the adjustment of the common stock par value to
$.01 per share. The share information in the accompanying consolidated financial
statements has been retroactively restated to reflect the effect of this reverse
stock split.
NBC
On March 9, 1999, the Company and NBC entered into an agreement to amend,
subject to closing conditions, the November 11, 1998 advertising and promotional
agreement with NBC as follows:
i. The Company has agreed to purchase, for cash, $8.5 million of
advertising and promotional spots per annum, over the next three years.
ii. Upon signing the amended agreement, the Company will issue, subject to
certain anti-dilution protection, 4,889,030 shares of Series E
Convertible Preferred Stock and a warrant to purchase 970,873 shares of
Series E Convertible Preferred Stock at $5.15 per share during 2000 and
813,008 shares of Series E Convertible Preferred Stock at $6.15 per
share during 2001 in exchange for a promissory note in the approximate
amount of $15.5 million at 5% interest per annum. The principal amount
of the note and interest is payable in twelve equal installments of
approximately $1.4 million, payable each quarter beginning April 1,
1999.
iii. The Company has also agreed to pay $1,100,000 during 1999 for
prominent placement on the NBC.com Web site.
Under the revised agreement and in accordance with EITF D-60 "Accounting
for the Issuance of Convertible Preferred Stock and Debt Securities with a
Nondetachable Conversion Feature," the $23.6 million difference between the
purchase price of the Series E Convertible Preferred Stock and the fair market
value on the date of issuance will be accounted for as a deemed dividend and
amortized using the effective interest method from the date of issuance through
the date the securities are first convertible. The Company expects this to occur
in March 1999 with the effectiveness of its anticipated initial public offering.
In addition, the fair value of the warrant of approximately $8.4 million, will
be recorded in stockholders' equity as deferred advertising costs and amortized
to advertising expense--non cash over the three year advertising agreement. The
fair value of the warrant was determined using the Black-Scholes option pricing
model in accordance with SFAS No. 123.
A-39
<PAGE>
SCHEDULE II
IVILLAGE INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
---------- ---------- ---------- ---------- ----------
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1996: Provision
for doubtful accounts........................... $ -- $ -- $ -- $ -- $ --
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
For the year ended December 31, 1997: Provision
for doubtful accounts........................... $ -- $746,859 $100,000(1) $566,760(2) $279,829
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
For the year ended December 31, 1998: Provision
for doubtful accounts........................... $279,829 $855,000 $125,000(2) $513,480 $746,349
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
- ------------------
(1) Doubtful accounts written off against revenue
(2) Doubtful accounts written off, net of cash recovered
A-40
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ --------
<S> <C> <C>
ASSETS
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.
A-41
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------------- ----------------
1998 1999 1998
------------------ ------------------ ----------------
<S> <C> <C> <C>
Revenues:
Sponsorship, advertising and other........................... $ 2,118 $ 5,994 $ 4,318
Commerce..................................................... 520 2,114 520
-------- -------- --------
Total revenues............................................ 2,638 8,108 4,838
Cost of revenues............................................... 3,262 4,210 5,437
Operating margin............................................. (624) 3,898 (599)
-------- -------- --------
Operating expenses:
Product development and technology........................... 504 1,353 986
Sales and marketing.......................................... 7,184 7,852 12,054
Sales and marketing--NBC expenses............................ -- 4,466 --
General and administrative................................... 2,202 3,847 4,206
Depreciation and amortization................................ 1,397 4,665 2,658
-------- -------- --------
Total operating expenses.................................. 11,287 22,183 19,904
-------- -------- --------
Loss from operations...................................... (11,911) (18,285) (20,503)
Interest income, net........................................... 161 1,182 237
Net loss..................................................... (11,750) (17,103) (20,266)
-------- -------- --------
Preferred stock deemed dividend................................ -- -- --
Net loss attributable to common stockholders................... $(11,750) $(17,103) $(20,266)
-------- -------- --------
-------- -------- --------
Basic and diluted net loss per share attributable
to common shareholders....................................... $ (1.85) $ (0.72) $ (3.28)
-------- -------- --------
-------- -------- --------
Weighted average shares of common stock outstanding used in
computing basic and diluted net loss per share............... 6,337 23,728 6,179
-------- -------- --------
-------- -------- --------
Pro forma basic and diluted net loss per share.................
Shares of common stock used in computing pro forma basic and
diluted net loss per share...................................
<CAPTION>
1999
----------------
<S> <C>
Revenues:
Sponsorship, advertising and other........................... $ 10,684
Commerce..................................................... 3,888
--------
Total revenues............................................ 14,572
Cost of revenues............................................... 9,112
Operating margin............................................. 5,460
--------
Operating expenses:
Product development and technology........................... 3,038
Sales and marketing.......................................... 15,634
Sales and marketing--NBC expenses............................ 7,572
General and administrative................................... 7,872
Depreciation and amortization................................ 7,519
--------
Total operating expenses.................................. 41,635
--------
Loss from operations...................................... (36,175)
Interest income, net........................................... 1,513
Net loss..................................................... (34,662)
--------
Preferred stock deemed dividend................................ (23,612)
Net loss attributable to common stockholders................... $(58,274)
--------
--------
Basic and diluted net loss per share attributable
to common shareholders....................................... $ (3.98)
--------
--------
Weighted average shares of common stock outstanding used in
computing basic and diluted net loss per share............... 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.
A-42
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1999 1998 1999
-------- -------- -------- --------
(UNAUDITED)
<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.
A-43
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
A-44
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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:
<TABLE>
<S> <C>
Working capital............................................................... $ (452,752)
Fixed assets.................................................................. 399,181
Goodwill...................................................................... 11,064,324
-----------
$11,010,753
-----------
-----------
</TABLE>
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
A-45
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
<TABLE>
<CAPTION>
1998 1999
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Revenues....................................................................... $ 2,345 $ 6,660
Net loss....................................................................... (8,607) (17,543)
Net loss per share, excluding deemed dividend.................................. (3.15) (2.96)
</TABLE>
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 Website focusing on mental health issues
while Code Stone provides much of the interactive technology used on Online
Psych's Website.
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.
A-46
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
The summarized segment information, as of and for the three months ended
June 30, 1999, is as follows:
<TABLE>
<CAPTION>
MEDIA E-COMMERCE TOTAL
--------- ---------- ---------
(DOLLARS IN THOUSANDS)
<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:
<TABLE>
<CAPTION>
MEDIA E-COMMERCE TOTAL
--------- ---------- ---------
(DOLLARS IN THOUSANDS)
<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>
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.
A-47
<PAGE>
VILLAGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The pro forma financial information gives effect to the following
transactions.
ACQUISITION OF MINORITY INTEREST OF IBABY, INC.
On February 10, 1999, iVillage Inc. entered into an agreement to purchase
all of the outstanding shares of iBaby, Inc. held by the minority stockholders
in exchange for approximately $11.0 million. The purchase price is comprised of
$8 million in cash and common stock having an aggregate value of $3.0 million.
iVillage paid $1.5 million on February 12, 1999, with the remaining
$6.5 million being payable within two business days of the closing of iVillage's
initial public offering of common stock ("IPO") and receipt by iVillage, of at
least $6.5 million of IPO proceeds. The number of shares to be issued were
dependent upon the IPO price per share, less underwriters' discount.
The acquisition of the minority interest of iBaby has been accounted for as
a purchase. As iVillage has held a majority interest and control of iBaby since
April 1998, the results of operations have already been reflected in iVillage's
consolidated financial statements.
ACQUISITION OF ASTROLOGY.NET
On February 18, 1999, the Company acquired all of the outstanding stock of
KnowledgeWeb, Inc. d/b/a/ Astrology.Net ("Astrology.Net"), an Internet content
provider, in exchange for 802,125 shares of iVillage's common stock and
$1 million in cash. The Astrology.Net Agreement also provides for employment,
non-compete and stock option agreements for the founding stockholders of
Astrology.Net.
The terms of the agreement are such that 326,331 of the shares of common
stock were issued up-front and the remaining 475,794 will be placed into escrow
to be released to the stockholders of Astrology.Net within a period of five
years. The release from escrow will be accelerated dependent on Astrology.Net
meeting revenue targets. In the event there is no acceleration of the release of
these shares by the end of the five-year term, all remaining shares in escrow
will be released to Astrology.Net's stockholders. In addition, all outstanding
options to purchase Astrology.Net common stock were converted into non-qualified
options to purchase an aggregate of 31,208 shares of iVillage common stock.
In addition to the shares issued, the Company has issued the founding
stockholders of Astrology.Net who will continue as employees of Astrology.Net
options to purchase 150,000 shares of iVillage common stock at an exercise price
equal to the IPO price. These options vest over a period of seven years, with
accelerated vesting dependent on Astrology.Net meeting certain revenue targets,
however, they are contingent on continued employment with iVillage.
The acquisition has been accounted for as a purchase with an estimated
purchase price of approximately $21.0 million, based on a value of the Company's
common stock of $24.00 a share and an estimate for the value of the
Astrology.Net options assumed by iVillage. The difference between the purchase
price and the fair value of the acquired net assets of Astrology.Net has been
recorded as goodwill and amortized over the period of expected benefit.
NBC AGREEMENT
On March 9, 1999, the Company and National Broadcasting Company, Inc.
("NBC") entered into an agreement to amend, subject to closing conditions, the
November 11, 1998 advertising and promotion agreement with NBC which included,
among other things, the issuance of 4,889,030 shares of Series E Convertible
Preferred Stock.
A-48
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION--(CONTINUED)
ONLINE PSYCH
On June 30, 1999, iVillage acquired Online Psychological Services, Inc. and
Code Stone Technologies, Inc. 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 at approximately
$28.5 million under the purchase method of accounting. The difference between
the purchase price and the fair value of the acquired net assets of Online Psych
will be recorded as goodwill and amortized over the period of expected benefit
which is estimated at three years. For purposes of the following unaudited pro
forma condensed consolidated financial statements, Online Psych and Code Stone
are collectively referred to as "Online Psych".
LAMAZE PUBLISHING
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 consisted of 1,748,791 shares of iVillage common stock,
subject to certain adjustments, and approximately $5 million to repay debt. The
difference between the purchase price of $101.3 million as calculated according
to generally accepted accounting principles and the fair value of the acquired
net assets of Lamaze Publishing will be recorded as goodwill and amortized over
the period of expected benefit which is estimated at ten years.
The accompanying unaudited pro forma condensed consolidated financial
statements illustrate the effect of all of the events discussed above as if they
had occurred on January 1, 1998 for the unaudited pro forma condensed
consolidated statements of operations. The unaudited pro forma condensed
consolidated balance sheet gives effect to the acquisition of Lamaze Publishing
as if it had occurred on June 30, 1999.
The unaudited pro forma condensed consolidated financial statements have
been included as required by the rules of the Securities and Exchange Commission
and are provided for comparative purposes only. The unaudited pro forma
condensed consolidated financial statements do not purport to be indicative of
the results of operations or financial position that would have been obtained if
the transactions had been effected on the date indicated or which may be
obtained in the future.
The accompanying unaudited pro forma condensed consolidated financial
statements should be read in connection with the audited and unaudited
historical financial statements of iVillage which are contained elsewhere in
this appendix.
A-49
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
IVILLAGE INC. AND LAMAZE PRO FORMA
SUBSIDIARIES PUBLISHING ADJUSTMENTS PRO FORMA
----------------- ---------- ----------------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 85,279 $ 85 1(a) $(4,720) $ 80,644
Accounts receivable, net.............................. 2,843 2,191 5,034
Prepaid expenses and other current assets............. 1,162 2,646 3,808
--------- -------- ----------------------- ---------
Total current assets............................... 89,284 4,922 (4,720) 89,486
Fixed assets, net..................................... 6,968 2,216 9,184
Other assets.......................................... 189 189
Prepaid distribution costs............................ -- 65 -- 65
Goodwill and intangible assets, net................ 61,631 402 1(b) 101,279 163,312
--------- -------- ----------------------- ---------
Total assets....................................... $ 158,072 $ 7,605 $96,559 $ 262,236
--------- -------- ----------------------- ---------
--------- -------- ----------------------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Accounts payable and accrued expenses................. $ 10,398 $ 2,708 1(f) $350 $ 13,456
Capital leases payable................................ 73 -- -- 73
Deferred revenue...................................... 2,117 4,345 1(g) -- 6,462
Other current liabilities............................. 192 2,552 1(c) (2,552) 192
--------- -------- ----------------------- ---------
Total current liabilities.......................... 12,780 9,605 (2,202) 20,183
Long term debt and Shareholders' loans................ -- 2,168 1(c) (2,168) --
--------- -------- ----------------------- ---------
Total liabilities.................................. 12,780 11,773 (4,370) 20,183
--------- -------- ----------------------- ---------
Commitments and Contingencies
Stockholder's equity:
Common stock.......................................... 243 534 1(d) (534) 260
1(e) 17
Additional paid-in capital............................ 302,430 -- 1(e) 96,744 399,174
Accumulated deficit................................... (134,549) (4,702) 1(d) 4,702 (134,549)
Stockholders' notes receivable........................ (14,681) -- -- (14,681)
Unearned compensation and deferred
advertising........................................ (8,151) -- -- (8,151)
--------- -------- ----------------------- ---------
Total stockholder's equity......................... 145,292 (4,168) 100,929 242,053
--------- -------- ----------------------- ---------
Total liabilities and stockholders' equity......... $ 158,072 $ 7,605 $96,559 $ 262,236
--------- -------- ----------------------- ---------
----------------- ---------- ----------------------- ---------
</TABLE>
A-50
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
IVILLAGE
INC.
AND ASTROLOGY.NET LAMAZE ONLINE PRO FORMA
SUBSIDIARIES (4) PUBLISHING(4) PSYCH(4) ADJUSTMENTS PRO FORMA
------------ ---------------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $ 15,012 $ 848 $ 11,212 $ 221 $ -- $ 27,293
Cost of revenues......... 12,403 204 5,488 155 18,250
-------- ------ --------- ------ --------- ---------
Gross margin........... 2,609 644 5,724 66 -- 9,043
-------- ------ --------- ------ --------- ---------
Operating expenses:
Product development and
technology........... 2,118 -- -- -- -- 2,118
Sales and marketing.... 28,523 127 2,666 4 -- 31,320
General and
administrative....... 10,612 537 2,812 323 -- 14,284
Depreciation and
amortization......... 5,683 91 830 4 2(a) 10,112 37,603
-------- ------ --------- ------ --------- ---------
2(a) 3,670
2(a) 6,970
2(a) 10,243
---------
Total operating
expenses............. 46,936 755 6,308 331 30,995 85,325
-------- ------ --------- ------ --------- ---------
Loss from operations... (44,327) (111) (584) (265) (30,995) (76,282)
Interest income
(expense), net......... 591 (299) (3) 2(b) 299 588
Loss on sale of Web
site................... (504) -- -- -- (504)
Minority interest........ 587 -- -- (587) --
-------- ------ --------- ------ --------- ---------
Net loss............... $(43,653) $ (111) $ (883) $ (268) $ (31,283) $ (76,198)
-------- ------ --------- ------ --------- ---------
-------- ------ --------- ------ --------- ---------
Basic and diluted net
loss per share
attributable to common
stockholders........... $ (2.59) $ (3.51)
-------- ---------
-------- ---------
Weighted average shares
of common stock 2(d) 577
outstanding used in 2(d) 1,630
computing basic and 2(d) 125
diluted net loss per 2(d) 802
share.................. 16,854 2(d) 1,750 21,738
-------- --------- ---------
-------- --------- ---------
</TABLE>
A-51
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
IVILLAGE
INC.
AND ASTROLOGY.NET LAMAZE ONLINE PRO FORMA
SUBSIDIARIES (4) PUBLISHING(4) PSYCH(4) ADJUSTMENTS PRO FORMA
------------ ---------------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $ 14,572 $ 190 $ 6,403 $ 171 $ -- $ 21,336
Cost of revenues......... 9,112 124 3,393 56 12,685
-------- ------ --------- ------ --------- ---------
Gross margin........... 5,460 66 3,010 115 -- 8,651
-------- ------ --------- ------ --------- ---------
Operating expenses:
Product development and
technology. 3,038 -- -- -- -- 3,038
Sales and marketing.... 23,206 29 1,327 8 -- 24,570
General and
administrative....... 7,872 64 1,461 92 -- 9,489
Depreciation and
amortization......... 7,513 9 435 2 3(a) 5,056 19,473
-------- ------ --------- ------ --------- ---------
3(a) 871
3(a) 459
3(a) 5,122
---------
Total operating
expenses............. 41,635 102 3,223 102 11,508 56,570
-------- ------ --------- ------ --------- ---------
Loss from operations... (36,175) (36) (213) 13 (11,508) (47,919)
Interest income
(expense), net......... 1,513 (3) (180) -- 3(b) 180 1,510
-------- ------ --------- ------ --------- ---------
Net loss............... $(34,662) $ (39) $ (393) $ 13 $ (11,328) $ (46,409)
-------- ------ --------- ------ --------- ---------
-------- ------ --------- ------ --------- ---------
Preferred stock deemed
dividend............... (23,612) -- -- -- -- (23,612)
Net loss attributable to
common stockholders.... $(58,274) $ (39) $ (393) $ 13 $ (11,328) $ (70,021)
-------- ------ --------- ------ --------- ---------
-------- ------ --------- ------ --------- ---------
Basic and diluted net
loss per share
attributable common
stockholders........... $ (2.77) $ (2.89)
-------- ---------
-------- ---------
Weighted average shares
of common stock 577
outstanding used in 214
computing basic and 29
diluted net loss per 625
share.................. 21,027 3(c) 1,749 24,221
-------- ---------
-------- ---------
</TABLE>
A-52
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. The pro forma adjustments to the unaudited pro forma condensed consolidated
balance sheet as of June 30, 1999 are as follows:
a) Adjustment to cash, for the cash portion of the acquisition price, of
approximately $4,720 for Lamaze Publishing.
b) Adjustment to goodwill and intangible assets to reflect the excess of
the purchase price over the fair value of net assets acquired of Lamaze
Publishing, calculated as follows:
<TABLE>
<CAPTION>
LAMAZE
--------
<S> <C>
Cash portion of purchase price................................................... $ 4,720
Value of stock and option portion of purchase price.............................. 96,761
Acquisition costs................................................................ 350
--------
Purchase price................................................................... 101,831
--------
Fair value of net assets to be acquired.......................................... 552
--------
Goodwill and intangible assets................................................... $101,279
--------
--------
</TABLE>
- ------------------
* The value of the common stock to be issued in connection with the
acquisition of Lamaze Publishing was estimated as $55.24, the average
value of the iVillage common stock surrounding the date the terms of the
acquisition were agreed to.
The allocation of the purchase price to the assets and liabilities
acquired are preliminary. Final allocations will be based on appraisal
and other analyses of fair values. The final allocation may differ from
the amounts reflected above.
c) Adjustment to remove the short-term and long-term notes payable of
Lamaze Publishing that are to be paid off by iVillage on the date of
acquisition.
d) Adjustment to reflect the elimination of all of the stockholders' equity
balances of Lamaze Publishing.
e) Adjustment to reflect the issuance of 1,748,791 shares of iVillage
common stock for the acquisition of Lamaze Publishing.
f) Adjustment to record the estimated acquisition expenses incurred by
iVillage of approximately $350.
2. The pro forma adjustments to the unaudited pro forma condensed consolidated
statement of operations for the year ended December 31, 1998 are as follows:
a) Adjustment to depreciation and amortization of goodwill of $10,112,
$3,670, $6,970 and $10,243 resulting from the acquisitions of Lamaze
Publishing, iBaby, Astrology.Net and Online Psych, respectively, over
the expected period of benefit (three years for iBaby, Astrology.Net and
Online Psych and ten years for Lamaze Publishing).
b) Adjustment to remove Lamaze Publishing interest expense of $299,
assuming all notes were paid off by iVillage on January 1, 1998.
c) Adjustment to minority interest of $587 to add back the net loss
previously attributed to the minority stockholders of iBaby.
d) Adjustment to weighted average shares of common stock outstanding used
in computing basic and diluted net loss per share to reflect the
issuance of approximately 802,000, 125,500, 1,750,000 and 577,000 shares
of common stock, in connection with the acquisitions of
A-53
<PAGE>
IVILLAGE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)--(CONTINUED)
Astrology.Net, iBaby, Lamaze Publishing and Online Psych, respectively,
and the 1,629,676 shares issued to NBC in connection with the
advertising and promotion agreement as of January 1, 1998.
3. The pro forma adjustments to the unaudited pro forma condensed consolidated
statement of operations for the six months ended June 30, 1999 are as follows:
a) Adjustment to reflect the amortization of goodwill of $5,056, $459, $871
and $5,122 resulting from the acquisitions of Lamaze Publishing, iBaby,
Astrology.Net and Online Psych, respectively, over the expected period
of benefit (three years for iBaby, Astrology.Net and Online Psych and
ten years for Lamaze Publishing).
b) Adjustment to remove Lamaze Publishing interest expense of $180,
assuming all notes were paid off by iVillage on January 1, 1998.
c) Adjustment to reflect weighted average shares of common stock
outstanding used and computing basic and diluted net loss per share.
This adjustment reflects the issuance of approximately 802,000, 125,500,
1,750,000 and 577,000 shares of common stock, in connection with the
acquisitions of Astrology.Net, iBaby, Lamaze Publishing and Online
Psych, respectively, and the issuance of 1,629,676 shares to NBC in
connection with the NBC agreement.
4. Represents the historical results of operations of Astrology.Net, Lamaze
Publishing and Online Psych for the year ended December 31, 1998.
5. Represents the historical results of operations of Astrology.Net, Lamaze
Publishing and Online Psych for the periods ended February 18, 1999, June 30,
1999 and June 30, 1999, respectively.
A-54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
iVillage Inc. and Subsidiaries:
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholder's (deficit) equity and cash flows present fairly, in all
material respects, the financial position of Health ResponseAbility Systems,
Inc. (the "Company") at December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the two years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
December 23, 1998
A-55
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MAY 29,
-------------------- -----------
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash............................................ $ 91,265 $188,696 $ 205,641
Certificates of deposit......................... 100,000 108,621 --
Accounts receivable............................. -- 119,854 9,299
Other current assets............................ -- 1,467 --
-------- -------- ---------
Total current assets.............................. 191,265 418,638 214,940
Fixed assets, net................................. 35,092 22,806 48,044
Stockholder notes receivable...................... 20,000 -- --
Other assets...................................... 2,256 2,256 2,256
-------- -------- ---------
Total assets...................................... $248,613 $443,700 $ 265,240
-------- -------- ---------
-------- -------- ---------
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued expenses........... $ 50,626 $ 74,863 $ 61,269
Employee retirement plan payable................ -- 71,000 --
Deferred revenue................................ 33,333 -- --
Accrued interest................................ 15,146 35,396 43,662
Note payable, less unamortized discount of
$67,902, $13,580 and $0 (unaudited) in 1995,
1996 and 1997, respectively................... 202,098 256,420 270,000
-------- -------- ---------
Total current liabilities......................... 301,203 437,679 374,931
-------- -------- ---------
Commitments
Stockholder's (deficit) equity:
Common stock, par value $.01, 10,000 shares
authorized, 1,000 shares issued and
outstanding..................................... 10 10 10
Additional paid-in capital........................ 108,643 108,643 108,643
Accumulated deficit............................... (89,243) (30,632) (146,344)
Stockholder notes receivable...................... (72,000) (72,000) (72,000)
-------- -------- ---------
Total stockholder's (deficit) equity.............. (52,590) 6,021 (109,691)
-------- -------- ---------
Total liabilities and stockholder's (deficit)
equity.......................................... $248,613 $443,700 $ 265,240
-------- -------- ---------
-------- -------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-56
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, PERIOD ENDED MAY 29,
--------------------- ---------------------
1995 1996 1996 1997
--------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues..................................... $ 439,756 $942,181 $362,769 $ 362,741
--------- -------- -------- ---------
Operating expenses:
Production and content..................... 93,700 457,449 148,116 220,574
Sales and marketing........................ 5,581 48,589 10,681 7,955
General and administrative................. 388,382 322,255 87,269 234,519
--------- -------- -------- ---------
Total operating expenses................ 487,663 828,293 246,066 463,048
--------- -------- -------- ---------
(Loss) income from operations................ (47,907) 113,888 116,703 (100,307)
Interest expense, net........................ (52,205) (55,277) (17,492) (15,405)
--------- -------- -------- ---------
Net (loss) income....................... $(100,112) $ 58,611 $ 99,211 $(115,712)
--------- -------- -------- ---------
--------- -------- -------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-57
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
STATEMENTS OF STOCKHOLDER'S (DEFICIT) EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCKHOLDER
---------------- PAID IN ACCUMULATED NOTES
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE TOTAL
------ ------ ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995.......... 1,000 $ 10 $ -- $ 10,869 $ -- $ 10,879
Issuance of warrants to AOL in
connection with note........... 108,643 108,643
Stockholder notes receivable... (72,000) (72,000)
Net loss....................... (100,112) (100,112)
------ ---- -------- --------- --------- ---------
Balance at December 31, 1995........ 1,000 10 108,643 (89,243) (72,000) (52,590)
Net income..................... 58,611 58,611
------ ---- -------- --------- --------- ---------
Balance at December 31, 1996........ 1,000 10 108,643 (30,632) (72,000) 6,021
Net loss (unaudited)................ (115,712) (115,712)
------ ---- -------- --------- --------- ---------
Balance at May 29, 1997
(unaudited).................... 1,000 $ 10 $108,643 $(146,344) $ (72,000) $(109,691)
------ ---- -------- --------- --------- ---------
------ ---- -------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-58
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, PERIOD ENDED MAY 29,
---------------------- ----------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income...................................... $(100,112) $ 58,611 $ 99,211 $(115,712)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation........................................ 22,702 22,590 8,770 24,427
Non-cash interest on note payable................... 55,887 74,572 30,900 21,846
Changes in operating assets and liabilities:
Accounts receivable............................... -- (119,854) (50,002) 110,55
Other assets...................................... (1,339) (1,467) (7,459) 1,467
Stockholder notes receivable...................... (20,000) 20,000 -- --
Deferred revenue.................................. 33,333 (33,333) (33,333) --
Accounts payable and accrued expenses............. 50,626 24,237 (35,234) (13,594)
Employee retirement plan payable.................. -- 71,000 -- (71,000)
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities................................... 41,097 116,356 12,853 (42,011)
--------- --------- --------- ---------
Cash flows from investing activities:
Certificates of deposit................................ (100,000) (8,621) (5,586) 108,621
Purchase of fixed assets............................... (57,794) (10,304) (3,296) (49,665)
--------- --------- --------- ---------
Net cash (used in) provided by investing
activities................................... (157,794) (18,925) (8,882) 58,956
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from note payable............................. 270,000 -- -- --
Stockholder notes receivable........................... (72,000) -- -- --
--------- --------- --------- ---------
Net cash provided by financing activities ........ 198,000 -- -- --
--------- --------- --------- ---------
Net increase in cash for the period...................... 81,303 97,431 3,971 16,945
Cash, beginning of period................................ 9,962 91,265 91,265 188,696
--------- --------- --------- ---------
Cash, end of period...................................... $ 91,265 $ 188,696 $ 95,236 $ 205,641
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-59
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Health ResponseAbility Systems, Inc. (the "Company") was incorporated in
the State of Virginia on August 22, 1994 and commenced operations on January 1,
1995. The Company is engaged in the development of health-related programming
material for distribution through online service providers and the Internet.
As discussed in Note 8, all of the outstanding shares of the Company were
acquired by iVillage Inc. ("iVillage") on May 29, 1997. These financial
statements do not include any adjustments in connection with the sale.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company's revenues have been derived primarily from America Online,
Inc. ("AOL") customers visiting the Company's site on the AOL online service and
are recognized as they are earned (based upon visitations to the site) and
reported to the Company by AOL. Usage revenues received from AOL totaled
approximately $343,822 and $618,644 for the years ended December 31, 1995 and
1996, respectively. In addition, the Company has derived revenues from the
design of customer web sites. Revenues from such design work is recognized over
the term of service of each contract.
FIXED ASSETS
Depreciation of computer equipment and software and furniture and fixtures
is provided for by the straight-line method over their estimated useful lives
ranging from three to five years. The cost of additions and betterments is
capitalized, and repairs and maintenance costs are charged to operations in the
periods incurred. Depreciation expense has been included in general and
administrative expense.
INCOME TAXES
The Company has elected to be treated as an "S" corporation for both
Federal and State of Virginia tax purposes. Accordingly, corporate income or
loss is included in the stockholder's individual tax return based upon her
ownership interest.
CASH
Cash includes money market accounts and all highly liquid investments
purchased with original maturities of three months or less. Certificates of
deposit with maturities greater than three months are classified as such on the
balance sheet. The Company maintains its cash balances in a highly rated
financial institution.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and accounts receivable. Cash is
deposited with high-credit, quality financial institutions. The Company's
accounts receivable are derived from revenue earned from customers located in
the U.S. and are denominated in U.S. dollars.
AOL accounted for approximately 78% and 66% of revenue for the years ended
December 31, 1995 and 1996, respectively, and approximately 63% of accounts
receivable at December 31, 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including
cash, certificates of deposit, accounts receivable, accounts payable and accrued
liabilities and note payable, approximate fair value because of their short
maturities.
A-60
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Significant
estimates made by the Company include the valuation of the warrant issued and
the useful lives and recoverability of fixed assets.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The financial statements as of May 29, 1997 and for the periods ended
May 29, 1996 and 1997 are unaudited but have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim financial
statements which do not include all disclosures required by GAAP for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. The results of operations of any interim period are not
necessarily indicative of the results of operations for the full year.
COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets) during a period
from non-owner sources. To date, the Company has not had any transactions that
are required to be reported in comprehensive income.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current period presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). This statement establishes standards for the way companies report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The disclosure prescribed by SFAS No. 131
is effective for the year ending December 31, 1998. The Company has determined
that it does not have any separately reportable business segments as of May 29,
1997.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use,"
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company does
not expect that the adoption of SOP No. 98-1 will have a material impact on its
financial statements.
A-61
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MAY 29,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software.................................. $ 45,195 $ 54,775 $ 70,992
Furniture and fixtures........................................... 12,682 13,406 45,454
-------- -------- ---------
57,877 68,181 116,446
Less, accumulated depreciation................................... (22,785) (45,375) (68,402)
-------- -------- ---------
$ 35,092 $ 22,806 $ 48,044
-------- -------- ---------
-------- -------- ---------
</TABLE>
Depreciation of fixed assets was approximately $22,702 and $22,590 for the
years ended December 31, 1995 and 1996, respectively.
4. RELATED PARTY TRANSACTIONS
In January 1995, the Company loaned $29,700 to its sole stockholder who
also serves as an officer to the Company (the "Stockholder"). Interest is
payable annually at the rate of 7.92% per annum. This note was not paid until
the sale of the Company and, therefore, is recorded as a reduction of
stockholder's equity.
In February 1995, the Company loaned $20,000 to the Stockholder. Interest
is payable annually at the rate of 7.96% per annum. This note was not paid until
the sale of the Company and, therefore, is recorded as a reduction of
stockholder's equity.
In May 1995, the Company loaned $10,000 to the Stockholder. Interest is
payable annually at the rate of 7.12% per annum. The principal balance and
interest due on this note was repaid in full in July 1996.
In June 1995, the Company loaned $10,000 to the Stockholder. Interest is
payable annually at the rate of 6.83% per annum. The principal balance and
interest due on this note was repaid in full in July 1996.
In December 1995, the Company loaned $22,300 to the Stockholder. Interest
is payable annually at the rate of 5.91% per annum. This note was not paid until
the sale of the Company and, therefore, is recorded as a reduction of
stockholder's equity.
In 1995, the Company entered into a consultant agreement with the spouse of
the Stockholder, in which the Company paid the consultant $80,000 during the
year. In 1996, this consultant became an officer of the Company.
5. AOL NOTE PAYABLE
In April 1995, the Company entered into a promissory note agreement with
AOL whereby the Company received cash of $270,000 ("AOL Note"). Interest, at a
rate of 7.5% per annum, and principal, are payable on the earlier of demand or
April 2005. If payment is demanded, then such payment will be payable in 24
equal monthly installments of principal and interest beginning on the fifth day
following such demand.
In connection with the AOL Note, the Company issued a warrant (the "AOL
Warrant") to purchase a certain amount of shares of the Company's preferred
stock at a certain exercise price, both of which are based on a formula in the
warrant agreement. The Company recorded an unamortized discount of $108,643
which has been amortized as interest expense using the interest method. The AOL
Warrant
A-62
<PAGE>
HEALTH RESPONSEABILITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
was valued using the Black-Scholes option pricing model. As discussed in
Note 8, the AOL Note and the AOL Warrant were cancelled as part of the sale of
the Company in May 1997.
Interest expense, including amortized discount related to the issuance of
the AOL Warrant, charged to operations for the year ended December 31, 1995 and
1996 was $55,887 and $74,572, respectively.
6. COMMITMENTS
LEASES
The Company leases office space in Herndon, Virginia, under a
non-cancelable operating lease expiring in June 1998. The following is a
schedule of future minimum lease payments under the lease as of December 31,
1996:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S> <C>
1997.......... $53,920
1998.......... 27,769
-------
$81,689
-------
-------
</TABLE>
Rent expense was approximately $9,898 and $16,073 for the years ended December
31, 1995 and 1996, respectively.
7. CAPITAL STOCK
At December 31, 1996, the authorized capital stock of the Company consists
of 10,000 shares of common stock, $0.01 par value per share. Upon formation of
the Company, 1,000 shares of common stock were issued to the founder.
8. SUBSEQUENT EVENT
On May 29, 1997, all of the outstanding shares of the Company were acquired
by iVillage in exchange for $2,600,000 in cash, 1,300,200 shares of iVillage
common stock on a pre-split basis, and cash amounts contingent on future
performance levels of the Company and iVillage, which was determined to be
$1,560,000 in January 1998. In addition, iVillage issued 609,000 shares of
common stock on a pre-split basis, to AOL in exchange for the release of the AOL
Note and the cancellation of the AOL Warrant.
A-63
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of KnowledgeWeb, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders equity and cash flows present fairly, in all material
respects, the financial position of KnowledgeWeb, Inc. at December 31, 1998 and
1997, and the results of their operations and cash flows for the years then
ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
January 29, 1999
A-64
<PAGE>
KNOWLEDGEWEB, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents........................................................... $ 103,852 $ 9,718
Accounts receivable, net of allowance of $12,538 and $0 as of December 31, 1998 and
1997, respectively............................................................... 113,855 19,139
Prepaid expenses.................................................................... 1,126 956
Total current assets............................................................. 218,833 29,813
--------- ---------
Property and equipment, net......................................................... 65,057 64,139
Internal use software, net.......................................................... 71,954 44,110
Other assets........................................................................ 5,429 4,027
Total assets..................................................................... $ 361,273 $ 142,089
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................................................................... $ 84,156 $ 12,962
Due to stockholder.................................................................. 121,971 148,184
Current portion of capital lease obligations (Note 5)............................... 17,248 11,947
Accrued expenses and other current liabilities...................................... 66,017 2,032
--------- ---------
Total current liabilities........................................................ 289,392 175,125
Capital lease obligations, net of current obligations (Note 5)................... 22,936 23,478
--------- ---------
Total liabilities................................................................ 312,328 198,603
Commitments and contingencies (Note 5)
Stockholders' Equity
Convertible preferred stock, par value $0.0001 per share; 5,000,000 shares
authorized, 421,880 shares issued and outstanding................................ 42 --
Common stock, par value $0.0001 per share, 25,000,000 shares authorized, 5,111,111
and 4,973,000 shares issued and outstanding as of December 31, 1998 and 1997,
respectively..................................................................... 511 497
Additional paid-in capital.......................................................... 313,552 64,502
Unearned compensation............................................................... (32,268) --
Accumulated deficit................................................................. (232,892) (121,513)
--------- ---------
Total stockholders' equity/(deficit)............................................. 48,945 (56,514)
--------- ---------
Total liabilities and stockholders' equity..................................... $ 361,273 $ 142,089
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-65
<PAGE>
KNOWLEDGEWEB, INC.
STATEMENTS OF OPERATIONS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Revenues..................................... $ 847,517 $ 403,670
Costs and expenses...........................
Cost of revenues........................... 204,004 35,856
General and administrative expenses........ 754,792 374,023
Interest expense, net...................... 100 78
---------- -----------
Net loss..................................... (111,379) (6,287)
---------- -----------
---------- -----------
Basic and diluted net loss per share......... $ (0.02) $ (0.00)
---------- -----------
---------- -----------
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share................. 5,075,543 4,892,268
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-66
<PAGE>
KNOWLEDGEWEB, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- ------------------ PAID-IN UNEARNED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
------- ------ --------- ------ ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996..................... -- -- 4,600,000 $460 $ 39,540 $ -- $(115,226) $ (75,226)
Issuance of common stock... -- -- 373,000 37 24,962 -- -- 24,999
Net loss................... -- -- -- -- -- -- (6,287) (6,287)
------- ---- --------- ---- -------- -------- --------- ---------
Balance at December 31,
1997..................... -- -- 4,973,000 497 64,502 -- (121,513) (56,514)
Issuance of common stock... -- -- 138,111 14 16,653 -- -- 16,667
Issuance of Series A
convertible preferred
stock at $0.49 per
share.................... 421,880 42 -- -- 177,658 -- -- 177,700
Compensation expense on
option grants
(Note 7)................. -- -- -- -- 54,739 (32,268) 22,471
Net loss................... -- -- -- -- -- -- (111,379) (111,379)
------- ---- --------- ---- -------- -------- --------- ---------
Balance at December 31,
1998..................... 421,880 $ 42 5,111,111 $511 $313,552 $(32,268) $(232,892) $ 48,945
------- ---- --------- ---- -------- -------- --------- ---------
------- ---- --------- ---- -------- -------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-67
<PAGE>
KNOWLEDGEWEB, INC.
STATEMENTS OF CASH FLOWS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................. $(111,379) $ (6,287)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization..................................................... 91,061 66,490
Bad debt expenses................................................................. 12,538 --
Compensation expense on stock option grants....................................... 22,471 --
Changes in operating assets and liabilities:
Accounts receivable, net........................................................ (107,254) (18,269)
Prepaid expenses and other assets............................................... (1,572) (4,689)
Accounts payable................................................................ 135,179 12,932
--------- --------
Net cash provided by operating activities.................................... 41,044 50,177
--------- --------
Cash flows from investing activities:
Purchase of fixed assets............................................................. (15,628) (9,174)
Increase in capitalized software..................................................... (84,757) (46,351)
--------- --------
Net cash used by investing activities........................................ (100,385) (55,525)
--------- --------
Cash flow from financing activities:
Repayment of stockholder loan........................................................ (32,038) (23,087)
Interest accretion on stockholder loans.............................................. 5,825 6,918
Advances by stockholder.............................................................. -- 11,398
Repayment of capital lease obligations............................................... (14,665) (8,241)
Proceeds from issuance of common stock............................................... 16,653 25,000
Proceeds from issuance of convertible preferred stock................................ 177,700 --
--------- --------
Net cash provided by financing activities.................................... 153,475 11,988
--------- --------
Net increase in cash for the period.................................................... 94,134 6,640
Cash and cash equivalents, beginning of year........................................... 9,718 3,078
--------- --------
Cash and cash equivalents, end of year................................................. $ 103,852 $ 9,718
--------- --------
--------- --------
Cash paid for:
Interest............................................................................. $ 12,381 $ 6,910
--------- --------
--------- --------
Income taxes......................................................................... $ -- $ --
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-68
<PAGE>
KNOWLEDGEWEB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
KnowledgeWeb, Inc. (the "Company") is a California corporation organized on
January 4, 1995. The Company owns and operates the internet web site,
Astrology.net. Astrology.net is a web site where users can receive information
on astrology, and obtain astrology charts and reports. The Company conducts its
business primarily in the United States within one industry segment.
The Company's future prospects are subject to the risks and uncertainties
frequently encountered by the companies in the new and evolving markets of the
Internet product and services industry. These risks include the failure to
develop and extend the Company's online services, 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 that
the Company does not successfully overcome these risks, certain assets may not
be recovered.
REVENUE RECOGNITION
The Company generates several types of revenue including the following:
Chart sales
The Company's web site enables users to generate personalized astrology
reports based on the user's particulars. These charts are delivered online to
the customer immediately upon request. Revenue is recognized upon delivery of
the charts and when the collection of the receivables are reasonably assured.
Advertising
Advertising revenues are derived from the sale of banner advertisements on
the Company's web site. The Company recognizes income from these advertisements
over the period in which the advertisements are displayed.
Custom licensing
The Company also generates revenues through the licensing of astrological
reports and editorials to other web sites and publications. Revenues from
licensing are recognized in the period when the editorial is sold.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method for software and the declining balance method for all
other property and equipment over the estimated useful lives of the assets,
generally three to five years.
INTERNAL USE SOFTWARE
The Company capitalizes internally developed software in accordance with
Statement of Position 98-1. These capitalized costs primarily include payroll
and benefits relating to employees engaged in developing the software plus
direct outside costs incurred during the application development stage being
achieved. Internally developed software is amortized on a straight-line basis
over three years, beginning in the year in which the software is placed in
service.
A-69
<PAGE>
KNOWLEDGEWEB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997--(CONTINUED)
STATEMENT OF CASH FLOWS
The Company considers cash equivalents to be short term investments with
original maturities of three months or less.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash and accounts receivable.
Substantially all of the Company's excess cash has been invested in highly
liquid investments.
The Company performs ongoing credit evaluations of its advertising
customers' financial condition and generally does not require collateral on
accounts receivable. The Company maintains allowances for credit losses and such
losses have been within management's expectations. At December 31, 1998 three
customers accounted for a total of 78% of the accounts receivable balance. At
December 31, 1997 one customer represented 75% of the total accounts receivable
balance. The same customer represented 13% and 30% of total revenues for the
years ended December 31, 1998 and 1997, respectively.
INCOME TAXES
The Company calculates its income tax provision in accordance with
Financial Accounting Standards Board (FASB) Statement No. 109. Deferred taxes
are provided on temporary differences between the tax basis of assets or
liabilities and amounts reported in the financial statements.
BASIC AND DILUTED 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 equivalent
shares outstanding during the period. Common equivalent shares consist of the
common shares issuable upon conversion of the convertible preferred stock and
shares issuable upon the exercise of stock options. These common equivalent
shares could potentially dilute basic EPS in the future, however, they were not
included in the current computation of diluted EPS because to do so would have
been anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
SUPPLIER CONCENTRATION
The Company depends on one unrelated supplier for the software that
generates astrology reports and charts. The Company believes that, if necessary,
this supplier could be replaced and that the quality and price of the new
software would be similar.
A-70
<PAGE>
KNOWLEDGEWEB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997--(CONTINUED)
2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Computer equipment and software......................................... $ 155,901 $120,835
Furniture and fixtures.................................................. 7,487 7,487
Motor vehicle........................................................... 12,848 12,848
---------- --------
176,236 141,170
Less accumulated depreciation........................................... (111,179) (77,031)
---------- --------
$ 65,057 $ 64,139
---------- --------
---------- --------
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1997 totaled
$34,148 and $38,148, respectively.
3. DUE TO STOCKHOLDER
One of the stockholders periodically transfers cash and other property to
the Company in exchange for demand notes. In addition, this stockholder
periodically makes payments on behalf of the Company in exchange for demand
notes. These notes are unsecured, and carry a compounded interest rate of 5
percent.
The balance of loans, including accrued interest, at December 31, 1998 and
1997 was $121,971 and $148,184, respectively.
4. INTERNAL USE SOFTWARE
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Internal use software................................................... $ 180,781 $ 96,024
Less accumulated amortization........................................... (108,827) (51,914)
---------- --------
$ 71,954 $ 44,110
---------- --------
---------- --------
</TABLE>
Amortization expense for the years ended December 31, 1998 and 1997 totaled
$56,913 and $32,008, respectively.
5. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
As of December 31, 1998, the Company leases office space under a cancelable
operating lease. Rent expense was $38,624 and $16,761 for the years ended
December 31, 1998 and 1997, respectively.
A-71
<PAGE>
KNOWLEDGEWEB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997--(CONTINUED)
As of December 31, 1998, the Company leased certain computer equipment
under noncancelable capital leases. Future minimum lease payments required under
the capital leases are as follows:
<TABLE>
<S> <C>
1999.................................................................................... $ 26,153
2000.................................................................................... 23,451
2001.................................................................................... 5,029
2002.................................................................................... --
2003 and thereafter..................................................................... --
--------
Total minimum lease payments.......................................................... $ 54,633
Less amount representing interest....................................................... 14,449
--------
Present value of net minimum lease payments............................................. 40,184
Less current portion.................................................................... 17,248
--------
$ 22,936
--------
--------
</TABLE>
The cost of equipment under capital lease included in property and
equipment was $64,656 and $45,218 at December 31, 1998 and 1997, respectively.
Employee Benefits
The Company does not provide postretirement benefits to its employees, nor
does the Company offer company-sponsored savings or pension plans.
6. INCOME TAXES
No provision for federal and state income taxes has been recorded as the
Company has incurred net operating losses through December 31, 1998. The
following table sets forth the primary components of deferred tax assets:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Net operating loss and credit carryforwards............................. $ 86,270 $ 46,495
Nondeductible expenses and reserves..................................... 15,404 5,838
---------- --------
Gross deferred tax assets............................................... 101,674 52,333
Valuation allowance..................................................... (101,674) (52,333)
---------- --------
$ -- $ --
---------- --------
---------- --------
</TABLE>
At December 31, 1998 and 1997, the Company fully reserved its deferred tax
assets. The Company believes uncertainty exists regarding the ultimate
realizability of the deferred tax assets such that a full valuation allowance is
required. If the Company achieves profitability, these net deferred tax assets
would be available to offset future income taxes. Deferred tax assets and
related valuation allowances of approximately $9,000 relate to operating loss
carryforwards resulting from the issuance of employee stock options, the tax
benefit of which, when recognized, will be accounted for as a credit to
additional paid-in capital rather than a reduction of the income tax provision.
At December 31, 1998, the Company had approximately $230,000 of federal net
operating loss carryforwards for tax reporting purposes available to offset
future taxable income; such carryforwards will expire beginning in 2010.
A-72
<PAGE>
KNOWLEDGEWEB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997--(CONTINUED)
7. STOCKHOLDERS' EQUITY
On August 18, 1998, the Company's Board of Directors approved an Amended
and Restated Articles of Incorporation, for the purpose of (i) effecting a 100
for one stock split, (ii) the authorization of the Corporation to issue up to
25,000,000 shares of Common Stock and 5,000,000 of Preferred Stock, and (iii)
the creation of a class of Series A Preferred Stock. It was also determined that
the par value of the Preferred Stock and the Common Stock would be $0.0001 per
share.
STOCK SPLIT
In August 1998, the Company's Board of Directors approved a 100 for one
Common Stock split whereby stockholders of record on September 17, 1998 received
100 shares of Common Stock in exchange for each common share held on that date.
All references to the number of shares of Common Stock, weighted average common
shares, and per share amounts have been retroactively restated in the
accompanying financial statements to reflect the 100 for one split.
PREFERRED STOCK
At December 31, 1998, the Company has authorized 5,000,000 shares of
Preferred Stock, of which 1,300,000 has been designated Series A Convertible
Preferred Stock ("Series A"). The remaining shares of Preferred Stock may be
issued from time to time in one or more series. At December 31, 1998, the
Company has 421,880 Series A shares issued and outstanding.
Holders of Series A were entitled to receive noncumulative, preferential
dividends of $0.0392 per annum, when and if declared by the Board of Directors.
No such dividends were declared. In the event of liquidation, sale of the
Company or corporate reorganization in which the shareholders of the Company do
not own a majority of the outstanding shares of the surviving Company, Series A
shareholders were entitled to a per share distribution in preference to common
shareholders equal to the original issue price per share of $0.49, plus any
declared but unpaid dividends on each such share.
STOCK OPTION PLAN
In August 1998, the Board of Directors adopted the 1998 Stock Incentive
Plan (the "Plan") which provided for the grant of up to 1,000,000 incentive
stock options and non-qualified stock options. Notwithstanding the foregoing, at
any given time the number of shares issuable upon exercise of all outstanding
stock options shall not exceed a number of shares which is equal to 30% of the
then outstanding shares of the Company.
Under the Plan, incentive stock options may be granted to employees,
officers and directors of the Company and non-qualified stock options may be
granted to consultants, employees, directors, and officers of the Company.
Options granted under the Plan must be issued at prices not less than 100% and
85%, for incentive and nonqualified stock options, respectively, of the fair
market value of the stock on the date of grant as determined by the Board of
Directors. The Plan requires that all options be exercised at a rate of not less
than 20% per year, over five years, from the date of grant. Incentive options
granted under the Plan shall vest over a four year period at a rate of 1/16th of
the total shares subject to the option on the first day of each calendar quarter
from the various vesting start dates. All non-qualified stock options were
issued fully vested on the date of grant with the exception of 59,549 shares for
which vesting is contingent upon a future event. Options to purchase 93,629
shares were exercisable at December 31, 1998.
A-73
<PAGE>
KNOWLEDGEWEB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997--(CONTINUED)
A summary of the Plan's activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVAILABLE OPTIONS AVERAGE PRICE
FOR GRANT OUTSTANDING PER SHARE
--------- ----------- -------------
<S> <C> <C> <C>
Balance at December 31, 1997............................... -- -- $ --
Shares reserved............................................ 1,000,000 -- --
Options granted............................................ (228,079) 93,629 0.25
Options exercised.......................................... -- -- --
--------- ------- -----
Balance at December 31, 1998............................... 771,921 93,629 $0.25
--------- ------- -----
--------- ------- -----
</TABLE>
In November 1998, the Company granted options to purchase an aggregate of
228,079 shares of Common Stock at an exercise price of $0.25 per share. Based on
an estimated market price of the stock, $0.49, at grant date, $54,739 of
compensation expense relating to these options is to be recognized, of which
$22,471 was recognized in 1998. The balance of the compensation expense is to be
recognized over the remaining vesting period of the options.
STOCK COMPENSATION
The Company accounts for stock-based compensation in accordance with the
provisions of APB 25. Had compensation expense been determined based on the fair
value at the grant dates, as prescribed in SFAS 123, the Company's net loss
would have been $114,188 and basic and diluted loss per share would have been
$0.02 for the year ended December 31, 1998. The fair value of each option grant
was determined on the date of grant using the minimum value method. The
following assumptions were used to estimate the fair value of stock options
granted to employees: expected life of 30 months; risk free interest rate of
4.55%; and no dividend yield. The weighted average fair value of options granted
to employees at December 31, 1998 is $0.49. For pro forma purposes, the
estimated fair value of the Company's stock options to employees is amortized
over the options vesting period. Because additional stock options are expected
to be granted each year, the above pro forma disclosures are not representative
of pro forma effects on reported financial results for future years.
8. SUBSEQUENT EVENTS
On February 18, 1999, the Company sold 100% of the outstanding stock of the
Company to iVillage Inc. in exchange for 802,125 shares of iVillage Inc. common
stock and approximately $1 million.
A-74
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Lamaze Publishing Company, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' deficit and cash flows present fairly, in all material
respects, the financial position of Lamaze Publishing Company, Inc. (the
"Company") at December 31, 1997 and 1998, and the results of its operations and
its cash flows for each of the years ended December 31, 1997 and 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
June 14, 1999
except for note 10,
as to which the date
is July 13, 1999
A-75
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 187 $ 164 $ 85
Accounts receivable, less allowance of $30,000 and $55,000 and $80,000
(unaudited) in 1997, 1998 and 1999, respectively......................... 1,175 2,000 2,191
Other current assets....................................................... 1,024 1,538 2,646
-------- -------- ---------
Total current assets.................................................. 2,386 3,702 4,922
-------- -------- ---------
Fixed assets, net.......................................................... 1,674 1,997 2,216
Goodwill, net.............................................................. 636 483 402
Other assets............................................................... 12 55 65
-------- -------- ---------
Total assets.......................................................... $ 4,708 $ 6,237 $ 7,605
-------- -------- ---------
-------- -------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses...................................... $ 2,862 $ 2,996 $ 2,708
Deferred revenue........................................................... 2,566 3,288 4,345
Current maturities or long-term debt....................................... -- 234 31
Bank credit line........................................................... 950 1,300 2,240
-------- -------- ---------
Total current liabilities.................................................. 6,378 7,818 9,605
-------- -------- ---------
Long term debt, less current maturities.................................... -- 1,016 938
Stockholders' notes payable, including accrued interest.................... 1,188 1,178 1,230
-------- -------- ---------
Total liabilities..................................................... 7,566 10,012 11,773
-------- -------- ---------
Commitments and contingencies Stockholders' deficit:
Common stock, 40,000 shares authorized, no par value, 36,478 shares issued
and outstanding.......................................................... 534 534 534
Accumulated deficit........................................................ (3,392) (4,309) (4,702)
-------- -------- ---------
Total stockholders' deficit........................................... (2,858) (3,775) (4,168)
-------- -------- ---------
Total liabilities and stockholders' deficit........................... $ 4,708 $ 6,237 $ 7,605
-------- -------- ---------
-------- -------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-76
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTH PERIOD
DECEMBER 31, ENDED JUNE 30,
-------------------- --------------------
1997 1998 1998 1999
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Publishing................................................... $ 3,800 $ 4,325 $ 1,895 $ 2,712
Satellite broadcasting....................................... 2,793 3,750 1,624 1,807
Video........................................................ 1,376 1,605 765 954
Sampling/Coupons............................................. 683 995 470 627
Other........................................................ 247 537 168 303
-------- -------- -------- --------
Total revenue............................................. 8,899 11,212 4,922 6,403
-------- -------- -------- --------
Cost of revenues............................................... 4,144 5,488 2,257 3,393
-------- -------- -------- --------
Gross profit................................................. 4,755 5,724 2,665 3,010
-------- -------- -------- --------
Operating expenses:
Sales and marketing.......................................... 2,145 2,666 1,158 1,327
General and administrative................................... 2,526 2,812 1,357 1,461
Depreciation and amortization................................ 549 830 401 435
-------- -------- -------- --------
Total operating expenses.................................. 5,220 6,308 2,916 3,223
-------- -------- -------- --------
Loss from operations...................................... (465) (584) (251) (213)
-------- -------- -------- --------
Interest expense............................................... (152) (299) (119) (180)
-------- -------- -------- --------
Net loss..................................................... $ (617) $ (883) $ (370) $ (393)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-77
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
AND THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT DEFICIT
------- ------ ----------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997.................................. $31,002 $450 $(2,475) $(2,025)
Issuance of common stock.................................. 604 80 -- 80
Issuance of common stock in connection with business
acquisition............................................ 4,872 4 -- 4
Distributions............................................. -- (300) (300
Net loss.................................................. -- -- (617) (617)
------- ---- ------- -------
Balance at December 31, 1997................................ 36,478 534 (3,392) (2,858)
Distributions............................................. -- -- (34) (34)
Net loss.................................................. -- -- (883) (883)
------- ---- ------- -------
Balance at December 31, 1998................................ 36,478 534 (4,309) (3,775)
Net loss (unaudited)...................................... -- -- (393) (393)
------- ---- ------- -------
Balance at June 30, 1999 (unaudited)........................ $36,478 $534 $(4,702) $(4,168)
------- ---- ------- -------
------- ---- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-78
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTH PERIOD ENDED
DECEMBER 31, JUNE 30,
------------------ --------------------------
1997 1998 1998 1999
------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................................... $ (617) $ (883) $ (370) $ (393)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.............................. 549 830 401 435
Bad debt expense........................................... 30 25 -- --
Changes in operating assets and liabilities:
Accounts receivable...................................... (531) (850) (239) (191)
Other current assets..................................... (2) (514) (513) (1,108)
Accounts payable and accrued expenses.................... 1,639 124 (1,293) (239)
Deferred revenue......................................... (2) 722 855 1,057
------- ------- ------- -------
Net cash provided by (used in) operating activities... 1,066 (546) (1,159) (439)
------- ------- ------- -------
Cash flows from investing activities:
Purchase of fixed assets...................................... (1,152) (991) (376) (565)
Acquisition of a business..................................... (730) -- -- --
------- ------- ------- -------
Net cash used in investing activities................. (1,882) (991) (376) (565)
------- ------- ------- -------
Cash flows from financing activities:
Proceeds from bank term loan.................................. -- 1,250 1,250 --
Borrowings (repayments) under revolving credit facilities..... 950 350 150 940
Payment for debt issuance cost................................ -- (52) (52) (15)
Distributions paid to stockholders............................ (300) (34) -- --
Stockholders' notes payable................................... 200 -- -- --
Proceeds from issuance of common stock........................ 80 -- -- --
------- ------- ------- -------
Net cash provided by financing activities............. 930 1,514 1,348 925
------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents......................................... 114 (23) (187) (79)
Cash and cash equivalents, beginning of period.................. 73 187 187 164
------- ------- ------- -------
Cash and cash equivalents, end of period........................ $ 187 $ 164 $ -- $ 8
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-79
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY:
ORGANIZATION AND BUSINESS
Lamaze Publishing Company, Inc. (the "Company"), publishes magazines
regarding pre- and post-natal educational material which are distributed to over
3.0 million new and expecting parents annually. These are distributed in
childbirth education classes, as well as in hospitals, at no cost. The Company
produces an educational video tape "You and Your Baby" which is distributed to
childbirth educators and reaches 1.8 million expectant parents. The Company
Newborn Channel has exclusive rights to broadcast on closed-circuit television
in approximately 700 hospitals, providing infant care programming to new
mothers. In 1998, the Company launched Lamaze Family Magazine which is expected
to be mailed to 750,000 homes in 1999, targeting families with pre-school
children.
2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES:
REVENUE RECOGNITION
Revenues are principally derived from advertising inserts and are recorded
as follows:
Publishing and Sampling/Coupons--Publications are mailed to Certified Child
Birth Educators for distribution to expecting parents. Revenue is recognized
upon the distribution to expecting parents, which approximates the straight-line
method. The publications are issued twice a year as a Spring/Summer issue and a
Fall/Winter issue.
Satellite Broadcasting--Advertising revenue is recognized monthly based on
the actual number of births per month divided by the number of births specified
in the contract period and multiplied by the contract amount.
Video--Revenue is recognized upon the distribution to expecting parents by
the Certified Child Birth Educators, which approximates the straight-line
method. Videos are shipped in March of each year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include money market accounts and all highly
liquid investments purchased with original maturities of three months or less.
The Company maintains its cash and cash equivalents in highly rated financial
institutions.
FIXED ASSETS
Depreciation of equipment, furniture and fixtures, and purchased computer
software is provided for by the straight-line method over their estimated useful
lives ranging from three to five years. Amortization of leasehold improvements
is provided for over the lesser of the term of the related lease or the
estimated useful life of the improvement. The cost of additions and betterments
are capitalized, and repairs and maintenance costs are charged to operations in
the periods incurred.
GOODWILL
Goodwill consists of the excess of purchase price paid over identified
intangible and tangible net assets of acquired companies. Goodwill is amortized
using the straight-line method over the period of expected benefit, five years.
The Company assesses the recoverability of its goodwill by determining whether
the amortization of the unamortized balance of its remaining life can be
recovered through forecasted cash flows. If undiscounted forecasted cash flows
indicate that the unamortized amounts will not be recovered, an adjustment will
be made to reduce the net amounts to an amount consistent with forecasted future
cash flows discounted at the Company's incremental borrowing rate. Cash flow
forecasts are based on trends of historical performance and management's
estimate of future performance, giving consideration to existing and anticipated
competitive and economic conditions.
A-80
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Amortization expense for goodwill for the years ended December 31, 1997 and 1998
was approximately $127,000 and $153,000, respectively.
INCOME TAXES
The Company has elected to be taxed as an S Corporation as provided for by
the Internal Revenue Code. Under "S" Corporation status, the Company's net
income or loss is taxed to its stockholders.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and accrued
liabilities, approximate fair value because of their short maturities. The
carrying amount of the Company's bank financing obligations approximates the
fair value of such instruments based upon management's best estimate of interest
rates that would be available to the Company for similar debt obligations at
December 31, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates made by the Company include the useful lives of fixed assets and the
recoverability of fixed assets, goodwill and deferred tax assets.
CONCENTRATION OF CREDIT RISK AND OTHER
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash, cash equivalents, and accounts
receivable. The Company's accounts receivable is derived from revenue earned
from customers, principally advertisers, without requiring collateral. The
Company maintains an allowance for potential bad debt based upon the expected
collectibility of all accounts receivable; historically, such losses have not
been significant.
The Company is dependent on a limited number of customers for a significant
part of its revenues. The Company had two customers which accounted for
approximately 18% and 12% of net accounts receivable at December 31, 1997. The
Company had one customer which accounted for 10% of net accounts receivable at
December 31, 1998. The Company had two different customers which individually
accounted for 14% of revenues as of December 31, 1997. The Company had a
different customer which accounted for 18% of revenues as of December 31, 1998.
Additionally, revenues from the Company's ten largest advertisers accounted for
approximately 66% and 63% of total revenues for the year ended December 31, 1997
and 1998, respectively.
RISKS AND UNCERTAINTIES
The Company's operations are subject to certain risks and uncertainties
including actual or prospective competition by entities with greater financial
resources, experience and market presence than the Company, in addition to risks
associated with growth, technology and regulatory matters.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). This statement requires companies to
classify items of other comprehensive income by their nature in the financial
statements and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the statement of operations. SFAS No. 130 is effective for financial
statements issued for fiscal years beginning after December 15,
A-81
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1997. The Company adopted SFAS No. 130 in the first quarter of 1998. The Company
has had no other comprehensive income items to report.
SEGMENT REPORTING
During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 uses a management approach
to report financial and descriptive information about a company's operating
segments. Operating segments are revenue-producing components of the enterprise
for which separate financial information is produced internally for management.
Under this definition, the Company operated as a single segment for all years
presented. The adoption of SFAS 131 did not have a material impact on the
Company's financial position or results of operations.
START-UP COSTS
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start up activities and organization costs to be expensed as incurred. As the
Company has expensed these costs historically, the adoption of this standard did
not have a significant impact on the Company's results of operations, financial
position or cash flow for the six months ended June 30, 1999.
SOFTWARE COSTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
is effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software developed
or obtained for internal use including the requirement to capitalize specific
specified costs and amortization of such costs. The Company does not expect the
adoption of this standard to have a material effect on the Company's
capitalization policy.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company does not expect the adoption of
this statement to have a significant impact on the Company's results of
operations, financial position or cash flows.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The financial statements as of June 30, 1999 and for the periods ended
June 30, 1998 and 1999 are unaudited but have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim financial
statements which do not include all disclosures required by GAAP for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. The results of operations of any interim period are not
necessarily indicative of the results of operations for the full year.
A-82
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FIXED ASSETS:
Fixed assets consist of the following:
($ in 000's)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ ------
<S> <C> <C>
Hospital equipment....................................................... $2,321 $3,111
Office and computer equipment............................................ 121 223
Capitalized software..................................................... 56 92
Furniture and fixtures................................................... 102 118
Leasehold improvements................................................... 56 103
------ ------
2,656 3,647
Less, accumulated depreciation and amortization........................ (982) (1,650)
------ ------
$1,674 $1,997
------ ------
------ ------
</TABLE>
Depreciation and amortization of fixed assets was approximately $422,000 and
$668,000 for the years ended December 31, 1997 and 1998, respectively.
4. BUSINESS ACQUISITION:
THE NEWBORN CHANNEL, L.P.
On February 28, 1997, the Company acquired all of the outstanding stock of
the Newborn Channel, L.P. ("TNCLP") a closed-circuit television channel which
provides information regarding various baby care issues, in exchange for 4,872
shares of the Company's common stock. The cost of the TNCLP acquisition was
allocated to the assets and liabilities assumed based upon their estimated fair
values as follows:
($ in 000's)
<TABLE>
<S> <C>
Working capital............................................................ $(841)
Equipment.................................................................. 808
Goodwill................................................................... 763
-----
$ 730
-----
-----
</TABLE>
The following unaudited pro forma summary presents consolidated results of
operations for the Company as if the acquisition of TNCLP had been consummated
on January 1, 1996. 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.
($ in 000's)
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Revenues................................................................. $9,208 $9,455
Net income (loss)........................................................ $1,047 $ (769)
</TABLE>
5. RELATED PARTY TRANSACTIONS:
NOTES PAYABLE TO STOCKHOLDERS
The Company has received loans from its stockholders payable on demand. As
of December 31, 1998, total principal of $1,099,086 was due to stockholders.
Interest on the amounts advanced accrue at the rate of one percent above the
prime interest rate. Accrued interest at December 31, 1997 and 1998 was $88,504
and $78,871, respectively. Interest expense for 1997 and 1998 was $88,504 and
$107,714, respectively. The stockholders' loans are subordinate to senior bank
debt. The stockholders
A-83
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
have informed the Company that they do not intend to make a demand within the
next twelve months, and are committed to support the operations through 1999.
FEES PAID TO STOCKHOLDERS
The Company has entered into an informal consulting agreement with a
principal stockholder of the Company's common stock. During 1997, approximately
$258,000 was paid in consulting fees related to video production, management and
marketing. During 1998, approximately $108,000 was paid in video production
consulting fees.
6. BANK LOANS PAYABLE:
The Company had the following bank loans outstanding as of December 31:
($ in 000's)
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Term loan................................................................ $ -- $1,250
Secured line of credit................................................... $ 950 $1,300
------ ------
$ 950 $2,550
------ ------
------ ------
</TABLE>
The Company has entered into loan agreements with the Bank of New York (the
"Bank"), providing for a $2.75 million credit facility. The Term Loan Agreement,
dated March 9, 1998, provides for a long-term credit facility of $1.25 million.
The Secured Line of Credit, entered into on February 9, 1998 and renewed on
June 12, 1998, provides for a revolving credit facility of $1.5 million.
The long-term facility includes a $1.25 million term loan (the "Term Loan")
which is payable in 48 equal consecutive monthly installments in the amount of
$26,042 each, the first of which shall be due and payable on April 1, 1999.
Interest accrues at the Bank's prime rate or Eurodollar rate plus a margin of
between 1.5% to 2%, depending on attaining certain bank covenants. On January
21, 1999, the agreement was amended making the first installment payable on July
1, 1999 and extending the Term Loan to July 2003.
The credit facility is collateralized by receivables, inventories,
equipment and certain real property. Under the terms of the Agreement, the
Company is required to maintain certain financial ratios and other financial
conditions. The Agreement also prohibits the Company from incurring certain
additional indebtedness, limits certain investments, advances or loans and
restricts substantial asset sales, capital expenditures and cash dividends.
The revolving credit facility requires payment of interest at the Bank's
prime rate which was 7.50% at December 31, 1998 or Eurodollar rate plus a margin
of between 1.5% to 2%, depending on attaining certain bank covenants. The total
amount of unused revolving credit available to the Company at December 31, 1998
was $200,000. Either party may cancel the line of credit at any time. Unless
cancelled earlier the line of credit shall be available until May 31, 1999. On
January 21, 1999 the credit facility was increased to $2.5 million and extended
until December 31, 1999.
7. STOCK APPRECIATION PLAN:
Under the Company's key employee stock bonus plan, stock appreciation units
("SAU's") were granted to three key employees under terms and conditions as
stated in their respective employment letter. Each employee was granted three
SAU's, one of which shall vest on each of the first three anniversaries provided
they remain employed by the Company as of each anniversary. All SAU's granted
shall vest in full as a result of a merger, consolidation, sale, transfer or
acquisition. The redemption price shall be determined based on a multiple of
earnings before interest and taxes of the
A-84
<PAGE>
LAMAZE PUBLISHING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Company for the period of four consecutive fiscal quarters of the Company
immediately proceedings redemption of such SAU and the number of shares
outstanding at several points in time. The effects of changes in redemption
price during the vesting period are recognized as compensation cost over the
vesting period in accordance with the method illustrated in SFAS 123,
"Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans". Changes in the amount of the liability due to stock price changes
after the vesting period are compensation cost of the period in which the
changes occur. Due to negative earnings before interest and taxes in 1998 and
1997, no compensation expense for fiscal 1998 and 1997 was recorded. During 1997
one employee elected to redeem their SAU's. As a result, the value of the
employee's equity position of $240,000 was paid out, half in January 1998 while
the other half will be paid in January 1999 plus accrued interest.
8. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases office space, under non-cancelable operating lease
expiring in June 2000. The following is a schedule of future minimum lease
payments under the non-cancelable operating lease as of December 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31: 1998
- ------------------------------------------------------------ ------------
($ IN 000'S)
<S> <C>
1999........................................................ $158
2000........................................................ $ 79
----
$237
----
----
</TABLE>
Rent expense was approximately $142,000 and $179,000 for the years ended
December 31, 1997 and 1998, respectively.
LITIGATION
The Company has been involved in litigation relating to claims arising out
of its operations in the normal course of business, including a claim by a
former employee. The Company does not believe that an adverse outcome of any of
these legal proceedings will have a material adverse effect on the Company's
results of operations, financial position or cash flows.
9. CAPITAL STOCK:
COMMON STOCK
In October 1997, the Company issued 604 shares of common stock in exchange
for net proceeds of approximately $80,000.
10. SUBSEQUENT EVENT (UNAUDITED):
On July 13, 1999, the Company entered into a definitive agreement to be
acquired by iVillage Inc., which runs a network of web sites for women, in
exchange for 1.75 million shares of iVillage Common Stock and approximately $5
million in cash to retire certain indebtedness. iVillage Inc. has agreed that in
the event the Company should request financial assistance to fund its
operations, it will provide the necessary funds needed to meet the Company's
minimum working capital requirements for the twelve month period beginning from
the date of the transaction closing. The closing of the transaction is subject
to certain customary closing conditions.
A-85
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Online Psychological Services, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' deficit and cash flows present fairly, in all material
respects, the financial position of Online Psychological Services, Inc. (the
"Company"), at December 31, 1998 and 1997, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
McLean, Virginia
July 16, 1999
A-86
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1998 1997 1999
--------- --------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 8,603 $ 22,643 $ 13,093
Accounts receivable............................... 29,574 19,204 44,439
Due from stockholders............................. 6,771 -- 6,771
--------- --------- ---------
Total current assets.......................... 44,948 41,847 64,303
Equipment......................................... 22,797 19,622 22,797
Less: accumulated depreciation.................... (8,475) (4,703) (9,536)
--------- --------- ---------
14,322 14,919 13,261
--------- --------- ---------
Total assets.................................. $ 59,270 $ 56,766 $ 77,564
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses............. $ 28,088 $ 8,820 $ 30,930
Deferred compensation............................. 130,000 130,000 130,000
Line of credit.................................... 17,066 15,098 15,569
Deferred revenue.................................. 7,667 2,165 7,912
Stockholder loan.................................. 12,260 -- 8,001
--------- --------- ---------
Total current liabilities..................... 195,081 156,083 192,412
--------- --------- ---------
Commitments (Note 5)
Stockholders' deficit:
Common stock, no par value, 1,500 shares
authorized,
issued and outstanding.......................... 244,598 13,323 245,170
Accumulated deficit............................... (380,409) (112,640) (360,018)
--------- --------- ---------
Total stockholders' deficit................... (135,811) (99,317) (114,848)
--------- --------- ---------
Total liabilities and stockholders' deficit... $ 59,270 $ 56,766 $ 77,564
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-87
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------- --------------------------
1998 1997 1999 1998
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
License revenue......................................... $ 112,772 $ 235,652 $33,440 $ 31,046
Advertising revenue..................................... 56,964 17,310 35,070 4,670
Subscription and merchandising revenue.................. 50,893 -- 15,097 5,768
--------- --------- ------- ---------
Total revenue........................................ 220,629 252,962 83,607 41,484
--------- --------- ------- ---------
Operating expenses:
Production, content and product costs................... 65,812 33,456 9,359 14,040
Salary expense.......................................... 387,861 181,392 38,396 43,541
Sales and marketing..................................... 4,208 5,809 6,477 5,111
General and administrative.............................. 23,874 35,118 7,783 6,990
Depreciation............................................ 3,772 3,507 1,061 903
--------- --------- ------- ---------
Total operating expenses............................. 485,527 259,282 63,076 70,585
--------- --------- ------- ---------
Income (loss) from operations............................. (264,898) (6,320) 20,531 (29,101)
Interest expense, net................................... 2,871 2,623 140 263
Net income (loss)......................................... $(267,769) $ (8,943) $20,391 $ (29,364)
--------- --------- ------- ---------
--------- --------- ------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-88
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
------ -------- ----------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1996................................... 1,500 $ 7,055 $(103,697) $ (96,642)
Transfer of common stock from stockholder.................. -- 4,540 -- 4,540
Imputed rent expense contribution.......................... 1,728 -- 1,72
Net loss................................................... -- -- (8,943) (8,943)
------ -------- --------- ---------
Balance, December 31, 1997................................... 1,500 13,323 (112,640) (99,317)
Transfer of common stock from stockholder.................. -- 229,118 -- 229,118
Imputed rent expense contribution.......................... -- 1,728 -- 1,728
Imputed interest on stockholder loan....................... -- 429 -- 429
Net loss................................................... -- (267,769) (267,769
------ -------- --------- ---------
Balance, December 31, 1998................................... 1,500 244,598 (380,409) (135,811)
Imputed rent expense contribution (unaudited).............. -- 432 -- 432
Imputed interest on stockholder loan (unaudited)........... -- 140 -- 140
Net income (unaudited)..................................... -- -- 20,391 20,391
------ -------- --------- ---------
Balance, March 31, 1999 (unaudited).......................... 1,500 $245,170 $(360,018) $(114,848)
------ -------- --------- ---------
------ -------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-89
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------- ----------------------------
1998 1997 1999 1998
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $(267,769) $ (8,943) $ 20,391 $ (29,364)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by.......................
Depreciation..................................... 3,772 3,507 1,061 903
Compensation expense satisfied by issuance of
common stock................................... 229,118 4,540 -- --
Imputed interest................................. 429 -- 140 263
Imputed rent..................................... 1,728 1,728 432 432
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable..... (10,370) 2,506 (14,865) (2,441)
Increase (decrease) in accounts payable and
accrued expenses............................ 19,268 6,142 2,842 (1,276)
Increase in deferred compensation.............. -- 10,000 -- --
Increase in deferred revenue................... 5,502 1,884 245 5,838
--------- --------- --------- ---------
Net cash (used in) provided by operating
activities................................ (18,322) 21,364 10,246 (25,645)
--------- --------- --------- ---------
Cash flows from investing activities:
Equipment purchases................................. (3,175) (6,830) -- --
Due from stockholders............................... (6,771) -- -- (347)
--------- --------- --------- ---------
Net cash used in investing activities....... (9,946) (6,830) -- (347)
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from stockholder loan...................... 24,430 20,426 -- 15,02
Payments on stockholder loan........................ (12,170) (25,026) (4,259) --
Net borrowings on line of credit.................... 1,968 2,644 (1,497) 3,174
--------- --------- --------- ---------
Net cash provided by (used in) investing
activities................................ 14,228 (1,956) (5,756) 18,200
--------- --------- --------- ---------
Net (decrease) increase in cash..................... (14,040) 12,578 4,490 (7,792)
Cash, beginning of period........................... 22,643 10,065 8,603 22,643
--------- --------- --------- ---------
Cash, end of period................................. $ 8,603 $ 22,643 $ 13,093 $ 14,851
--------- --------- --------- ---------
--------- --------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............ $ 2,435 $ 2,567 $ -- $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
A-90
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Online Psychological Services, Inc., (the "Company") is an interactive
media company specializing in the online development of content related to
mental health issues. The Company was incorporated in the state of Delaware on
January 29, 1996 to develop programming material for distribution through online
service providers and the Internet and is involved in the sale of products
through Internet commerce.
The Company and its stockholders entered into a definitive agreement with
iVillage Inc. ("iVillage") pursuant to which the Company was acquired by
iVillage effective June 30, 1999 (the "Acquisition"). All outstanding shares of
the Company were exchanged for cash and stock. These financial statements and
footnotes are those of the Company prior to the Acquisition and do not reflect
any purchase accounting adjustments or other transactions related to the
Acquisition (see Note 6).
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 or
advertisers, and the inability of the Company to maintain and increase the
levels of traffic on its online services. In the event the Company does not
successfully implement its business plan, certain assets may not be recoverable.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
The Company considers all highly liquid investments with an original
maturity of three months or less at the time of purchase to be cash and cash
equivalents. The Company has no cash equivalents at December 31, 1998 or 1997.
Equipment
Equipment, which consists of office computers and peripherals, is stated at
cost. The cost of additions and improvements are capitalized, while maintenance
and repairs are charged to expense when incurred. Depreciation is computed using
the straight-line method based on the estimated useful life of three years. Upon
retirement or sale, the carrying amount of assets disposed of and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in the related period of operations. Long-lived assets held
and utilized by the Company are reviewed for impairment whenever changes in
circumstances indicate the carrying value of such assets may not be recoverable.
Income Taxes
The Company has elected to be treated as an S Corporation for federal and
state income tax purposes and accordingly, any liabilities for income taxes are
the direct responsibility of the stockholders.
Stock Based Compensation
The Company accounts for stock based compensation in accordance with the
provisions of Accounting Principals Board Opinion ("APB") No. 25, Accounting for
Stock Issued to Employees, and complies with the disclosure provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation, for non employee compensation. Under SFAS No. 123,
compensation cost for an award of equity instruments to an employee shall be
recognized over the period(s) in which the related employee services were
rendered and if the award is for past services,
A-91
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the related compensation cost shall be recognized in the period in which the
equity instrument is granted.
Revenue Recognition
The Company's revenues are derived principally from licenses for the use,
marketing and distribution of its web site content; the sale of banner
advertisements; subscriptions and merchandise sales. Revenue from traffic-based
license fees is recognized upon notification from the third party of web site
traffic related to the Company's content. Revenue from fixed license fees is
recognized ratably over the term of the contracts. Advertising revenue is
recognized based on the placement of advertisements by a third party placement
agent. Such revenue is recognized once the advertisement has been placed and as
reported by the third-party placement agent. The Company recognizes the net
revenue received with respect to such content licenses and advertising
activities. Subscription revenue is recognized ratably over the term of the
contracts, which generally range from one month to a year. Revenue generated
from merchandise sales, net of any discounts, is generally recognized upon
shipment. Cash received in advance of revenues earned for subscription and
advertising contracts is recorded as deferred revenue.
Fair Value
The carrying amounts of cash, accounts receivable, accounts payable and
amounts included in other current assets and current liabilities that meet the
definition of a financial instrument, approximate fair value because of the
short-term nature of these amounts.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade accounts receivable.
Receivables are not collateralized and accordingly, the Company performs ongoing
credit evaluations of its customers to reduce the risk of loss.
The Company has a license agreement with an Internet service provider,
which generated revenue approximating 52% and 93% of total revenue for the years
ended December 31, 1998 and 1997, respectively. Primarily all the Company's
receivables at December 31, 1998 and 1997 are from well-established companies.
Substantially all subscribers pay for services with major credit cards for which
the Company receives timely remittances from the credit card carriers. The
Company has not experienced any losses in connection with the collectibility of
its accounts receivable, and accordingly, has made no provision for doubtful
accounts in its financial statements.
Use of Estimates
The financial statements are prepared on the accrual basis of accounting in
conformity with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. The most significant estimate
relates to the valuation of the Company's stock performed by an independent
appraiser. Actual results could differ from those estimates.
Recent Pronouncements
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131") replaces the
industry segment approach under previously issued pronouncements with the
management approach. The management approach designates the internal
organization that is used by management for allocating resources and assessing
A-92
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
performance as the source of the Company's reportable segments. SFAS 131 also
requires disclosures about products and services, geographic areas and major
customers. Currently, the Company has only one reportable segment; the adoption
of SFAS 131 is not expected to significantly impact financial statement
disclosure of the Company.
In March 1998, the American Institute of Certified Public Accountants
issues Statement of Position 98-1 (SOP 98-1) entitled "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
that both internal and external costs incurred to develop internal-use software
during the application development stage be capitalized and amortized over the
estimated useful life of the software. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998 and is not expected to have a material effect
on the Company's financial statements.
Interim Financial Information (unaudited)
Interim financial information for the three months ended March 31, 1999 and
1998 included herein is unaudited. However, the Company believes the interim
information includes all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the results for interim
periods. The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1999.
3. REVOLVING LINE OF CREDIT AGREEMENT
Amounts outstanding under a revolving line of credit were $17,066 and
$15,098 at December 31, 1998 and 1997, respectively. The Company may borrow up
to $20,000 under this line of credit, which will expire October 26, 1999.
Advances on the credit line are payable upon demand and bear interest at prime
plus 6.9%. The line of credit is guaranteed by the Company's Chief Executive
Officer and stockholder. Interest expense for the years ending December 31, 1998
and 1997, was $2,442 and $2,623, respectively. There are no fees on the unused
line.
4. STOCKHOLDERS' EQUITY
During 1997, the Company's founder and Chief Executive Officer transferred
30 shares of his holdings in the Company's Common Stock to an employee at the
estimated fair value of the shares, as determined based upon an independent
valuation, in consideration for services rendered to the Company by the
employee. In connection with the issuance of the 30 shares of Common Stock, the
Company recorded compensation expense of $4,540 for the year ended December 31,
1997.
During 1998, the Company's founder and Chief Executive Officer transferred
757 shares of his holdings in the Company's Common Stock to two employees of the
Company. This transfer was recorded by the Company at the estimated fair value
of the shares, as determined based upon an independent valuation, in
consideration for services rendered to the Company by the employees. In
connection with the transfer of the 757 shares of Common Stock, the Company
recorded compensation expense of $229,118 for the year ended December 31, 1998.
At December 31, 1998, in connection with this transaction, $6,771 is due from
the stockholders as reimbursement for related payroll taxes paid by the Company
on their behalf. Such amount was repaid by the stockholders subsequent to
December 31, 1998.
5. RELATED PARTY TRANSACTIONS
The Company leases web server space from a company that is wholly-owned by
one of its stockholders. This lease expires March 31, 2000. Lease expense was
$32,363 and $22,215 for the years ended December 31, 1998 and 1997,
respectively.
The Chief Executive Officer and stockholder provides corporate office space
to the Company for which he is not reimbursed. Rental expense was imputed, based
on the fair market value of the
A-93
<PAGE>
ONLINE PSYCHOLOGICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
occupied property. Rental expense for the years ended December 31, 1998 and 1997
was $1,728 and $1,728, respectively.
During 1998 and 1997, in the form of a note, the Company received cash
advances of $24,430 and $20,426, respectively, from its Chief Executive Officer
and stockholder for purposes of funding operations. The note is non-interest
bearing for which interest is imputed at 7% per annum, and is payable upon
demand. At December 31, 1998 and 1997, the Company's obligation under this note
was $12,260 and $0, respectively, and interest of $429 and $0, was charged to
expense during the years then ended.
6. SUBSEQUENT EVENT
Effective June 30, 1999, in accordance with the terms of a definitive
agreement (the "Acquisition Agreement"), the Company was acquired by iVillage
Inc. ("iVillage") for $24.8 million. All outstanding shares of the Company were
exchanged for $1.5 million in cash and a number of shares of iVillage common
stock equal to $23.3 million, as defined by the Acquisition Agreement.
Concurrent with the acquisition, the Company's tax status will change from an
S-Corporation to a C-Corporation.
In connection with the closing, the current stockholders of the Company
entered into a Release Agreement with iVillage waiving the payment of $130,000
of deferred compensation and $8,001 representing a stockholder loan.
No effect has been given to these financial statements for adjustments that
have or will take place as a result of the iVillage purchase of the Company.
A-94
<PAGE>
iVILLAGE INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON DECEMBER 15, 1999
The undersigned hereby appoints Candice Carpenter and Steven A. Elkes, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of iVillage Inc. which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of
iVillage Inc. to be held at The 200 Fifth Avenue Club, in the International Toy
Center, 200 Fifth Avenue, New York, New York, on Wednesday, December 15, 1999 at
10:00 a.m. (local time), and at any and all postponements, continuations and
adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1, FOR PROPOSAL 2 AND FOR PROPOSAL 3, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
1. To elect three Class I Directors.
/ / FOR all nominees below / / WITHHOLD AUTHORITY to vote for
(except as marked to the contrary below) all nominees below
NOMINEES: 01 Alan Colner 02 Lennert J. Leader 03 Michael Levy
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
- ------------------------------------ ------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
2. To approve iVillage's Amended and Restated 1999 Employee Stock Option Plan.
/ / For / / Against / / Abstain
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 3.
3. To ratify selection of PricewaterhouseCoopers LLP as independent auditors of
iVillage for its fiscal year ending December 31, 1999.
/ / For / / Against / / Abstain
(see reverse for voting instructions)
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. IT MAY BE REVOKED
PRIOR TO ITS EXERCISE.
RECEIPT OF NOTICE OF THE ANNUAL MEETING AND PROXY STATEMENT IS HEREBY
ACKNOWLEDGED, AND THE TERMS OF THE NOTICE AND PROXY STATEMENT ARE HEREBY
INCORPORATED BY REFERENCE INTO THIS PROXY. THE UNDERSIGNED HEREBY REVOKES ALL
PROXIES HERETOFORE GIVEN FOR SAID MEETING OR ANY AND ALL ADJOURNMENTS,
POSTPONEMENTS AND CONTINUATIONS THEREOF.
PLEASE VOTE, DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
Address Change? Mark Box / /
Indicate Changes Below
-------------------------------------
Dated: , 1999
-----------------------
-------------------------------------
-------------------------------------
Signature(s)
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED IN
THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR TITLES. IF SIGNER IS
A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE A DULY AUTHORIZED
OFFICER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
